Reddick, Florida, is a sluggish town. In the heart of horse country, the town of 500 is halfway between the city of Ocala, a mecca for international horse breeding, and Gainesville, a university town.
Speckled ponies graze listlessly amidst wildflowers on properties with shuttered homes. Gainesville Road runs through the middle of town, where there’s an abandoned school, a one-room library, a Baptist church, an auto parts store, an antique store—and a pharmacy.
Called “Discount Pharmacy,” the barn-red building that resembles a small warehouse is covered in ads that target its demographic: local, senior, and low-income.
“This is not a rich neighborhood,” says Vic Chebrolu, the pharmacist.
Some of their customers don’t have cars, and others can’t spend money on the gas it takes to get there, so the pharmacy makes free deliveries twice a week to homes within a twenty-mile radius. Pharmacies like Discount Pharmacy are quickly disappearing from the American landscape. Considered among the last vestiges of mom and pop stores, small, independently-owned pharmacies—particularly those in rural areas—are being swallowed up by pharmacy-insurance conglomerates like CVS-Aetna and Cigna-Express Scripts.
Critics say the real threat in these mergers is the middleman role of pharmacy benefit managers (PBM)—which Express Scripts technically is. Caremark, another PBM, is owned by CVS. PBMs negotiate drug discounts on behalf of health plans, and they are privy to what people pay for their drugs. Monopolistic by nature, they’ve been known to pocket rebates from drug companies, overcharge health plans for drugs, and short-change reimbursements to non-affiliated pharmacies—especially those that are independently-owned.
“PBMs have a major role on our profits,” Chebrolu said. “The reimbursements are less,” at least compared to those at a CVS in Ocala, where Chebrolu used to work. He left that job last year because he was frustrated by all the layers of management that seemed to render his job more complicated, and less enjoyable because he had little time with customers.
“Here, I know the customers by name. I have more time on my hands, so I can spend more time with each customer,” he said. “I make a lot less money, but I’m happier. I’ll probably have a longer life.”
Chebrolu, who is originally from India and came to America to study, is the only pharmacist in Reddick. He works with a pharmacy technician, plus a cashier. With so few employees, overhead is low, which is one of the factors that Chebrolu attributes to the pharmacy’s survival. Another is customer loyalty.
“Even if they move far away, they still want to use us,” he said. The pharmacy makes long-distance deliveries to long-standing customers and provides consultations to anyone who walks in the door. There’s a proper waiting area with wing-back chairs and coffee tables in the middle of the store. There’s also a blood-pressure cuff, and a large scale placed oddly beneath a rack of 99-cent potato chips. The pharmacy is about to get licensed to administer the flu shot.
The highest-volume prescription drugs are for high blood pressure and diabetes, Chebrolu said. They also stock the basics: cold and allergy medicines, pain relievers, support braces, first aid kits, Benadryl, pregnancy tests, lip balm, mosquito candles. On a ‘dollar wall’ are soaps, detergents, body creams and other supplies.
RURAL PHARMACIES DECLINING
In the last 16 years, 16.1 percent of rural pharmacies have closed, according to a report by the RUPRI Center for Rural Health Policy at the University of Iowa. The report also said that 630 rural communities with at least one pharmacy in 2003 no longer had one in 2018.
The sharpest decline took place between 2007 and 2009 due to the implementation of Medicare D, which essentially replaced direct payments to local pharmacies from cash-paying customers with low and late reimbursements from part D plans. Pharmacies who had relied heavily on prescription sales suddenly lost that revenue stream, the report said.
Keith Mueller, the Director of both RUPRI and the Rural Policy Research Institute at the University of Iowa, and one of the report’s authors, said that other factors have played into more recent pharmacy closures, including the role of PBMs and the way the pricing system works. According to results from a 2017 survey of pharmacies, Mueller said, “The bottom line was, ‘It’s costing us more for us to stock our shelves with medications than we are getting paid from health plans at the point of purchase.”
In rural pharmacies, Mueller added, “there’s been lower volume and less ability to incorporate other retail activity within the same store that can generate an overall margin.”
The role of PBMs in rural pharmacies’ revenue is “still a black box,” Mueller said. Nominally, PBMs negotiate discounts. But it’s unclear who actually benefits from those, he said. “Are they passed through to the local retail pharmacy? Are they passed through to the consumer?”
One of the strategies employed by surviving local pharmacies, Mueller said, is that they’ve joined purchasing groups that enable them to better negotiate with PBMs. Other pharmacies have opened up other retail lines, or they’ve created higher margins for other products, he added. Mueller’s report showed that communities that have lost their pharmacy rely on mail order or tele-pharmacy services; however, both have had a slow uptake.
“It’s more than just how do I get my prescription filled?” Mueller said. “It’s having the ability to have that interaction with the pharmacist that is at risk.”
LEGISLATING AGAINST THE POWER OF PBMS
The Institute for Local Self-Reliance in Portland, Maine, is a nonprofit research and educational organization that’s been invested in supporting local economies for 42 years. It’s a watchdog organization for monopolies and an advocate of antitrust legislation.
PBMs is an area of their research.
“We’ve found that PBMs have directly caused waves and waves of independent pharmacy closures, through gag clauses, spread pricing and other unfair practices,” said Zach Freed, a research associate with the Institute. “They have bled rural independent pharmacies dry.”
“We’ve been tracking closures of rural pharmacies, and in every article that I’ve read, PBM is always cited as the reason. It’s pretty remarkable,” Freed continued.
One way in which PBMs have affected rural pharmacies in particular, he added, is by steering customers away from local pharmacies to mail order services owned by PBMs. Some states have introduced anti-steering legislation, however, or other laws designed to keep PBMs’ power at bay. Washington state, for example, created a law that gives the department of insurance or state board pharmacy the ability to oversee PBMs, Freed said.
Fair pharmacy audit laws establish what constitutes a substantive audit error, as well as an appeals process for pharmacies who think they’ve been unfairly audited, Freed added. That’s especially important to rural pharmacies, since PBMs have gone after them, abusing their ability to audit for minor errors on their books.
PBM-led spread pricing—overcharging for a drug and under-reimbursing a non-chain pharmacy for the same drug—has also incited state legislation to control its negative effect on independent pharmacies, Freed continued.
Freed lauds state legislation, but says, “The most effective remedy for PBM abuse is federal anti-trust action. PBMs have a proven track record of anti-competitive conduct.”
There are encouraging signs at the federal level. The House Judiciary Committee unanimously passed legislation that would order the Federal Trade Commission to undertake a study of competition in the drug supply chain.
Most notably, in October 2018, President Donald Trump signed bipartisan bills making ‘gag clauses’ illegal. These clauses—laid out in contracts between pharmacies and PBMs—were designed to prevent pharmacists from disclosing to a patient whether the out-of-pocket price of a drug would be cheaper than the price under the patient’s insurance plan. PBMs typically pocket the difference. Pharmacies have traditionally suffered steep consequences for violating these gag rules, like losing network contracts, or sanctions.
The two bi-partisan bills, dubbed “Know the Lowest Price Act,” and “The Patient Right to Know Drug Price Act,” received unanimous senatorial consent, and were signed into law on October 10, 2018. As Freed said, “This is one of the rare issues in health care where you see bi-partisan momentum.”
The combined bills cover employer-sponsored and individual health plans, as well as Medicare Advantage and Medicare Part D plans. The bills prohibit insurance plans from forbidding pharmacies from disclosing pricing information to plan enrollees. They also restrict health plans from penalizing pharmacies for sharing pricing information with patients.
During his remarks at the signing, Trump said, “Our great citizens deserve to know the lowest price available at our pharmacies, and now that is what they will be getting. They’ll be able to see pricing. They’ll be able to see where they should go. And as they start leaving certain pharmacies, those pharmacies will be dropping their prices.”
PEOPLE PREFER LOCAL PHARMACIES
The effect of this legislation on in-dependent pharmacies in rural areas remains to be seen, but one thing is clear, at least according to one survey: most Americans, even those in larger cities, prefer local pharmacies to chain stores. According to a December 2018 Consumer Reports’ survey of 78,000 people, independent pharmacies were lauded for courtesy, helpfulness, speed of checkout and filling prescriptions, as well as pharmacists’ knowledge—of both their trade and customers’ needs.
Independent pharmacies often have lower prices than their chain counterparts as well. According to another Consumer Reports survey from April 2018, independently-owned pharmacies on average had some of the cheapest prices for five commonly-prescribed medications—behind only to Costco and the online pharmacy Healthwarehouse.com.
Research has shown that the consultations that people receive at their pharmacies can save them the price of a visit to the doctor or the ER. Plus, people seem to crave the one-on-one contact with a pharmacist they trust.
Chebrolu, in Florida, has experienced this. “They come in for a consultation and leave happy with the information.”