Hi, Yves. The emerging problems with the Biden Administration’s Medicare drug price cap plan are the expected result of trying to find a simple path in a very complex system that we don’t fully understand. We’ve written many times about bias: trying to do something seemingly simple in a very complex system usually backfires. Companies that aim to maximize shareholder value perform worse than those that aim higher (which by the way often also includes customer and product excellence – who would have thought that?).
The problem here is the comical relationship between drug companies, independent pharmacies, pharmacy chains, pharmacy benefit managers, and insurance companies that has institutionalized the squeezing of those with less power. That the U.S. government has long gone along with it is a direct result of the power of the health care lobby, which has more influence than the banks or AIPAC. Matt Stoller has written about price gouging by oligopolistic pharmacy benefit managers:
One way to get a better handle on this issue would be to have pharmacy benefit managers disclose their contracts with any Medicare payment and compliance entities. I don’t know how pharmacy benefit managers can claim a right to secrecy in what are ultimately agreements with the government. But we’ve seen similar secrecy tactics implemented with similar success and similar lack of justification in private equity.
By Susan Jaffe. Originally published in KFF Health News
Months into new Biden administration policies aimed at lowering drug costs for Medicare patients, independent pharmacists say they are struggling to keep prescriptions in stock.
“It doesn’t make any sense for the governor himself to come in and say, ‘We need you to fill this prescription,'” said Clint Hopkins, a pharmacist and co-owner of Pucci Pharmacy in Sacramento, Calif. “If it’s going to cost us money, then it’s no good.”
Regulations that took effect in January changed prescription drug prices for Medicare beneficiaries. For years, prices included pharmacy performance incentives, possible rebates and other adjustments after a prescription was filled. Now, adjustments are made first at the pharmacy counter, reducing overall costs for patients and the government. But the new system means less revenue for pharmacies that obtain and stock the drugs, pharmacists say.
Pharmacies are already struggling with staff shortages, drug shortages, the fallout from opioid litigation, and rising operating costs. Independent pharmacies are the most vulnerable, but some of the larger chain pharmacies are also struggling financially, especially those whose parent companies don’t have pharmacy benefit managers (companies that negotiate drug prices between insurers, drug manufacturers, and pharmacies).
The head of the Centers for Medicare and Medicaid Services said it’s an issue for pharmacies, Medicare plans and PBMs to solve.
“We cannot interfere in the negotiations that take place between plans and pharmacy benefit managers,” Centers for Medicare Director Meena Seshamani said at the conference June 7. “We cannot tell plans how much they should pay pharmacies or PBMs.”
Nonetheless, CMS has reminded insurers and PBMs in several letters that they must provide beneficiaries with the drugs and other benefits they promised.
Several independent pharmacists told KFF Health News they plan to soon reduce the number of drugs they have on their shelves, especially brand-name drugs, and some have even decided to stop accepting certain Medicare drug plans.
As President Joe Biden campaigns for reelection, he is touting his administration’s efforts to make prescription drugs more affordable for Medicare patients, hoping to garner support from voters troubled by rising health care costs. Include LawThe Inflation Control Act would cap insulin prices for Medicare patients at $35 a month, limit drug costs for Medicare patients to $2,000 a year starting next year and allow the program to negotiate drug prices with pharmaceutical companies.
More than 51 million people have Medicare drug coverage, and CMS officials estimate that new rules to reduce pharmacy costs could save beneficiaries $26.5 billion between 2024 and 2032.
Prescriptions for Medicare patients can account for at least 40% of a pharmacy’s sales, one study said. February Survey By the National Association of Community Pharmacists.
Independent pharmacists say the new rules are creating financial difficulties and hardship for some Medicare patients. Hopkins, in Sacramento, said some of his new customers used to rely on local grocery stores but are now coming to his store because they can no longer get their medications there.
Pharmacists say the crux of the problem is cash flow: Under the old system, pharmacies and PBMs would arrange kickbacks and other backroom deals several times a year, resulting in pharmacies refunding overpayments.
Currently, PBM clawbacks are made immediately every time a prescription is filled, reducing pharmacies’ cash on hand, which pharmacists say makes it especially difficult to stock brand-name drugs, which can cost hundreds or thousands of dollars for a month’s supply.
Some patients are being forced to choose between their pharmacy and their drug plan. Kavanaugh Pharmacy in Little Rock, Arkansas, no longer accepts Medicare drug plans from Cigna and WellCare, said co-owner and pharmacist Scott Pace. The pharmacy made the change because the companies use Express Scripts, a PBM that has cut reimbursements to pharmacies.
“In 2023, many of WellCare’s patients had to change plans or find new providers in order to remain with us,” Pace said.
Pace said one patient’s drug treatment plan recently reimbursed him for fentanyl patches for $40 less than it would have cost to buy the drugs. “We had a long-standing relationship with this patient, and he was dying, so we lost $40 to treat him,” he said.
Express Scripts spokesman Justin Sessions acknowledged that some pharmacies are facing cash flow problems and said the company recently decided to accelerate bonus payments to those who met the company’s performance criteria. He declined to answer questions about cutting payments to pharmacies.
Express Scripts, a subsidiary of the CIGNA Group, Manages 23% of prescription claims Last year, it ranked second only to CVS Health, which had a 34% market share.
Brent Talley, a pharmacist in North Carolina, said he recently lost $31 filling a month’s worth of prescriptions for weight management and diabetes medication.
To mitigate those losses, Tully’s Hayes-Barton Dispensary sells specialty items like CBD products, reading glasses, bath salts and local history books, “but it doesn’t come close to making up for the losses we’ve incurred from prescription drug sales,” Tully said.
His pharmacy delivers single-dose packages of medication to Medicare patients in nursing homes and nursing homes, and he says reimbursement agreements with PBMs for this business are more lucrative than dispensing prescriptions directly.
When Congress added drug coverage to Medicare in 2003, lawmakers privatized the benefit by requiring the government to contract with private insurers to administer the program.
Insurance companies offer two options: Medicare Advantage plans, which usually cover drugs in addition to hospital care, doctor visits, and other services, and standalone drug plans for traditional Medicare enrollees. Insurance companies contract with PBMs to negotiate drug prices and costs with drug manufacturers and pharmacies.
The terms of PBM contracts are generally confidential and limit what pharmacists can tell patients, such as when they ask why a drug is out of stock. (It took a congressional bill in 2018 to lift restrictions on disclosing a drug’s cash price, which can be lower than an insurance plan’s copayment.)
The Pharmaceutical Care Management Association, a trade group that represents PBMs, has repeatedly warned CMS that payments to pharmacies are likely to decrease under the new Medicare Part D rules, spokesman Greg Lopez said. The association opposes the changes.
Recognizing that the new policy could cause cash flow problems for pharmacies, Medicare officials delayed implementation a year before the rule took effect, giving pharmacies time to adjust.
“We’re hearing from pharmacies that they have concerns about reimbursement,” Seshamani said.
But Rona Hauser, senior vice president of policy and pharmacy issues at the National Association of Community Pharmacists, said regulators have not done enough to help so far. “They have not taken any action even after we have brought potential violations to their attention,” Hauser said.
