PA Officials Say Pharmacy Benefit Managers Force Higher Drug Prices, Put Local Pharmacies In Peril

By Dave Lemery | Watchdog.org

According to a new report this week from Pennsylvania Auditor General Eugene DePasquale, independent pharmacies in the state are being forced to sign contracts with “pharmacy benefit managers” that include onerous terms just to stay in business. And those terms don’t just hurt the small, local businesses in question – they are likely to drive up prescription drug costs for customers, too.

Pharmacy benefit managers, often referred to as PBMs, are companies that occupy the intersection between pharmaceutical companies, health insurance firms and pharmacies.

“Originally formed to serve as third-party claims administrators, PBMs have grown to assume new duties such as developing lists that restrict which medications are covered and deciding how much money pharmacies are reimbursed for those medications,” a news release from DePasquale’s office on the topic states.

DePasquale, along with state Sen.-elect Kristin Phillips-Hill and state Rep. Seth Grove, hosted a news conference Tuesday to call attention to the practices of PBMs and to lament that neither his office nor the state Department of Human Services have any authority to provide oversight of the activities of PBMs.

The auditor general noted that PBMs often force pharmacies to sign contracts including “gag order” clauses that prevent a pharmacist from volunteering information that would allow a patient to fill a prescription with a cheaper but equally effective alternative. If the pharmacy were to refuse to sign such a contract, it might lose its only means of acquiring drugs and go out of business.

In some instances, customers end up paying more for a brand-name prescription when a generic equivalent is available. In other cases, it can actually be cheaper to pay for a drug out of pocket rather than using insurance. In both examples, a pharmacist subject to a gag rule would not be able to volunteer this information to the customer.

Phillips-Hill and Grove, in a joint statement after the news conference, noted that even when pharmacies do play along, PBMs have other means of forcing them out of the market.

“One recurring theme we’ve heard is that in 2017, when a large PBM drastically slashed reimbursements, many pharmacists received letters from a related corporation offering to buy their businesses, citing the reduced reimbursements,” Phillips-Hill and Grove said.

At the same time that PBMs appear to be strong-arming small, local business owners, they’re raking in record profits in Pennsylvania, DePasquale said. From 2013 to 2017, their revenue from Medicaid in the state doubled.

“In 2013, Pennsylvania taxpayers through Medicaid paid about $1.4 billion in fees to pharmacy benefit managers,” he said. “By 2017, that amount had risen to $2.86 billion, a more than 100 percent increase in just four years. And it is an entirely fair question to ask, what did taxpayers get for that dramatic increase?”

DePasquale’s report includes a list of potential legislative solutions. It suggests that lawmakers ban the use of gag clauses, empower state authorities to audit PBM practices and ensure transparency in PBM pricing practices, among other proposals.

“It is important that we not only have competition at the top with some of the major pharmaceuticals, but it’s also important at the retail level that we maintain a vibrant competitive field so that independent pharmacies and some of your larger retailers can have an effective competition, so that consumers can have choices and also so that these family sustaining jobs and businesses can stay vibrant and functioning,” DePasquale said.