Independent pharmacies are closing. Drug plan managers may be to blame.

There’s a reason so many independent pharmacies have had to close in recent years: pharmacy benefit managers.

That’s according to the Federal Trade Commission, which in a scathing report released earlier this month said the companies act as “powerful middlemen that inflate drug costs and stifle traditional pharmacies.”

Pharmacy benefit managers (PBMs) act as middlemen between drug manufacturers and insurance companies to lower the cost of prescription drugs. In reality, according to the FTC, they reduce the profits of independent pharmacies by giving them unfavorable contracts and low reimbursement rates.

This often makes the process of getting a prescription from an independent pharmacy more time-consuming and costly for both the pharmacy and the customer, leading to delays in care. Increasingly, it is also forcing independent pharmacies to close their doors.

The FTC report notes that PBMs “exert considerable influence over independent pharmacies, which struggle to navigate PBM-imposed contractual terms that they find confusing, unfair, arbitrary, and detrimental to their businesses.”

According to the FTC report, one-tenth of independent pharmacies across the country closed between 2013 and 2022.

The damage was even more stark in Maine: One-third of the state’s independent pharmacies closed between 2013 and 2023, according to a Maine Monitor analysis.

In total, a tenth of the state’s pharmacies — both chains and independents — have closed in the past decade, leaving large gaps in access to care, particularly in Maine’s most rural areas.

“The closure of local pharmacies affects not only small business owners and their employees, but also their patients,” the FTC report said. “In some rural and medically underserved areas, local community pharmacies are the primary health care option for Americans, who rely on them to get their flu shots, EpiPens, and other life-saving medications.”

Fifteen years ago, pharmacist Steve Maki opened Spruce Mountain Pharmacy in Jay, a town in Franklin County. Over the past five years, he said, PBMs have “become more and more invasive in the practice of pharmacy.”

“The role of PBMs has always been to act on behalf of the insurance company to put in place plans and programs that allow patients to get their medications, but at the same time to work in the best interest of the insurance company (and) to make sure that their (own) business is profitable,” Maki said. “And unfortunately, that has come at the expense of patient access.”

Growing consolidation

Health insurance, whether public or private, covers two components: medical coverage (doctor and hospital visits) and prescription drug coverage. While insurance companies manage the medical component, they contract with PBMs to oversee their prescription drug programs.

PBMs negotiate drug prices with manufacturers and obtain discounts from the manufacturers, pocketing a percentage for themselves and giving the rest to insurance companies. They also determine how much policyholders must pay and how much pharmacies will be reimbursed.

PBMs have been around for nearly 70 years, but their scope has evolved. In recent decades, and particularly in the last five years, health insurers and PBMs have seen significant consolidation, according to a New York Times investigation. Today, the largest health insurers and PBMs are owned by the same health care conglomerates.

Consider the three largest PBMs: Caremark Rx, Express Scripts, and OptumRx. Caremark Rx is a subsidiary of CVS Health Corp., Express Scripts is a subsidiary of Cigna, and OptumRx is a subsidiary of UnitedHealth. Some of these conglomerates also own their own retail pharmacy chains, mail-order pharmacies, and specialty pharmacies.

CVS Health Corp., for example, acquired insurance company Aetna in 2018 and also owns CVS Pharmacy and CVS Specialty, its brick-and-mortar and specialty pharmacies, respectively. In addition, the conglomerate owns CVS MinuteClinic, medical providers located in CVS Pharmacy stores where a patient can receive urgent care and vaccinations.

CVS Health thus has considerable power over an individual’s health care, from insurance coverage to health care services to prescription drugs. As part of this arrangement, Aetna often gives its customers discounted drug prices, or only covers prescriptions filled at CVS pharmacies, or encourages customers to use CVS Caremark’s mail-order service.

Similarly, Express Scripts and OptumRx operate their own mail-order pharmacy services.

Together, these three PBMs handle nearly 80% of all prescriptions filled in the United States.

The system leaves independent pharmacies without access to drug discounts available at large chains and with poorer reimbursement rates, Emily Dornblaser, an associate professor at the University of New England School of Pharmacy, said in an interview with The Monitor last fall.

“That’s really one of the reasons why independent pharmacies have been dismantled, because they can’t actively compete with such large, organized health system entities that span from insurance to distribution,” she said.

Another highly critical report released this month accuses PBMs of “anticompetitive practices,” such as low reimbursement rates and retroactive fees, that “make it difficult for unaffiliated pharmacy chains and independent community pharmacies to survive.”

The report from the Republican-controlled House Oversight and Accountability Committee said PBMs “use their middleman positions” and top-down integration to “protect their bottom lines.”

In response to questions from the Monitor, CVS Caremark spokesman Phillip Blando said independent pharmacies are “essential partners” and represent more than 40% of its network pharmacies nationwide.

Blando said the PBM reimburses independent pharmacies “overall, much more than CVS Pharmacy” and disagreed with the Monitor’s analysis of independent pharmacy closures in Maine.

An Express Scripts spokesperson said the company is “committed to supporting the important role that independent pharmacies play in rural communities” and recently launched an initiative to increase reimbursements to those pharmacies.

A representative for OptumRx did not respond to a request for comment.

A state law that went into effect in January 2020 bans so-called “hush clauses” that PBMs add to pharmacy contracts that prohibit a pharmacist from telling a customer about cheaper generic alternatives or the option to pay out of pocket. It also requires insurance companies and PBMs to “provide a reasonably adequate retail pharmacy network” for customers that does not include their own mail-order services, among other regulations.

The law requires PBMs to obtain a license to operate in Maine, but also places the responsibility on insurance companies to monitor compliance.

It is unclear whether and how the law is being enforced: no disciplinary action has ever been taken against a PBM, according to the Insurance Bureau.

“You couldn’t make ends meet.”

Lee Ohmart, a retired pharmacist from Brewer, worked at several chain and independent drugstores during his 42-year career.

When he started working at his father’s Bangor-area pharmacy in the late 1970s, PBMs didn’t operate at all like they do today, Ohmart said. Dealing with insurance was “almost unheard of.”

Early in his career, Ohmart said insurance companies paid a “reasonable amount” in reimbursements to pharmacies. It wasn’t what a pharmacist made if a patient paid out of pocket, but “at least it was a reasonable amount of money.”

“But gradually they started to reduce the amount they were willing to pay,” he said. “They couldn’t make ends meet, which is why so many independents went bankrupt. Because unlike the chains, they couldn’t absorb those losses. And unlike the chains, they couldn’t approach the insurance companies and negotiate.”

The FTC report notes that “independent pharmacies generally lack the power to negotiate terms and rates when enrolling in PBM pharmacy networks and may subsequently face unilateral changes to contract terms without meaningful choices or alternatives.”

Maki said some PBMs allow independent pharmacies to negotiate reimbursement rates through collective bargaining groups called pharmacy service administrative organizations.

Often, independent pharmacy cooperatives contract with one of these groups to negotiate on their behalf. Spruce Mountain, for example, is a member of the Good Pharmacy Network, which contracts with a pharmacy services administrative organization to manage PBMs for its member pharmacies.

But some PBMs, like Express Scripts, only deal with certain pharmacy service organizations. That means pharmacists who don’t work with those groups, in addition to managing the day-to-day operations of a pharmacy, must review contracts, crunch financial numbers and attempt to negotiate with PBMs themselves.

Several independent pharmacy owners contacted by The Monitor declined to speak publicly for fear of retaliation.

One owner and pharmacist, who agreed to speak on condition of anonymity, said a PBM could retaliate by removing a pharmacy from an insurance network without notice. With such a level of consolidation among PBMs, such a move could put a pharmacy in financial jeopardy.

The pharmacist, who runs the only pharmacy within a 25-mile radius in a rural area, also said PBMs have told him their contracts contain “proprietary information” that prohibits pharmacists from communicating with each other. That means one pharmacist can’t compare reimbursement rates with another pharmacist, for example, to determine whether their contracts are fair.

The FTC report notes that PBMs’ business practices are “extraordinarily opaque.”

“PBMs oversee critical decisions about drug access and affordability without transparency or accountability to the public,” the report said.

At the same time, the House Oversight Committee report said its investigation found evidence that PBMs shared patient information with other affiliates under the same umbrella “for the specific and anticompetitive purpose of directing patients to pharmacies owned by a PBM.”

This article was originally published by The Maine Monitor, a nonprofit, nonpartisan news organization. For regular coverage from the Monitor, sign up for the Monitor’s free newsletter here.

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