By Julie Havlak
Carolina Journal News Service
RALEIGH — Pharmacist Darius Russell, owner of Russell’s Pharmacy and Shoppe in Durham, hopes to stop losing money on helping patients.
Russell is an independent pharmacist, and he has little negotiating power with the middlemen that control the supply chain of prescription drugs. But change is coming.
The U.S. Supreme Court gave states the power to regulate the companies that negotiate between insurers and pharmacies, otherwise known as pharmacy benefit managers — the jargon for middlemen. The court unanimously ruled in favor of Arkansas’ regulatory reforms Thursday, Dec. 10.
The ruling has cleared the way for more aggressive state regulations. Depending on who’s talking, the Supreme Court gave states the opportunity either to reform crony monopolies, or to empty consumers’ wallets.
“It used to be rare that you’d lose money on a prescription that you’d fill,” Russell said. “Hopefully, there is some hope there and a light at the end of the tunnel for pharmacies not to be eaten out by the big PBMs.”
After Arkansas’ victory in court, N.C. pharmacist Rep. Wayne Sasser, R-Stanly, has plans.
Sasser says an era of “smoke and mirrors” is over. He hopes to bring transparency to an opaque industry, and pharmacy benefit managers can no longer deflect his efforts with federal law. He wants to launch an audit of the middlemen and to protect independent pharmacies. The move could save consumers tens of millions of dollars, if not more.
“That was probably the biggest thing to happen in pharmacy in my career, and I’ve been doing this for 45 years. So it’s big,” Sasser told Carolina Journal. “They’ve got nothing to hide behind now.”
The pharmacy benefit managers have a tarnished public image. They stand accused of inflating the out-of-pocket cost of prescription drugs, making medications unaffordable. The charges against them have their own irony — PBMs were created to help insurers and consumers save money.
Three PBMs control more than 70% of all claims volume, and many also run their own pharmacy services. Critics blast them as vertical oligopolies.
Basically, large pharmacy chains — including Walmart, CVS, and Walgreens — buy such huge amounts of prescription drugs that they can negotiate better deals. Independent pharmacies pay more to stock drugs, so the slice that PBMs take off the top cuts the little guys’ sales margins. Independent pharmacies that take health insurance often can’t compete with the big boys.
Arkansas Attorney General Leslie Rutledge charged the benefit managers of “abusive” practices that drove 16% of independent rural pharmacies out of business. Rutledge accused the PBMs of profiting off the “spread” between what they charged the state and what they actually paid pharmacies.
Arkansas tried to save its remaining independent pharmacies by requiring PBMs to reimburse pharmacies’ wholesale costs, at a minimum. The managers fought back, but the state won at the Supreme Court, opening the door for new regulations.
Now that the Supreme Court bolstered states’ authority to regulate PBMs, North Carolina lawmakers are itching to exercise that power. Sasser is leading the charge in the General Assembly.
“Personally, I don’t like monopolies,” Sasser said. “But we have them — utilities, banks, health care insurers. They don’t compete against each other. There’s enough money that they’re happy. But they’re regulated. PBMs aren’t.”
Sympathetic to his cause is recently re-elected Commissioner of Insurance Mike Causey, who wields regulatory control over insurers. Causey says fighting for health care transparency is a major focus for this term.
“We need to have accountability,” Causey said. “We need to have as much transparency as possible. We don’t need to have these private equity firms making huge chunks of money and not disclosing where it’s going.”
The last time lawmakers pushed to audit them, middlemen warned that consumers would bear the cost of reforms. They argued that requiring middlemen to reimburse pharmacies for wholesale costs would drive up premiums. The bill passed both the House and the Senate, but sank after the two chambers failed to agree on the final version.
Blue Cross Blue Shield didn’t respond to requests for comment.
Other states have crunched the numbers, and they didn’t like what their audits found.
Ohio terminated all its Medicaid PBMs after it audited them. The state’s Medicaid PBMs pocketed $224.8 million by charging the state more than it paid pharmacies in just one year, Ohio Auditor of State Dave Yost found.
Florida’s Medicaid PBMs raked in more than $89 million with similar tactics. The analysts recommended fixing PBM contracts.
North Carolina has no way of knowing its situation. The state hasn’t run any recent audits on the middlemen. Lawmakers aim to change that.
“To me, it’s all about consumer choice and making sure our small business owners and pharmacies get a fair shake,” Causey said. “And I think that’s all they’re asking for, no special treatment. They’re just asking to be treated fairly.”