What CVS is doing to mom-and-pop pharmacies in the US will make your blood boil

What CVS is doing to mom-and-pop pharmacies in the US will make your blood boil

https://www.businessinsider.com/cvs-squeezing-us-mom-and-pop-pharmacies-out-of-business-2018-3

 

  • CVS Caremark, the in-house pharmacy benefit manager for CVS, has been accused of squeezing small pharmacies, driving some out of business.
  • Lawmakers in Arkansas and Ohio have been quick to pass laws designed to end this by demanding higher transparency or regulatory oversight.
  • CVS is also trying to buy up small pharmacies, which is much easier to do if they’re going out of business.

The short version of what happened to CVS in 2018 is this: The company got too greedy, and then it got caught.

In its greed, the company squeezed independent mom-and-pop pharmacies. The squeezing wasn’t being done by the part of CVS you buy dental floss from or visit to pick up a prescription, though it’s not unrelated. It’s a behind-the-scenes business known as a pharmacy benefit manager, which manages payments between insurers and pharmacies and drug companies.

The mom-and-pop pharmacies say CVS’ in-house pharmacy benefit manager, CVS Caremark, slashed reimbursements for medications sold to their patients on Medicaid. At the same time, they say, it was reimbursing CVS pharmacies at much better rates. With some of them on the verge of going out of business, these pharmacies have rallied lawmakers — both Democrats and Republicans — to put an end to this.

So now CVS faces a tide of resistance to the way it deals with smaller rivals. Already, Arkansas legislators have passed a law aimed at curbing this behavior. This is new regulation in a Republican-dominated state. That’s how bad things looked to the lawmakers.

Ohio is forcing PBMs to disclose more about the way their pricing and contracts work. Mom-and-pop pharmacists in states like Texas and Kentucky are realizing they have a CVS problem on their hands too. Caremark manages payment for Medicaid-managed care plans in more than 20 states.

This is important because CVS is trying to cut a $68 billion deal to buy a health insurer, Aetna — a deal that would make it even more powerful and more able to obscure the whys and hows of pricing all through the healthcare system.

What’s more, CVS isn’t the only healthcare company trying to turn into a leviathan. Over the past few years the largest healthcare companies — including insurers, PBMs, hospitals, and drug companies — have been combining in what is known as vertical integration, or mergers between companies in the same industry whose businesses don’t directly compete.

They say this is an effort to create efficiency in the healthcare system. What CVS has shown, though, is that this kind of integration can actually get companies drunk on pricing power, and create monopolistic monsters.

In Arkansas

To their credit, once legislators in Arkansas figured out what was happening to local pharmacies, they moved at blinding speed.

The state legislature nearly unanimously passed a bill designed to curb this behavior from PBMs on March 14.

The situation had gotten desperate, fast. The way mom-and-pop pharmacists tell it, CVS started bringing the pain at the beginning of 2018. Suddenly, reimbursement rates for Medicaid plummeted at the same time drug prices for Medicaid started rising. So in the beginning of February, Arkansas Attorney General Leslie Rutledge started investigating the matter.

“The amount paid to the pharmacy was less than half of what was being charged to the plans,” Scott Pace, of the Arkansas Pharmacists Association, told Business Insider.

Pharmacists in Arkansas, for example, say:

  • For a Fentanyl Patch 100, CVS pharmacies were reimbursed $400.65 while mom-and-pop pharmacies were reimbursed $75.74.
  • For Amoxicillin, CVS pharmacies were reimbursed $35.92 while mom-and-pop pharmacies were reimbursed $12.21.
  • For even something as simple as Ibuprofen, CVS pharmacies were reimbursed $5.86 while mom-and-pop pharmacies were reimbursed $1.39.

Sometimes, the pharmacists say, they weren’t reimbursed enough to cover the cost of filling the prescription. These aren’t the only ones, to be clear. Business Insider has seen a long list of alleged disparities like the ones above.

CVS, for its part, denies that it is squeezing the mom and pops. Business Insider sent the above examples to the company, and its spokeswoman Christine Cramer said they were patently wrong. However, she also said the pharmacists were “cherry-picking” reimbursements that look especially bad.

“The facts are that on an aggregate basis, we reimburse independent pharmacies at a higher rate than larger regional and national chains,” she said.

“CVS Caremark considers local, independently owned pharmacies to be important partners in creating our pharmacy networks, and in fact, independent pharmacies account for nearly 40% of our network,” she added. “Furthermore, we reimburse our participating network pharmacies, including the many independent pharmacies that are valued participants in our network, at competitive rates that balance the need to fairly compensate pharmacies while providing a cost-effective benefit for our clients.”

This response did not jibe with what legislators, patients, and pharmacists were seeing on the ground, though.

Out of a $50 drug, for example, say $22 was paid to the mom and pop, the rest went to CVS — to its PBM. At the same time, patients looking at how much a drug cost their health plan in their explanation-of-benefits portal would show a price of, say, $100.

“The numbers were stark,” Pace said.

CVS LETTER TO MOM AND POP Pharmacists
Here’s the letter pharmacists are getting, urging them to sell their businesses to CVS.
Business Insider

So until this was all figured out, people who bought medicines at their local pharmacies in Arkansas (and Ohio) didn’t know that their neighbors were getting screwed. They also didn’t know that, as their local pharmacists were getting squeezed, CVS was waiting in the wings, sending out letters offering to buy the very mom-and-pop shops it was forcing out of business.One pharmacist, Rick Pennington of Lonoke, Arkansas, said that if it weren’t for his business mailing a generic erectile-dysfunction pill to nine states, he’d be out of business.

“When you look at who’s controlling the money and who has the leverage, it’s the PBMs who have control,” Pace told Business Insider. “These folks are trying to get more integrated into the healthcare system, and so far we’ve seen that means patients lose. Next, they’ll buy a hospital and be an HMO. I think that’s bad for patient choice.”

He added: “It’s not a free market because there is no transparency on pricing.”

CVS, however, denies coordination between its PBM and its pharmacies.

“Our retail business has engaged in acquisition activity and outreach to other pharmacies since well before CVS and Caremark merged, and, in fact, the communications materials related to this activity has been relatively unchanged over the years,” Cramer said. “Any retail acquisition activity is completely unrelated to, separated from, and not coordinated in any way with the PBM business’ management of its pharmacy network.”

In Ohio

The story for pharmacists in Ohio is a bit different. There, some have viewed CVS as problematic for years, but instead of seeing reimbursement rates plunge, legislators and pharmacists said they’ve been moving up and down like crazy since around 2015. By October or November of last year, gross annual margins for Medicaid payments to mom and pops were going below zero, and pharmacists were losing money on most drugs sold.

“Because those rates are set arbitrarily you’re set up for a roller-coaster ride,” Antonio Ciaccia of the Ohio Pharmacists Association said in a phone interview with Business Insider. “No one expects to get rich off Medicaid … but if you sat down with a pharmacist that was willing to tell you, ‘Here’s what I was getting paid,’ you could match it up with state-utilization data and see the spread and how significant the loss was … That’s what kind of lit everything up in Ohio.”

There was also the suspicion that Medicaid was being overcharged. One legislator, after being briefed on what was going on by Ohio’s Medicaid agency, said simply, “We’re getting hosed.”

And of course, CVS sent those letters soliciting acquisitions. One came on November 9 of last year, a particularly bad time for the state’s mom-and-pop pharmacists.

Suddenly, the number of people in Ohio government demanding answers, led by Ohio Speaker Cliff Rosenberger, started to multiply. They realized that the Ohio Department of Medicaid wasn’t even asking for the right pricing data, and CVS had never considered giving it to them. Now, as rules change within the department, it’ll have to.

Brad Miller, Rosenberger’s press secretary, said this was something his boss had been looking into for years.

“In order to be responsible stewards of taxpayer dollars, you must have access to reliable and accurate data,” he said. “Around the state, we are seeing the negative impact the current system is having on local, independent pharmacies, many of which have been forced to close in recent years. This, in turn, reduces patients’ treatment options and access to care. Having access to this data will go a long way toward lowering prescription-drug costs for patients and employers, as well as help reduce the burden on Ohio taxpayers.”

Ciaccia told Business Insider that during the three years CVS has been engaging in this behavior it has gained 68 pharmacies in the state. Its competitor Walgreens added only two locations over the same period.

“We are done messing around in Ohio,” he said. “This system is completely broken … It is layered and layered with conflicts of interest. I don’t care who the PBM is.”

What a tailor can do!

PBM Share

Health Strategies Group

PBMs have all sorts of tricks up their sleeves to make money not just from pharmacists but also from insurers and drug companies — basically anyone involved in getting medicine to you.Here are a few of their greatest hits:

  • They can make money (as we’ve seen here) off the spread between what they pay pharmacists and what they charge your insurance plan.
  • They have gag orders on pharmacists, so your pharmacist can’t tell you whether it’s actually cheaper for you to use plain old cash to buy a drug that isn’t part of your healthcare plan. (Note, the fact that there might even be a cheaper alternative challenges the PBMs’ claim that they save money for their clients in the first place.)
  • They get reimbursements from pharmaceutical companies. The fatter the rebate, the more likely they’ll include a company’s drug in a client’s (your) managed-care plan, but they don’t have to share that reimbursement with the client (you). They can keep some and negotiate rebates for themselves. They can collect all kinds of administrative fees and other types of fees from drug companies too.

We’ve been learning about this slowly. Three PBMs — CVS Caremark, Express Scripts, and UnitedHealth Group — control about 70% of the US market, and they guard their secrets zealously. Recently, though, the news site Axios published a contract template for Express Scripts. No two contracts are alike, and Express Scripts grumbled that the one Axios published (which was rife with loopholes to make Express Scripts money at every turn) was old and irrelevant.

Yet the company demanded that DocumentCloud, where the contract was posted, immediately take it down, citing copyright infringement.

This “Oh it doesn’t matter to our business — but DON’T TOUCH THAT!” response is trending in PBM world.

For example, earlier this month the US Senate introduced the Patient Right to Know Drug Prices Act, which would ban the so-called gag clauses mentioned above (as Arkansas lawmakers did in their bill).

The Pharmaceutical Care Management Association, the PBM lobby, responded to that by saying:

“We support the patient always paying the lowest cost at the pharmacy counter, whether it’s the cash price or the copay. This is standard industry practice in both Medicaid and the commercial sector. We would oppose contracting that prohibits drugstores from sharing with patients the cash price they charge for each drug. These rates are set entirely at the discretion of each pharmacy and can vary significantly from drugstore to drugstore.”

Sounds as if they’re for it, right? Wrong. Here’s the next sentence.

“Fortunately, to the degree this issue was ever rooted in more than anecdotal information, it has been addressed in the marketplace.”

Earl "Buddy" Carter
Rep. Earl “Buddy” Carter of Georgia.
C-Span, screenshot

So which is it, guys? Do you think transparency is important and support patient rights — or are you going to fight this bill?It’s a simple question. And it’s easy to see the answer.

Rep. Buddy Carter, a Georgia Republican, introduced the Prescription Transparency Act to the US House of Representatives this month. It does basically the same thing as the Senate bill, and, as the only pharmacist in Congress, he knows he’s facing a street fight from the PBM lobby.

“They spent $600,000 against me when I first ran for office three years ago to try to get me defeated, and over the past few years we’ve seen them ramp up their political activity,” Carter told Business Insider. He’s also noticed that legislators in Washington are finally waking up to the urgency of this situation. There have been hearings about drug pricing in both houses, and Scott Gottlieb, the commissioner of the Food and Drug Administration, has come out swinging especially hard, saying that the PBMs sit at the top of a “rigged system.”

“We’ve seen some companies that dropped the PBMs such as Caterpillar and they’ve been able to control drug prices,” Carter said in a phone interview. “Right now the focus is on prescription drug pricing, and the most impact we can have on pricing is to have control on transparency from the PBMs.”

If you believe that, you should also believe taking that control won’t be easy. Once we do, though, it may change the way you look at what our healthcare is trying to become.

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