Small Pharmacists Seek Big Clout In Negotiating With Benefit Managers

It’s highly unlikely that during a heated election season House Republicans would want to wade into a debate over antitrust law. But that isn’t stopping independent pharmacists from trying.

Photo by Paul Pellerito via Flickr

Buoyed by the fact that more than two dozen House GOP members support legislation (HR 1946) that would allow independent pharmacists to band together in negotiating contract terms with pharmacy benefit managers — plus a recent House subcommittee hearing on the issue — the pharmacists are pushing ahead.  While the group has failed before to win a majority of lawmakers to their side – similar measures, including one championed by former Rep. Anthony Weiner, D-N.Y.,  have failed to become law – the pharmacists say recent events make it even more important now that smaller pharmacies combine their clout.

Recent mergers, including that of pharmaceutical benefit giants Express Scripts and Medco Health Solutions, mean that independent pharmacists will have even less bargaining power with the pharmacy benefit managers, or PBMs.  PBMs operate employers’ and health insurers’ prescription drug programs and negotiate discounts with drug makers and pharmacies.

At the House hearing in March, independent pharmacists said that because the PBMs have such huge market share, the pharmacists are required to do business with them. And those contracts with PBMs come with constraints, including prohibiting the pharmacy from disclosing how much it paid for the prescriptions it fills, how much the PBM pays the pharmacy for the prescriptions, and how much profit the PBM keeps.

“Without the ability to truly negotiate with the PBMs from a position of parity, independent pharmacists that are otherwise able to compete on price and service will be driven to extinction,” Renardo Grey, a pharmacist who owns the Westside Pharmacy in Detroit, told the House Judiciary subcommittee.

The Pharmaceutical Care Management Association, which represents PBMs, says that independent drugstores can already hire Pharmacy Service Administrative Organizations (PSAO) to bargain on their behalf. “There is no compelling economic reason to confer antitrust exemptions to independent pharmacies, since these institutions are profitable and protected by existing competition laws,” the group said in a statement.

In testimony submitted to the Judiciary panel, Adam J. Fein, an expert on pharmacy distribution and reimbursement and president of the Philadelphia firm Pembroke Consulting, Inc., said that “the typical PSAO gives a group of independent pharmacies access to benefits normally associated with large, multi-location chain pharmacy corporations,” including contract negotiations with third parties like PMBs or managed care organizations on items such as pharmacy reimbursement rates and payment timing.

Mike James, a Raleigh, N.C., pharmacy owner who is vice president and director of government affairs for the Association of Community Pharmacies Congressional Network , disagrees with that description.  While PSAOs do review proposed contracts from the PBM to the pharmacy, “they actually have no real power in refusing a contract or even negotiating terms,” James said in an e-mail.

The Federal Trade Commission says giving independent pharmacists more power to in contract negotiations could result in higher drug prices. “The proposed exemption threatens to raise prices to consumers for much-needed medicine, which would have an especially dire impact on seniors,” Richard Feinstein, director of the FTC’s Bureau of Competition, testified at the March 29 hearing. The legislation, which the FTC opposes, “also threatens to increase costs to employers who provide health care insurance to employers and retirees, which may cause those employers to reduce or eliminate benefits.” And there’s no assurance, Feinstein adds, that the exemption “would provide any offsetting higher quality care.”