The Hidden Force Shaping Drug Prices — Episode Transcript

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INTRO:

Maiken Scott: This is The Pulse — stories about the people and places at the heart of health and science. I’m Maiken Scott.

Perkin’s Drugs was one of the oldest businesses in the city of Gallatin, Tennessee, and one of the oldest pharmacies in the state. The kind of store that’s woven into the fabric of a community … that sponsors little league teams, gives money to local organizations that grandparents remember for buying penny candy.

Andrew Finney: Yeah I believe that the niche of community independent pharmacy is the relationship that we have with our customers in the community.

MS: For owner and pharmacist Andrew Finney, customer service was key.

AF: To know our people, to say their name — one of the most beautiful sounds is your name from someone else’s mouth — and so we made it a priority to speak people’s names and to encourage them and and in general just have a sense of gratitude for them choosing to use our business.

MS: And people in Gallatin did. Business was good. In 2018 Andrew opened a second store in a new location because the city, which is near Nashville, was booming. Customers kept coming in, sales were steady. But that same year, Andrew’s profit margins got smaller and smaller.

AF: It got to the point that I knew that my bank that I used for our operating account updated at 6:00 A.M. every morning—I would get physically anxious, and I’m not an anxious person, on the days that we had large dollar amounts coming out of the business like our payroll. Those mornings were very very difficult because many times I did not know if there was going to be enough funds in the account to cover it and there were many times that I would have to go and and cover that personally.

MS: Andrew was running a successful business, one that the community was relying on. But at the same time, somehow, he was not making any money and going deeper into debt.

AF: And when you get to that point, where you’re looking at it and saying ‘gosh, I really want my kids to go to college and am I willing to pull money from that in order to keep this business going?’

MS: He looked for ways to reduce costs, he cut his own salary.

AF: We’ve got to really watch every penny and how we spend.

MS: In the summer of 2020, things got so bad, Andrew felt like he had no other choice but to close shop and sell his pharmacies.

AF: A business that’s in business to be profitable, if it’s not, it’s not a business. The ability to make money in community pharmacy was all but gone.

MS: Andrew felt powerless against a force syphoning off his profits.

AF: And it was a multi-six figure number that was being pulled at that point.

MS: This force affecting Andrew’s business is actually a powerful middle man.

AF: There are just so many stops between the patient and the product, and that’s where so many have reached in and said, ‘I want my share of this.’ 

MS: That same middle man is involved every time you get a prescription drug.

When you pay for your medications — that middle man gets paid, too — and has a huge impact on how much your medications will cost. More than that — they can determine which drugs your insurance will cover, which drugs your doctor will prescribe, and in that way, affect your health.

I’m talking about Pharmacy Benefit Managers — or PBMs. On today’s episode, we’re uncovering their role, how they shape health care — and how it’s affecting all of us.

[MUSIC]

SEGMENT 1:

Soaring prescription drug prices are raising the cost of health care  and have many patients either struggling financially, or abandoning treatment. And many experts put some of the blame on PBMs.

So, what exactly are Pharmacy Benefit Managers? And how did they get to be so powerful?

Liz Tung starts us off.

Liz Tung: The more I’ve read about pharmacy benefit managers, the more they’ve made me think of this fictional bad guy from the movie “The Usual Suspects” — Keyser Soze. Here’s Kevin Spacey in the movie explaining who Soze is.

VERBAL: He is supposed to be Turkish. Some say his father was German. Nobody believed he was real. Nobody ever saw him or knew anybody that ever worked directly for him, but to hear Kobayashi tell it, anybody could have worked for Soze. You never knew. That was his power. 

LT: Keyser Soze is mysterious, larger-than-life — and a big part of his power comes from the fact that no one quite knows who he is or the extent of his control.

Which is kind of like pharmacy benefit managers or PBMs. Most people haven’t heard of them — and yet, they wield a huge amount of power, to the point that they affect just about every drug dispensed in the U.S. Every time you pick up a prescription — you’re dealing with a PBM.

For example, let’s say you go into your local drug store, walk up to the counter, and give them your info and prescription.

LT: Hi, yeah I’m here to pick up a couple scripts.

LT: The pharmacy tech punches a few buttons.

Pharmacist: Just type in the last four digits of your phone number right there. 

LT: And then there’s this moment. You stare at the register waiting for the price to pop up, wondering how much of a dent is this gonna put in my wallet?

Pharmacist: That’s $166.80, and the [unintelligible] is $68.18. Those are both through your insurance.

LT: That, to me, seemed like a lot. I asked the pharmacist how much most people pay for a month’s prescription.

Pharmacist: Depending on your insurance, some people pay nothing, some people pay $1, some people pay up to like $20 or whatever. So it really just depends.

LT: I feel like I never know what to expect when it comes to prescription prices. But the surprising thing I learned is — I am not the only one.

DOUG HOEY: And the pharmacist has no idea what he or she is going to get paid for that prescription. It’s not until that prescription is processed. And that, that usually takes place in real, almost in real time, while the patient’s waiting.

LT: That’s Doug Hoey, CEO for the National Community Pharmacists Association. Doug says this transaction is shaped by that unseen force, the PBMs.

DH: So they are the consummate middleman.

LT: The middlemen between the pharmacy and insurance companies.

These days PBMs are huge. If you flip over your insurance card, you’ll probably see one of three names: CVS Caremark, Optum RX, or Express Scripts. These three companies control 70-80% of the market. They say their size gives them the power to negotiate bigger discounts with the drug companies, and that in turn reduces prices for the insurance companies and the patients. But critics say these PBMs are too big. They’ve been called hidden monopolies, even “legal cartels.” But Doug says that’s not how PBMs started out.

DH: At first the PBMs were really planned prescription processors. And so they filled kind of an important need. Patients before had to file their own claims, um, and it was sort of a pain.

LT: Meaning, that instead of standing at the pharmacy counter waiting for the tech to punch a few buttons, patients had to send their actual paper prescription claims to their insurance companies and wait to get reimbursed. But as more people got health insurance, the number of claims skyrocketed. Soon, it was more than the insurance companies could handle.

A solution came at the end of the 1960s in the form of pharmacy benefit managers, who made it their mission to handle and streamline all that annoying paperwork.

DH: Early days, yeah, we weren’t crazy about them, but they at least filled a need. It was at least a reasonable relationship in the early days.

LT: So in the beginning, they were essentially paper pushers. Efficient ones — they quickly mastered the art of data standardization, and helped pioneer electronic claims processing.  But over time, the PBMs got more ambitious. They started offering more services including handling reimbursements.

Pharmacies buy their drugs from drug manufacturers or wholesalers. And obviously they need to get paid back. Some of that money comes from the customer in the form of a co-pay. But that’s just a fraction of the price the pharmacy paid to buy the drug. They have to wait to be reimbursed for the rest of the cost by the patient’s insurance company. This is where PBMs have inserted themselves into the process — handling the flow of money from insurance companies to pharmacies. So, Doug says, PBMs go to the insurance companies and say:

DH: ‘Hey, look, you have you want to offer a prescription drug benefit, we’re your guys, come talk to us, we’ll make this simple for you. We’ve got a network of pharmacies and your patients, you know, walk into a pharmacy, here’s the copay and you don’t have to worry about it.’

LT: Quickly, PBMs figured out that middleman was an extremely lucrative position to be in. So when health care costs started to rise in the 1970s and 80s, PBMs raised their hands and said, “Hey insurance companies — we can help you with that.” Insurance companies said “Sure.” And so PBMs took on their second major role:

DH: The middleman between the pharmaceutical manufacturer and the employer. So it’s the middleman in two different places.

LT: The goal: to negotiate with drug manufacturers for lower prices. As part of this new job, PBMs were given control over what would become a very powerful tool: formularies.

Madeleine Feldman: Formularies, which is the list of drugs that insurance companies will pay for.

LT: That’s Madeleine Feldman. She’s a rheumatologist based in New Orleans, and a self-taught expert on PBMs — mostly because she has a major problem with them.

MF: These PBMs are literally money making machines. The amount that they siphoned out of the health care system, under the guise of saving money, particularly in drug prices and drug costs, it really is — it shouldn’t be that way, not when we’re in a drug pricing crisis.

LT: Here’s how formularies work: they allow PBMs to decide which drugs are covered by insurance, and which ones aren’t.

Let’s say for instance, you have a thyroid condition – one drug called Levothyroxine might be covered by your insurance, but the other one, Armour Thyroid is not.

So naturally, you and most other patients, are going to go for the first drug—Levothyroxine— because it’s cheaper. What this means is that by controlling formularies, PBMs control drug companies’ access to huge swaths of consumers. And they say that gives them leverage for negotiating discounts. Madeleine however, sees it a different way. She says what’s happening here is closer to pay to play.

MF: To get onto the formulary, you have to offer the highest and I’m going to use the word kickback. So that means that pharmaceutical manufacturers, the drug makers, can actually give kickbacks to PBMs to buy their way onto the preferred spot.

LT: I talked to PBMs and asked them about this. What Madeleine calls kickbacks, they call rebates — basically discounts that they’ve negotiated with pharmaceutical companies to lower drug prices. While critics of PBMs have accused them of keeping rebates, several studies have found that majority of the money saved does flow to insurance companies.

But, these rebates also create perverse incentives. PBMs sometimes choose higher-priced drugs, critics say, because they offer higher rebates. So consumers might be getting a bigger discount but on a bigger price tag.

It seems like we hear all the time about skyrocketing prescription prices. It’s always in the news, comes up at every presidential election. And PBMs play a big role in shaping those prices. So why is it that we so rarely hear about them? Here is Doug Hoey.

DH: These are huge big companies that like to fly under the radar.

LT: And they can do that for a couple reasons. For one thing, prescription drug pricing is confusing — like super confusing.

DH: You need to be an actuary with, uh, an advanced degree in, in aeronautics.

LT: And they’re able to make it more confusing because they’re middlemen — which means they exist at the center of a complicated web of money that zig-zags back and forth between insurance companies, pharmacies, and drug manufacturers. They’ve got their hands in everything.

All of this might give you a little bit of an idea why people aren’t rioting in the streets about PBMs. The whole thing’s just too complicated and confusing. But there are people in the health care world who’ve become passionate advocates for PBM reform.

Remember Madeleine, the rheumatologist? The reason she got interested in PBMs is because she noticed they got in the way of patient care:

MF: By controlling the formularies and controlling the pharmacy where you pick it up and controlling the price of the drugs that come on the formulary, they have the power over what drugs my patients take, when they can take it, in what order, how much they’re going to pay for it, and where they can get the drug. Those four things are controlled by the pharmacy benefit manager.

[MUSIC]

Maiken Scott: That story was reported by Liz Tung. Let’s take a closer look at how pharmacy benefit managers impact patient care and which medications doctors prescribe.

This is something most of us are not aware of at all — until something goes wrong.

Alan Yu reports.

Alan Yu: In December of 2018, Norma Smith of Fresno, California was diagnosed with multiple myeloma, cancer in a type of white blood cell.

Norma was 61, the cancer was stage three, so it was serious.

Norma Smith: I was very sad, because I loved my family and kids. I cried, I tried to be brave. I mean, all of a sudden, you’re hit with a death sentence, right, cancer. I wanted to get treatment as quick as possible and to have as long life as I could.

AY: At first, her oncologist put her on an oral chemotherapy.

She took that for a few weeks, but had a severe allergic reaction, so her oncologist wanted her to switch to a different kind of medicine.

But, the pharmacy benefit manager for Norma’s insurance plan denied it. They wanted Norma to try two other kinds of medication before moving on to the kind that Norma’s oncologist wanted.

Her oncologist fought this, and so did Norma’s husband Rodney.

Fortunately Rodney is retired, so he had time to get on the phone, a lot.

Rodney Smith: Well, it literally some days took five or six hours, because remember you’re coming from nothing. So you’re calling them up and you’re calling your health insurance people, and they’re saying okay, well, I tell you what, you need to call these people, and so you go call these people, and they say yeah we’re the drug people, there’s the cancer drug people, so you have to call over to this people, and you go there, and they say we’re not in charge of that, these people are in charge of that.

[MUSIC]

AY: At the same time, Rodney was also taking care of Norma.

She was on the medication the pharmacy benefit manager wanted her to try, and she was not getting any better.

NS: I’d get up in the morning and I was very weak. I’d get up and vomit, and I could hardly eat anything.  I’m talking maybe four or five bites per meal and that’s all. And then I tried to keep it down, and this is while I was waiting to get the right medication. I had to go into a wheelchair, I had a walker I had to use, my husband had to help me from my bed to the bathroom.

AY: The number of cancer cells in her body was multiplying quickly.

Norma lost around 60 pounds.

She and Rodney thought she was not going to make it.

NS: My husband and I went to the Clovis cemetery, and we purchased a plot to be buried in, because my prognosis wasn’t good. And I remember going to the cemetery and picking a spot out and I remember crying, and I remember my husband crying.

AY: Meanwhile, Rodney was determined to get his wife the drug her oncologist wanted. For weeks, he spent hours every day on the phone to find out what it would take to get Norma approved for it.

RS: What are the rules here? How is this game played? And what is interesting is that when you go into this, no one sits down and shows you okay these are your rights and this is what you can do and this is what you can’t do.

AY: Eventually, he reached someone who gave him the rulebook, a document showing how the pharmacy benefit manager decides what has to happen before Norma could get the drug her oncologist prescribed her.

RS: You have to go through the people to find these people and who they are and where they are. They don’t provide any of that, and so this is very time consuming. One week I can spend 20, 30 hours just calling and calling and calling and finally get what I needed to get taken care of.

AY: I reached out to the pharmacy benefit manager for Norma’s prescription plan. They told me that they try to balance drug effectiveness and cost, and that they have an appeals process to answer any questions from doctors and patients.

And this is the process Rodney was trying to work his way through.

The more he learned about the system, the more he was able to apply some pressure.

RS: And once they knew that you were on top of it, and then even somewhat threatening them to say, ‘okay, I want this document, and I want this this and this document,’ then they all of a sudden they will listen to you. But most people are not willing to pay that price, and I feel sorry for those people who go in and just assume that the doctor is the one making the decision, when the doctor is not making the decision.

AY: He explained Norma’s circumstance, her late diagnosis.

He kept going, one phone call after the other, until finally, the pharmacy benefit manager gave the green light for the medicine her oncologist had prescribed her months ago.

Within two weeks, Norma started to feel better.

NS: There was more color in my face, I had more strength. I was able to eat more, I began to feel more life come back into my body.

AY: Norma later qualified for a bone marrow transplant, which she got in February 2020.

Now the cancer is in remission.

But this long bureaucratic process left her and Rodney wondering, if she hadn’t had a retired husband who could spend hours on the phone for weeks, would things have ended differently?

NS: I’m grateful I finally got the right medication, but it took an act of god and a lot of hard work on my doctor and my husband’s part and advocating to get the medication I needed. And there are other patients out there, that I’m sure are older than I am, and that have other forms of cancer and illnesses that they need the medication, and they need the medical doctors to be able to make the decision.

AY: Many patients say pharmacy benefit managers get between them and their doctors

Laura Cross is a stay at home mother who lives in Virginia

She has multiple sclerosis, an auto-immune disorder which can affect people’s ability to move, and their vision.

She has tried different kinds of treatment, but the only one that works for her is called IVIG.

Laura Cross: When I’m in a flare up, I can’t walk. My hands, I can’t use my hands. My whole body shuts down, I’m completely, I’m on a walker, on a cane, you know. The only reason I’m able to walk and have the quality of life that I do is because I have IVIG.

AY: IVIG basically involves infusing the antibodies of donated blood into her veins, via a port above her chest.

The treatment has an anti-inflammatory effect on the immune system, which for an MS patient means it stops the body from attacking itself.

It can treat acute relapses and prevent new ones.

The Food and Drug Administration has not yet approved the treatment for multiple sclerosis, though there is research showing it to be a valid alternative for patients like Laura, so doctors prescribe it off label.

Getting Laura’s insurance to cover this drug that’s not on the pharmacy benefit manager’s preferred list requires something called prior authorization.

She said it was hard to get that for IVIG, product name Gammagard, the drug that works for her.

LC: I have letters here: ‘We have contacted your doctor’s office, and we are unable to approve the request for Gammagard.’ Now remember this is the only drug, Alan, that will work for my body.

AY: And to complicate matters, the prior authorization only lasts for a limited time, so Laura and her doctor have to reapply every once in a while,  and make the same argument, again.

[MUSIC]

So how is it that a pharmacy benefit manager can get in the way of what a doctor prescribes and what a patient can get?

This is a somewhat controversial practice called step therapy.

Pharmacy benefit managers require patients to first try cheaper, usually generic drugs, that they say are just as effective as their brand name counterparts.

If that does not work, or a patient has a bad reaction, then they can move on to the more expensive alternatives.

The idea is that it would save money for the insurance company, and sometimes, down the line, that means saving money for patients.

I spoke to an industry source, on the condition of anonymity, who gave me an example: To keep cholesterol under control, a patient could use a statin, which could cost as little as a few dollars, or something called a PCSK9 inhibitor, which costs thousands of dollars.

In this example, the pharmacy benefit managers would say: Has the patient tried using statins first?

They say their lists of approved drugs come from independent, licensed doctors and pharmacists who review the current research to stay up to date.

If a doctor decides that their patient should get a drug that is not included on the pharmacy benefit manager’s preferred list, they can apply for prior authorization and appeal if rejected.

The industry source said this should not take very long.

I ran all this past Ravi Rao, Norma’s oncologist.

He says what the industry source told me is correct.

Drug prices are too high, and doctors can work with pharmacy benefit managers to request authorization for drugs that are not on the pre-approved lists.

But he says this is what they are not telling me: How much time and effort this approval process really takes.

Ravi Rao: in our office here in Fresno, we have 12 medical oncologists. Do you know how many people we employ solely for this purpose? We have five employees whose only job in life is to apply for prior authorizations, keep track of what gets rejected, appeal, etc., etc. Five, so every doctor has half an employee dealing with this alone, so tell me if that is an excessive administrative burden or not?

AY: Calling pharmacy benefit managers, sending in documentation to back up prescriptions, appealing the rejections — all that takes time.

He says it takes so much time that he and other doctors sometimes change their prescriptions based on what they know the pharmacy benefit managers will approve.

RR: it’s like training a dog, you know, you do something long enough, the dog gets trained.  I’m finding that sometimes I just decide to go one path because I know that it will be the path of least resistance, and that’s a little scary because this is a commercial decision that is being forced down our throats, and it’s changing our medical decision-making, so sometimes we are doing things for the patient that may not be in their best interests, because who on earth is going to go and fight with the insurance company again on one more issue?

[MUSIC]

Maiken Scott: That story was reported by Alan Yu.

SEGMENT 2

If I say pharmacy — you probably think CVS, or Walgreens, but many neighborhoods around the country rely on small, independent pharmacies. I have one around the corner from me — and I will never forget the day my pharmacist delivered children’s Tylenol to my house when both of my kids had a high fever and I was totally freaking out.

Independent pharmacies serve a lot of communities that don’t have box stores, often caring for patients with complex medical issues.

But a lot of them say their business model is threatened by PBMs.  We wanted to zoom on this issue with one pharmacist. He told us his story but only under the condition of anonymity. He was afraid of backlash from PBMs.

Reporter Liz Tung interviewed him over the course of many months and we’ve verified and fact-checked this story, and decided to tell it without using his real name. We’re calling him Bill.

Here’s Liz Tung:

The hidden players putting independent pharmacies out of business

LT: Bill has worked at pharmacies in some capacity for going on 30 years. His first gig was a part-time job in high school. And from the beginning, it just felt like a good fit.

Bill: I felt like I wanted to go into health care, and wanted to be able to help patients, but didn’t want to go through a medical school or didn’t want to be a nurse. And I thought that pharmacy would be a good choice for me.

LT: So Bill set off to become a pharmacist — a process that at that time took five years of schooling.

B: The chemistry interested me and of course the patient interaction.

LT: After graduation, Bill got a job at the pharmacy in a grocery store. He ended up spending more than a decade there, until finally, he worked up the nerve to quit and open his own business.

B: It’s probably the best decision I made.

LT: Bill had wanted to open a community pharmacy, and so that’s what he did. Fro the beginning, they offered personal service — knew their patients by name, would call them on their birthdays, even delivered prescriptions right to their doors.

B: I would say 90% of them are probably elderly. You know, they called it in that morning and delivered it the same day. I don’t know if they would be able to get that if we weren’t there.

LT: It’s hard to pinpoint exactly when things started going south — Bill estimates it was around 2013 when their earnings started to fall.

B: There was a drastic decline.

LT: Bill says the majority of their earnings come from reimbursements, that is, the money they get from health insurance to dispense prescriptions to their patients.

I asked Doug Hoey, the CEO of the National Community Pharmacists Association, to explain how reimbursements work — or, in some cases, don’t work.

DH: Let’s just say you walk in with a prescription and it’s for an antibiotic, a generic antibiotic and give it to the pharmacist or the technician. They process it.

LT: They punch in your info. And back from the PBM comes verification of your coverage and how much you owe for your copay.

DH: The PBM says, ‘okay, Liz, your copay, based on the agreement between your employer and us, the PBM, your copay is $10.’ So you pay $10.

LT: But the pharmacy paid $20 to buy that drug in the first place — which means someone still owes them another 10 bucks. In theory, that money — their reimbursement — is coming from the patient’s health plan—basically, your prescription drug coverage. Except that health plans have delegated payment responsibility to everyone’s favorite middleman: PBMs. And PBMs can decide how much they want to pay.

DH:  The message back from the PBM says, ‘okay, pharmacy, we’re not actually gonna pay you 20.’

LT: You already got $10 from your customer, so we’ll give you another $8.

DH: So the pharmacy receives a total of $18 for this drug that they paid $20 for.

LT: PBMs can get away with this for a few reasons. For one thing, there’s a ton of secrecy that surrounds how they operate. The details of the contracts they write, of the formulas they use to calculate reimbursements are often insanely complicated — or hidden, or both. And that leads to situations like pharmacies actually losing money on prescriptions they dispense.

Another reason is that pharmacies need PBMs — remember, three PBMs control around 75% of the market. So if pharmacies want access to all those customers, they have to accept the PBMs’ terms.

Independent pharmacies have been protesting falling reimbursements, but other than complaining or lobbying their legislators, there’s not a lot they can do.

And over time those deficits, in some cases, getting reimbursed less than what the drug cost — they add up. That’s what happened to Bill. Year by year, he watched his weekly reimbursement checks get smaller and smaller.

And then, all of a sudden, those payments fell off a cliff.

B: At the end of 2019, they, they started deducting about $4,500 a week from my current checks that I was getting.

LT: Bill says that was anywhere from a third to even a half of the original checks. So he started investigating, and found out that the weekly deductions of $4,500 were because of a debt.  A debt no one had bothered to tell him about.

B: To the total of about $79,000 and change. And I was extremely, extremely shocked.

LT: This nightmare scenario is something that’s been happening to more and more pharmacies over the past few years. It’s part of widely reviled practice called “clawbacks.” Clawbacks are fees, often totally unpredictable fees, that PBMs charge pharmacies to “claw back” some of the money they’ve already paid them.

Imagine if you started a job under the agreement that you’d get $4,000 a month. You’ve got direct deposit, have your bills set to autopay, you’re good. Then, all of a sudden, you get a notification that your account is overdrawn. So you check your account history, and see that a couple months ago, your job decreased your salary from $4,000 a month to $3,000 a month — all without telling you. When you confront your boss, he says, “Yeah, we decided that $4,000 was just too much. So we changed your salary to $3,000 a month, and by the way, that’s retroactive. Which means you owe us $6,000 — $1,000 for every month we “overpaid” you. But don’t worry, we’re just going to deduct it from your current paychecks.

Sound unfair? That’s what a lot of pharmacists think too. How can it be that PBMs are allowed to take back payments they’ve already made, for services already rendered?

In part, it relates — ironically enough —  to what was supposed to be an incentive program. The federal government came up with these quality measures to make sure pharmacists were taking good care of their patients — specifically Medicare patients. If the pharmacists hit those benchmarks, theoretically, they’d get a financial reward.

Health care consultant Susan Lang — who’s spent years working with and even at a few PBMs — says those patient metrics include:

Susan Lang: Adherence to your drugs. You know, making sure that if you’re diabetic, you’re checking your sugar levels, right? All these things that Medicare would like you to do. If you do those things, then we will pay you extra because you’re a high performing pharmacy.

LT: But instead, experts and pharmacists say, PBMs have largely used these standards against pharmacies. Instead of rewarding them for good performances, they punish them — financially — for “underperforming.” Without ever fully explaining how it is they’re making those judgements.

SL: That’s not really pay for performance. That’s a proxy for price, right? That’s just price gouging.

LT: For the pharmacists, it’s like playing a high-stakes game without knowing the rules — or worse, in which there are no rules.

SL: They have no line of sight on the calculations of how the PBM calculated what they get back. So it’s completely nontransparent. They’re at the mercy of the PBM. And they have to just trust that the PBM is doing the right thing for them. Which why would you?

LT: I wanted to know what PBMs had to say about all of this — so I got in touch with their trade organization, the Pharmaceutical Care Management Association or PCMA. They represent the 11 largest PBMs in the country. And I asked their spokesman, Greg Lopes, what the deal was with clawback fees. In the industry, the most common and hated clawbacks are called direct and indirect remuneration fees, or DIR for short. Here’s Greg:

Greg Lopes: Pharmacy DIR is a performance based system with rewards and penalties. And the penalties, yes, are paid retroactively, but they are transparent. They are well known to the independent pharmacy. That information is available to them in real time.

LT: So does that mean that if an independent pharmacist just looked closely at their contracts, then they would be able to predict how much they need to pay at the end of the year for DIR fees?

GL:  That is correct. We think if all pharmacies, retail and independent, looked at their contracts closely they would understand where these incentives lie and where they are at with meeting them.

LT: He says, basically, read the fine print, follow the rules and you’ll be good. But Bill does not agree with that statement. He says he has never — not even once — received any kind of reward. Just fees upon fees.

B: Even if you’re perfect, you did everything you possibly could, they still take money back.

LT: The health care consultant we talked to earlier, Susan Lang says that these clawback fees — combined with shrinking reimbursements — are putting more and more pharmacies in an untenable position.

SL: I talked to a pharmacist a few months ago who went out of business and he told me initially his DIR fees were running about $20,000 a month, you know, say four years ago. And then they were running $50,000 a month and then $60,000 a month. And finally they were not sustainable. And he said I had to close shop.

LT: When I talked to Bill the first time, this was his fear. It was last spring and he’d just finished paying off his $79,000 bill when he got hit with another one.

B: They’re claiming that they overpaid me $106,000.

LT: The next time I talked to Bill was five months later. By then, he said, things had gone from bad to worse. It was the middle of the pandemic, business was down, and he’d had to take out a loan to make ends meet.

B: Obviously, I’ve cut my salary, you know, I’ve cut staff. I’ve had to cut staff, and you know, that doesn’t feel great either on a personal level.

LT: Bill told me the pressure had gotten to be a lot. He was stressed and exhausted, frustrated and angry.

B: Sleep sometimes is an issue. I think it’s more of, you know, your mind racing, and you’re trying to go to sleep, but, you know, you can’t, or you’ll get up and then start thinking again, and then can’t go back to sleep.

LT: Bill couldn’t stop thinking about the worst-case scenario — losing his business — which at that point, had been running for almost 15 years. I asked him what he’d do if that happened.

B: Um, pray that I could find a job.

LT: Bill has three kids, a family to support.

B: I still have at least 15 to 20 years to work. So, um, you know, I would definitely have to, uh, figure out something, I don’t know.

LT: But it wasn’t just the financial pressures that were making the whole thing feel so terrible. It was the fact that he felt so helpless. And it seemed like nothing or no one could help.

B: You know, you’re sitting there and you’re powerless. No one wants to help you. Your wholesaler can’t give you a better price on your cost of goods. And the PBM, you know, they don’t care. They’re just making money, hand over fist. So here we are all by ourselves on this little island.

LT: It seemed like no one was willing or able to rein the PBMs in — until that is, recently.

SCOTUS: You’ll hear argument first this morning in case 18540  … 

This past fall case related to PBMs climbed all the way up to the Supreme Court. It was a huge deal — at stake was the question of whether or not states have the right to regulate PBMs. Bill had pinned his hopes on the case. His business was hanging by a thread, but he was trying to hang on until the case was decided.

B: It’s very pivotal on how we’re going to move forward.

LT: The decision was finally handed down at the end of the year — in favor of allowing states to regulate PBMs. I expected Bill to be thrilled, so I gave him a call. And that’s when he told me — he’d sold the pharmacy.

B: So yeah, it was one of the toughest decisions I had to make. I went back and forth multiple, multiple times, multiple discussions with my wife, with my business partners. We could not see a light at the end of the tunnel. It was going to get to a point where we were going to have to invest more money into the company to keep it afloat in hopes that this court case would help us. But we didn’t really have enough time to wait for that to happen.

LT: It was the end of an era for Bill.

B: So there’s people there that I’ve known for, you know, 27 years, you know, from the very beginning of when I became a pharmacist. So I, you know, I’ve watched kids grow up, I’ve watched grandchildren be born, you know, multiple things. So, yeah, the patients, uh, and my staff, uh, is what I’m going to miss the most.

LT: For now, Bill is dusting off his resume, trying to make contacts, and figuring out what he’s going to do next. I asked him if he thinks he’ll ever run his own pharmacy again.

B: I mean, the only possible way I think I would ever do that again at this point is if I knew for sure that PBMs were gone, no longer in the equation, or, you know, had some serious, um, oversight — nowhere near the power that they have over independent pharmacy.

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Maiken Scott: That story was reported by Liz Tung.

Coming up, a closer look at the Supreme Court case that could rein in PBMs.

PROMO: 100 percent, states have the right to regulate their health care costs, and it didn’t seem particularly sympathetic to what PBMs are doing.

MS: That’s next on The Pulse.

SEGMENT 3:

This is The Pulse — I’m Maiken Scott.

We’re talking about pharmacy benefit managers — how they impact drug prices, patients, and pharmacists.

In December of 2020, pharmacy benefit managers were dealt a blow via a Supreme Court decision that could have far-reaching consequences.

Joining me now to talk about that decision is Dan Gorenstein. He is host of the health policy podcast “Tradeoffs” and he covered the Supreme Court Decision in two different episodes.

MS: Hey, Dan.

Dan Gorenstein: Hey, Maiken.

MS: So before we get into this decision, I just wanted to ask you. You cover health policy for a living, you do this all the time, everything you do it wonky.

DG: Thank you.

MS: Well, in a good way. But PBMs, are they just super extra wonky?

DG: I mean, Maiken, this is a double-decker wonk sandwich!

You look at PBMs who are key players in the prescription drug supply chain and anytime you get into following a drug from the manufacturer to wholesalers to PMBs to doctors — and also the money trail — it’s a pretty dense world. The short-hand that I’ve actually ended up using to just say this on the quick is: PBMs specialize in wheelin’ and dealin’ up and down the supply chain.

MS: The role of PBMs ended up before the Supreme Court, and I think to understand this decision we have to set up the stakes.

DG: Yeah, right. I mean in Arkansas, a few years back, mom and pop independent pharmacies were getting squeezed by the PBMs where the pharmacy benefit managers actually reimbursed these drug stores less than what it cost the drugs stores to buy the medicine in the first place. Right, and in 2015 the lawmakers in Little Rock, in Arkansas, they got involved. That’s something I talked about with Erin Fuse Brown about. She is an associate professor of law at Georgia State University:

Erin Fuse Brown: Arkansas in this case passed a law to protect these independent pharmacies that requires PBMs to pay pharmacies enough to cover the pharmacies’ cost of acquiring a generic drug.

MS: And I am assuming that this did not go over well with PBMs?

DG: They hated it so much in fact, Maiken, that they decided to sue the state. Ultimately the case makes its way all the way to the U.S. Supreme Court. And essentially, the PBMs use this obscure federal law — called ERISA — and they say that protects them from this Arkansas regulation. And a point of context, employers have used ERISA,  which stands for, Maiken, get ready: Employee Retirement Income Security Act — in court for years. And it’s been really this super effective shield for them.

MS: And in the simplest terms the way I understood this was that ERISA was used as a way to protect employers, and in this case PBMs, from having to deal with different regulations in different states.

DG: That’s exactly right. The PBMs are arguing in this Arkansas case, just like employers have argued previously that, ‘look, Arkansas wants us to treat drug stores like this, but Vermont wants us to treat drugs stores like that. And we can’t do all these different things.’ So they are feeling optimistic going into this case that the court’s going to side with them because that’s how the court has sort of previously been deciding these cases.

MS: And so the Supreme Court decision was really a big surprise. What happened?

DG: It was a stunning eight to nothing unanimous sweep for the state of Arkansas. You know I really wanted to understand the implications so I called Erin Fuse Brown back and here is how she explained the ruling to me.

EFB: The opinion by Justice Sotomayor was pretty clear. It was just like 100 percent, states have the right to regulate their health care costs, and it didn’t seem particularly sympathetic to what PBMs are doing or their arguments. And so, you know, the state’s ability to regulate in this area was certainly strengthened.

MS: So, what does this mean now for all states, beyond Arkansas and this specific law?

DG: Well, there’s some health wonks dancing in the streets as a result of this decision. We had a source who said that there’s somebody at the state level who was like, ‘OMG, states won! ERISA lost! Unanimous. We’re going to want to amend a lot of bills now.’ And Erin explained to me that this ruling creates this whole new category of laws, those that are aimed at health care costs, that are safe from ERISA preemption now, which is a big deal. And in a way, the Court saying, ‘Listen, employers and whatever vendors you use, like PBMs, you don’t get to cry wolf (ERISA) every time a state regulation happens to touch on the health benefits that you offer.’ So the 40 states that have already passed PBM regulations, Maiken, those regulations are pretty much fine.

MS: So nobody is going to be able right now to go and challenge other states that have already regulated PBMs?

DG: That is the sense from the experts that I’ve talked to.

MS: Could this mean that states will try to do more now to rein in PBMs?

DG: I think the Supreme Court ruling gives states a lot more latitude now in 2021, than they assumed they had just a year ago to try to look at and scrutinize the role that PBMs are playing in their state and the impact that that is having on drug costs.

MS: Now, before we go, I wanted to ask you, when we were researching this episode and looking into the role of PBMs, it was so hard to understand what they actually do and how they can justify their existence and how we got here. So, what am I missing?

DG: So look, first of all I think that’s a great question. I had a very similar question when I began to do research into PBMs the first time I came across, ‘I was like what is PBM? Are we talking about PBR the beer?’ I was completely confused. I didn’t know what we were talking about. So, but here’s what I’ve learned several years later:  It’s pretty easy to pin the blame of rising drug prices on the PBMs. But, at least back in the day, PBMs offered a service and that was to help employers buy cheaper drugs. Along the way they take a cut for their services and that makes sense, but here is the problem, Maiken, that PBMs often get paid a percentage of the price of the drug, the price that the drug makers are setting, so the higher the price the drug makers set, the more money the PBMs stand to make and that kind of alignment is part of why prices for these prescription drugs that are essential keep going up.  And so this issue is really what needs to be sorted out.

MS: It sounds like conflicting interests at play. I’m thinking about a waitress trying to up-sell her customers and then handing them a coupon. It doesn’t really make sense. Whose side is she on?

DG: Right, the PBMs really are obviously beholden to their client, the employer and the insurance company. But at the same time the more that the drug company raises prices the more money the PBMs stand to make.

MS: Thank you, Dan.

DG: Thank you, Maiken.

MS: Dan Gorenstein is the host of the health policy podcast Tradeoffs.

That’s our show for this week — The Pulse is a production of WHYY in Philadelphia.

Our health and science reporters are Alan Yu, Liz Tung, and Jad Sleiman. Sojourner Ahébée is our health equity fellow.  Charlie Kaier is our engineer. Xavier Lopez is our associate producer. Lindsay Lazarski is our producer.

I’m Maiken Scott, thank you for listening!

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