Pharmacy Takeover: Inside the PBM Monopoly

In our previous post (click here to read!) we learned how PBMs can abuse their market power to generate revenue at the expense of increasing healthcare costs. We covered the issues of spread pricing, collusion and the lack of transparency which harm everyone but PBMs. However, we did leave out one important topic– the issue of PBM-owned pharmacies.

These pharmacies contribute to a larger problem of PBMs monopolizing and exploiting the industry. Some are even concerned that, together with PBMs, PBM-owned pharmacies can compromise care standards and reduce access to necessary medications, putting patients' health at risk.

This post will address these concerning accusations by explaining what PBM-owned pharmacies are and how their practices endanger the price and quality of care.

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What are PBM-owned pharmacies?

PBM-owned pharmacies are exactly what they sound like – pharmacies owned and operated by PBMs. These pharmacies are included in the list of pharmacies with which PBMs negotiate prescription prices for plans purchased by employers. So, ultimately, when working with their pharmacies the PBMs are negotiating with themselves.

Conflict of Interest

You can probably tell that there is something off with this set up. The balancing force between the PBMs, that look for the best drug prices, and the pharmacies, that want to keep drug prices high, is lost. Instead the decisions about drug prices become biased, prioritizing financial interests of PBMs over those of patients and their employers.  For soccer fans, this is the same as if the referee in your soccer game owned the rival team.

The pricing of a generic of the popular drug Humira, that treats autoimmune diseases, is a great example! This drug was manufactured by the biopharmaceutical company Amgen and launched in two versions that were similar in every way but price. While one cost $1,600 the other was more than double that cost – a whopping $3,300. Of course, we would expect PBMs to offer the first, cheaper drug, however OptumRX, one of the largest PBMs in the USA, recommended the latter, more expensive, drug.

The reason for such an uneconomic decision? OptumRX would get bigger rebates from the sale of the more expensive drug.

This decision was then passed down to their pharmacies that did not even offer the cheaper version of the drug, giving patients no other option but to suffer the cost of PBM’s greediness. So, in short, you cannot even trust your pharmacy anymore…

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More Problems

Of course there are still a handful of independent pharmacies that have no connection to the big PBMs, however their number has been consistently decreasing. Numbers show that the three biggest PBMs in the industry– OptumRx, CVS Caremark, and Express Scripts– control over 80% of the prescriptions market, which includes pharmacies. This allows PBMs and their pharmacies to leverage their market power and squeeze small independent pharmacies, which eventually increases the financial burden suffered by patients.

Here are two ways PBM-owned pharmacies do this:

1. Predatory Pricing

With their own affiliated pharmacies, PBMs generate revenue from patient prescription purchases which gives them an incentive to steer them away from competing independent pharmacies. They use their leverage and charge other pharmacies high fees for including them in their network while forcing them to accept low reimbursement rates that are sometimes lower than the rate at which the pharmacies purchase their drugs. This causes independent pharmacies to run at a loss, which they compensate by increased drug prices which puts pressure on healthcare costs for patients.

2. Anticompetitive Behavior

As we already hinted in the previous section, PBM-owned pharmacies can effectively reduce competition within the market using predatory pricing. Another, more extreme way they achieve this is by cutting out competing independent pharmacies from their clients plan completely. PBMs do so by pricing independent pharmacies out of their network. By this, patients start facing higher out-of-pocket costs at the independent pharmacies and thus choose to fill their prescriptions at PBM-owned pharmacies instead.

As demand dwindles, independent pharmacies start going out of business, allowing PBM-owned pharmacies to charge higher prescription prices. They wouldn't be able to do this if they still had competition!

3. Impact on Quality of Care

Up until now we only talked about the economic side of things. However, healthcare is not only about money, it is also about quality. Therefore, it is important to note that the anticompetitive practices of PBMs have a negative impact on underserved and rural communities who only have access to small independent pharmacies. These people are forced to either pay the hiked up drug prices or even travel long distances for their drugs if their local pharmacy is driven out of business. Not to mention, they will also suffer from reduced drug variety caused by the lack of competition within the market. As such communities tend to be lower income, they are particularly vulnerable to these changes and their quality of life will suffer as a result.

Final Thoughts

If you are asking yourself, "Who can I trust if not my PBM or pharmacy?" then you read this post correctly. The existence of PBM owned pharmacies is just evidence of the growing influence of PBM’s and who pays the price? We do. We become victims of monopolization, high drug prices and limited drug choice.

However, this has not gone unnoticed. The recent push for transparency and efforts of lawmakers are increasing PBM oversight. This article does a good job in summarizing the most promising efforts to get PBMs back under control. Even the big three PBMs are starting to feel the pressure, as CVS Caremark launched a new model to compete with transparent PBMs. But more on that in the next post!