While multiple factors can contribute to a business closing, the additional costs Pharmacy Benefit Managers impose on pharmacies contribute to the problem.
Author: Justin Leventhal
Imagine walking to your local pharmacy — the one your family has trusted for years — only to find it shuttered. This is unfortunate for many Americans as pharmacies nationwide close their doors permanently.
While multiple factors can contribute to a business closing, the additional costs Pharmacy Benefit Managers impose on pharmacies contribute to the problem. Even when Pharmacy Benefit Managers are not directly shutting down pharmacies, their tactics drive up costs for patients who can’t get generic medicines as easily. Legislators have put off shining a light on the industry for too long.
Of the tactics Pharmacy Benefit Managers use, preferential formulary placement of expensive drugs whose manufacturers offer price rebates has garnered widespread attention. This results in brand-name drugs receiving favorable placement over their generic counterparts. Pharmacy Benefit Managers then choose not to pass the rebates to patients or pharmacies, instead pocketing the difference — a practice known as spread pricing.
Pharmacy Benefit Managers use a tier system to determine copays and reimbursements for pharmacies. This is intended to give patients more access to less-expensive generic drugs. Frequently, generics are listed on the brand-name tier while providing many brand-name drugs preferential prescription status of the supposedly generic tier. This artificially affects drug prices.
In 2024, more than half of all generic drugs were not listed on their formularies’ generic tiers. A survey found that 72% of Medicare Part D formularies placed at least one brand-name drug in a tier with lower cost-sharing than its generic equivalent. These practices inflate drug prices for Medicare beneficiaries and privately insured patients by limiting generic competition and sometimes preventing generics from being prescribed.
This practice creates significant financial challenges for pharmacies. Brand-name medicines are more expensive for pharmacies to purchase, yet they do not benefit from the Pharmacy Benefit Managers rebate. At the same time, managers reimburse pharmacies at lower rates for generics due to their placement on non-preferred formulary tiers. With Pharmacy Benefit Managers retaining savings from brand-name drug rebates and offering minimal reimbursement for generics, pharmacies often lose money dispensing medications.
Pharmacy Benefit Managers also steer patients away from independent pharmacies... CONTINUE READING
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