At 62 years old, Rod Kalbus was looking for a reason to retire. Firing a barrage of bullets, a couple hitting their mark, at three robbers who jumped behind his drugstore counter in December seemed as good reason as any.
But that was just “the final straw,” as Kalbus put it last week. His business — the last independent pharmacy in Akron’s Highland Square neighborhood — closed its doors forever on Tuesday. It was a business decision, and not necessarily one made out of fear.
In the final months of his 27 years filling prescriptions, what state lawmakers now call an “oligopoly” of health management companies, which fellow pharmacists call “too big to fail,” had proved far more effective than masked thieves at skimming profits from Kalbus’ Highland Square Pharmacy cash register.
“It’s a very shady, nontransparent business,” Kalbus said of the companies, known as pharmacy benefit managers, whose success is allegedly built on killing competition and inflating Ohio’s prescriptions drug costs for pharmacies and customers.
Kalbus and other pharmacists interviewed by the Beacon Journal/Ohio.com say corporate greed is the best explanation for why 164 pharmacies, many of them small and locally owned, have closed in Ohio over the past two years.
PBMs at work
Pharmacy benefit managers, or PBMs, have been a mainstay in the prescription drug industry for decades. They were first introduced to haggle with drug manufacturers to get better prices for pharmacies, insurers, health plan providers, business, workers, the government and — ultimately — patients.
Over time, though, the companies have become integral to the drug prescription industry. Now middlemen in the supply chain, PBMs operate in negotiation between insurance claims, pill prices, which drugs make the cut and what pharmacies get to bottle them up.
This is where pharmacists and lawmakers say the free market can be abused for financial gain. PBMs can push more expensive drugs if they get a bigger cut on the negotiated price. “In any other industry you would call that a kickback,” said Ernest Boyd, executive director of the Ohio Pharmacists Association. “In our industry, they call it a rebate.”
Today, five PBMs are estimated to have a hand in filling half the nation’s prescriptions. Every company authorized to accept state Medicaid dollars for prescriptions uses a PBM, which negotiates drug costs, what insurance covers and how much from state funding or private insurance payouts should trickle to pharmacies.
Pharmacists, and now some pro-business Republicans at the Statehouse, argue that PBMs have unfairly cornered the market. For example, CVS Caremark, which is contracted by four of Ohio’s five Medicaid providers, can charge less for services provided to its CVS-branded pharmacies.
Parent company CVS Health, which responded by email Friday, said a “stringent firewall” keeps the influence of its PBM from unduly benefiting its pharmacies. “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,” wrote Christine Cramer, the company’s senior director of corporate communications.
But pharmacists, who now have the attention of lawmakers, allege that recently PBMs have had more than just a thumb on the free market scale.
Price setting
In the fall, PBMs slashed reimbursements for Medicaid-approved prescriptions, cutting 80 percent of revenue in the most egregious cases reported by pharmacists and lawmakers.
And there’s no verifiable evidence that PBMs are setting cost and reimbursement rates according to basic supply-and-demand economics. The rates, instead, are established privately and, critics say, can fluctuate widely from one pharmacy to another, or from one month to the next.
As they allegedly withheld Medicaid dollars, CVS Health sent letters and emails to Ohio pharmacies asking if they would sell their businesses, citing the lower reimbursement rates they controlled “as a reason [the pharmacies] should get out of the market,” state Rep. Scott Lipps, a Franklin County Republican, said at a news conference Wednesday.
“Our retail business’ acquisition activity is completely unrelated to, separated from, and not coordinated with in any way the PBM business’ management of its pharmacy network,” Cramer said.
Dan Jones, a pharmacist and vice president of operations at Klein’s Pharmacy in Cuyahoga Falls, said the buyout request arriving amid lower reimbursement rates sent a clear, coordinated message. “Basically, to me, it seems they are trying to drive out competition.”
Before he closed up shop last week, Kaldus said he was making less than $2 to fill up to 40 percent of his customers’ prescriptions. For some transactions, Kaldus pocketed as little as 57 cents.
Revenues that low are unsustainable, though other area pharmacists, who have closed branch locations, say they refuse to turn away customers just because they’re losing money.
A 2016 study by Mercer Government Human Services Consulting, which was paid by the Ohio Department of Medicaid to investigate the cost of filling prescriptions, found that pharmacists spent between $9 and $10 on average to fill a prescription. That includes on-site consultation, state reporting requirements, monitoring to ensure drugs are used properly, salaries for employees and more.
Pharmacy deserts
Beyond the threat of higher prescription drug costs, shuttering pharmacies has a few other potentially negative consequences for customers and communities.
“The biggest concern that we have had is that, as pharmacies have closed their doors, patients are losing access to health care,” said Jones, who attributed market pressure from PBMs for the closing of a downtown Akron location last year, which was open to the public for 40 years. “These are patients that were already disadvantaged and now have to find access to transportation to fill their prescriptions.”
Similar concerns face rural communities, Boyd of the Ohio Pharmacists Association said. “Pharmacists provide services,” he said of one-stop shops for insulin, heart medication, flu shots and more. “If you check with rural health associations, in many counties we are the only health care provider there.”
Independent pharmacies are more likely to compound drugs on site. As they close, Boyd said customers with — for example — newborn babies may be forced to drive further for drugs requiring special blending and not typically stocked on shelves.
Boyd also warned that PBMs’ influence with drug manufacturers could put profits over patient choice. PBMs negotiate prices with manufacturers. But that doesn’t mean the lowest price prevails.
The PBM is then in the position to steer pharmacies, through variable pricing, toward more expensive drugs even if cheaper generics are available.
“We get a manufacturer’s drug on your formulary, your list” of what satisfies a doctor’s order, Boyd alleged of how PBMs negotiate in their own best interests. “We [the PBMs] win, you [the manufacturers] win. And the only one who gets screwed is the buyer.”
Reach Doug Livingston at 330-996-3792 or dlivingston@thebeaconjournal.com. Follow him @ABJDoug on Twitter or http://www.facebook.com/doug.livingston.92 on Facebook.
Filed under: General Problems
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