Hunter Smith offers a restaurant analogy in trying to illustrate the severe financial squeeze that pharmacy benefit managers have put on family-owned pharmacies.
“If only one in five people at a restaurant paid, well how long would that restaurant last?”
Probably not very long.
Smith says the pharmacies he owns with his wife, Lisa, and that she owns with a fellow pharmacist could be out of business in less than two years if something isn’t done to stop the unfair, anticompetitive business practices that are killing independent pharmacies like theirs.
“We’re not even making enough each month to cover our drug bill right now,” he said.
“It’s just unsustainable.”
Lisa Smith and Courtney Walker were friends and fellow pharmacists at Walgreens in Greenwood when they decided in 2014 to go out on their own and open Greenwood Drugs. Since then, Lisa and Hunter, a self-employed accountant, have purchased pharmacies in North Carrollton and Winona.
The businesses have been successful in drawing customers because of the personal service the two women and their employees provide. Their problem isn’t volume. Their problem is a reimbursement model that seems designed to put them out of business.
The root of the problem is the pharmacy benefit managers, these massive and secretive middlemen between the insurance companies, the drug manufacturers and the pharmacies.
PBMs sprung up about 50 years ago on the theory that they would hold down drug costs, using their collective leverage to negotiate better pricing from the drugmakers, thus saving money for patients on their drug costs and employers on their insurance premiums. But over time, the PBMs may have done more to hike drug costs than reduce them.
Three PBMs — CVS Caremark, Cigna Express Scripts, and UnitedHealth Group’s Optum Rx — control an estimated 80% of the market. All of them are conflicted by their ownership. CVS Caremark is part of a health-care giant that operates a chain of 9,400 retail pharmacies as well as a health insurance division. The other two PBMs are owned by large insurance companies.
There have been numerous lawsuits and government investigations into the business practices of PBMs. They’ve been accused of giving their affiliated pharmacies, large pharmacy operators such as Walgreens and Walmart, and mail-order pharmacies much better deals than the independent pharmacies. They allegedly manipulate their drug formularies — the list of drugs that a patient’s insurance will cover — to steer patients toward the brand-name drugs for which the PBMs get the largest rebates. And they are accused of so-called “spread pricing,” paying the pharmacies at prices that are less than what the PBMs charge to the insurance plans for the drugs.
From 2017 to 2023, Greenwood Drugs saw the fees it pays to PBMs soar from about $53,000 to $728,000. Most times, these fees were clawed back months after the prescription had been filled. The pharmacy might think it made money on a prescription, only to find out later that it cost them to fill it. On Humira, a $7,600 injection used to treat rheumatoid arthritis, the drugstore initially thought it made several hundred dollars, only to discover it actually lost $1,300 once all the PBM fees came in.
Those clawbacks stopped in 2024, so now the pharmacies know the PBM fees at the point of sale and whether they make or lose money on each prescription they fill, but the imbalance still persists. For one out of every four or five prescriptions, the pharmacy’s reimbursement is less than what the pharmacy pays for the drug. For Ozempic, the popular weight-loss drug, Greenwood Drugs is losing between $40 and $45 for every prescription it fills.
The independent pharmacies, which number about 400 in Mississippi, could decline to fill those money-losing prescriptions and send their customers to the chains and mail-order houses for these drugs, but if they do, they risk losing those customers forever.
It’s a quandary, and the pharmacies are asking the Mississippi Legislature for help to impose some restraints on the PBMs, as several other states have done.
The Senate has passed legislation that would force more disclosure from the PBMs and curb some of the ways they jack up their profits.
Under Senate Bill 2677, pharmacies for the first time would get a copy of the contracts negotiated on their behalf by a third party with the PBMs. The PBMs would have to provide documentation to prove that they are passing on the rebates they receive from drugmakers to the government or private sponsors of the insurance plans. They would be barred from steering patients to pharmacies with which the PBMs are affiliated. And the legislation would empower the state Board of Pharmacy to audit and investigate PBMs.
The legislation isn’t everything the pharmacies wanted. They had also asked the Senate to replace the complicated and lopsided reimbursement system now in place with one in which the pharmacies recaptured the average cost of a drug plus a modest dispensing fee — the same system that Mississippi has previously adopted for Medicaid patients. But the pharmacies are willing to live with these reforms for now.
The House may not go along, however. Speaker Jason White assigned the Senate bill to two House committees, which is often a ploy used to kill legislation.
That fear prompted Chris Walker, Courtney’s husband, to write an emotional letter to White and Gov. Tate Reeves, asking them to do the right thing and not be swayed by the greedy PBMs and their highly paid lobbyists.
“Why are our Mississippi leaders,” Chris wrote, “allowing these billion dollar companies to take money from hard-working Mississippi women, who chose to come back to the Mississippi Delta and take a chance on opening up a pharmacy?”
The answer to that, Chris, is probably in the politicians’ campaign finance reports.
- Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
