Small Pharmacies Squeezed By Rule Change Cutting Fees to Insurers

Nutmeg Pharmacy (CT Examiner)

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An effort on the federal level to lower the consumer cost of prescription medicine by eliminating many of the fees that insurers and their proxies can charge pharmacies, is instead placing a heavy financial burden on small pharmacies to cover the cost of the rule change for insurers. 

The industry association representing the pharmacies originally supported cutting those fees, which could amount to tens of hundreds of thousands of dollars every few months, without any clear explanation of what the fees were for. 

In a report justifying the rule change, Centers for Medicare and Medicaid Services calculated that over ten years, between 2010 and 2020, those fees increased from $9 million to $9.5 billion — roughly a 107,400 percent cost hike. 

Greg McKenna, owner of Nutmeg Pharmacy which has five locations across southeastern Connecticut, said the payments that pharmacies have had to hand over to the insurers, in the form of a lump sum, are “awful” for independent pharmacies. Under the old rules, McKenna said, Nutmeg paid between $350,000 and $480,000 in biannual or quarterly fees. 

“It’s an outrageous amount of money, just outrageous, and it’s just totally wrong,” McKenna said. 

But in response, one of the largest insurers has announced it is reducing the amount it will reimburse pharmacies for drug costs once the rule change goes into effect January 1. 

According to reporting by KFF news, Express Scripts, a company that controls a significant share of the market, and is owned by the insurer Cigna, sent pharmacies a contract notifying them that the company would cut reimbursements for name-brand drugs by 10 percent of wholesale cost. 

A number of small independent pharmacy owners told CT Examiner that this would leave them in a double bind at the start of new year — receiving less money for the drugs they sell, while at the same time still responsible for months of fees that are left over from the latter half of 2023. 

Ed Schreiner, who owns Stolls Pharmacy in Waterbury, said he expects to withdraw money from his retirement account to pay roughly $55,000 in fees next year. 

“I’ve been saving cash now for six or eight months trying to get to that number,” he said.

Ronna Hauser, senior vice president of policy and pharmacy affairs at the National Community Pharmacists Association, said the rule change isn’t all bad, and would increase pricing transparency and make the insurance middlemen more accountable for the “secret backdoor fees” they were demanding.

But Hauser said the association has voiced its concerns to Centers for Medicare and Medicaid Services about how the reduced reimbursements, combined with the leftover 2023 fees, will affect pharmacies. She said the federal agency has asked the companies for leniency with pharmacies or to put in place payment plans to cover the lump sums. But Hauser said she’s unaware of any move by large middlemen to create these types of plans. 

“We’ve just really been trying to educate our members, especially the last 12 months, about how they may need to have cash on hand. This may include loans, this is going to include some changes to perhaps your inventory —  just different ways to help our members be prepared,” Hauser said. 

Greg Lopes, spokesman for the Pharmaceutical Care Management Association, which represents pharmacy benefit managers, told CT Examiner in a statement that the organization had anticipated the problems and had opposed the changes from the start.

“We want to be crystal clear that PBMs have opposed this Medicare pharmacy regulation in every form it has taken since 2014, and we still oppose it. In fact, we have raised countless times OUR CONCERN that pharmacies would likely receive lower payments under the new Medicare Part D rule,” wrote Lopes.

Gerald Acampora, who owns North Haven Pharmacy, said he too supports the change and that the cut in fees will mean lower costs to patients. 

“Overall, it’s going to be a good thing that practice is going to be ending. So as a pharmacist fills the prescription, you’re going to see what you’re getting paid, and that’s what it’s going to be. It’s no after-the-fact take back,” Acampora said. 

Under the old rules, insurers charged pharmacies fees in a lump sum months after purchases were made, making it nearly impossible to tell how the insurance middlemen were calculating the fees, according to pharmacists contacted by CT Examiner.

“Why should we receive more as we’re filling the prescription, and then six months later, they just take it back?” Acampora said. “I have no idea what claims are they taking this money off of? Where are they recouping the money?”

He said he has set aside $50,000 to cover the retroactive fees from 2023. 

Acampora said the bigger problem is that the reimbursements to pharmacies from the insurer proxies are too low.

For example, Acamopora said, a patient will generally pay between $1 and $2 as a co-pay for a Z-Pack – a common  antibiotic used to treat infection – assuming that insurance is picking up the rest of the cost. That co-pay is often the only payment the pharmacist receives for the drug, he added. 

“If that Z-pack costs me $3, it’s not a sustainable situation,” he said. 

Schreiner said he’s had similar experiences. 

“I’ve had [prescriptions] where I get paid 23 cents by an [insurer]. … The bottle cost me 75 cents, the label cost me 25 cents,” Schreiner said. “I’ve got to pay somebody to fill the prescription, not to mention the cost of the drug.” 

Tim Harvey, pharmacy manager at Grieb’s Pharmacy in Darien, said his company loses money on about 30 percent of the prescriptions for brand-name medications – given that the price insurers want to encourage the use of cheaper generic drugs.

McKenna said that the soon-to-be-eliminated fees charged by the insurers and their middlemen were one of the reasons that the overall cost of drugs is rising across the country. 

“It’s the reason why we’ve seen Eliquis just skyrocket in price. Originally Eliquis was $420. And let’s say a [middleman] like Caremark or Optum or Express Scripts takes 30 percent — they’ll take $140 out of the manufacturer. But what happens is the manufacturer is allowed to increase their price, and that’s the reason why Eloquist now is close to $600 a month.” 

But McKenna said he doesn’t believe the January rule change will ultimately benefit anyone, and suggested that legislators were being paid to “look the other way” when it comes to insurer practices. 

“In the state of Connecticut, we have a minimum price for alcohol. We have a current minimum price for marijuana, but prescriptions — they can do whatever they want to do. We have no controls,” McKenna said. 

Hauser said states like Arkansas, North Dakota and Oklahoma have passed strong laws regulating insurer proxies, but the rules only apply to state employee and commercial plans, not Medicare patients. 

At the federal level, she said, there is legislation before both the House and Senate aimed at reforms, including requiring that pharmacies be paid “reasonable and relevant” prices for prescriptions and ensuring those payments were equal for independent pharmacies and large pharmacies affiliated with the insurers.

In the meantime, independent pharmacies are doing what they can to keep afloat. Harvey said he wasn’t sure how Grieb’s was going to pay. 

“Just try to do as many vaccines and flu shots and profitable over-the-counter [medications] and everything else as you possibly can,” he said. 

Harvey said he was initially in support of the rule change, but now he’s not sure.

“It’s kind of one of those things that we’ll see when the day comes, because I just don’t really trust any of the [middlemen],” he said. “They kind of always find a way, one way or another, to get their way, unfortunately.”


Emilia Otte

Emilia Otte covers health and education for the Connecticut Examiner. In 2022 Otte was awarded "Rookie of the Year," by the New England Newspaper & Press Association.

e.otte@ctexaminer.com