Gagging over the Gag Clause Hype
While I think the recent attention to the shady practices of big Pharmacy Benefit Managers (PBMs) is good overall, it’s not yet addressing the biggest issues. I can tell you why the prohibition of gag clauses was not pushed back on by PBMs, but first some background. I received the following notification in my inbox via the ASHP Daily Briefing:
The Washington Examiner (9/5, Leonard) reports that on Wednesday, the Senate unanimously approved a bill which “would ban Medicare insurers from enforcing ‘gag clauses’ that forbid pharmacies from telling customers about cheaper ways to buy drugs.” The article says, “The Know the Lowest Price Act is intended to help patients covered under Medicare to find out if their prescription would cost less if they were to pay for it out of pocket rather than through their insurance plan.” The piece adds that the changes “explicitly apply to Medicare Part D, which pays for prescription drugs, and to Medicare Advantage.”
My personal opinion on why this sucks for independent pharmacies and why PBMs are okay with it
The gag clause is only a small part of the contract picture regarding what a pharmacy can charge a customer. Let’s see if I can make something convoluted (because pharmacy is crazy complicated) simple enough for anyone to understand. Call me out if I don’t. I want people to understand this. (#4 below is where it gets really interesting, but you need to read 1, 2 and 3 to understand……)
This only applies to Medicare……
Pharmacy profits, copays, and Medicare pricing: Unfortunately, most independent pharmacies are already losing money on a majority of Medicare Part D plans. Some large Medicare plans pay less than cost for medications, so that pharmacies are losing money on a large portion of the most common medications and therefore relying on the profits from other medications to stay in business. The copay that comes across is part of the “income” for the medication. Additionally, many plans will pass on the cost of the medication to the patient through the copay. When the pharmacy adjudicates a claim (while you are so very patiently waiting for your medication), they get back from the insurance what the payment is supposed to be. This is made up of drug payment + dispensing fee + copay= Total payment. The dispensing fee is usually $1 or less per prescription, even though industry average estimates at least $12 cost per prescription to fill. Sometimes, the pharmacy sees a “payment” of $30, but then also realizes that is solely the copay and the insurance isn’t actually “covering” the medication. In summation, some issues:
Payments that do not even cover the cost of the medication, let alone the cost to fill it.
Passing on the total cost of the drug to patients through copays.
Dispensing fees that are an INSULT to our profession
U&C and Audits: PBM contracts often require pharmacies to use insurance if the drug is covered. If a pharmacy does NOT use insurance for a covered medication, and instead charges the patient cash, the PBM states that the pharmacy must charge the patient the U&C (Usual and Customary) cost. The U&C is supposed to be what is charged to anyone. Here’s where it gets sticky. If a pharmacy charges a patient less than they charge the PBM (and they always will), then the PBM can audit the pharmacies and take back the difference between what the pharmacy charged the PBM (supposed to be the U&C) and what they charged the patient for that medication retrospectively on all claims. Think about the implications of this for independent pharmacies and their bottom line. Pharmacies typically bill PBMs Average Wholesale Price (AWP)- a certain % + dispensing fee. This is the U&C of a medication for that pharmacy. The difference between U&C for, say, a Walmart $4 drug (and even those prices are climbing) could be $100. Of course, thanks to Walmart, most PBMs will only pay $3 for these medications, and pharmacies end up losing money, but that’s a topic for yet another rant on fast-food pharmacy mentality.
- Why you should know about PBMs and vertical integration: This truly needs to be a blog in itself, and it likely will be. Let me just say that the largest PBMs are CVS/Caremark (now called CVS Health), OptumRx and Express Scripts. CVS Health and Aetna are about to merge in a nearly $70 billion deal. Cigna is also looking to buy Express Scripts. Ever hear of the term Antitrust? Even the American Medical Association (AMA) is flat out against this. I would like to point out that the PBM CVS Health is buying the insurance company. How did they get so fat?! You can probably guess why, and when a PBM owns its own pharmacies, you think it’s auditing them and taking money back? NO. When a PBM contracts with ALL of the competition in the area, do you think it finds every way to drive them out of business? YOU BET. These PBMs are happy to:
- have other pharmacies take the risk of an audit where they get to take money back
- have other pharmacies make less money on a prescription so that the patient can save money
- get the business of the patients when the local competition they contract with goes out of business and sells their patient prescriptions to CVS or another pharmacy owned by that PBM.
I want to hear your comments, and I hope you vote for someone who is against this type of consolidation in healthcare. If I missed something, or something is wrong, let me know. I only know a portion of all that is going on, but I know enough that I feel the need to let people know that what is happening in healthcare has been and will continue to hurt them unless they are informed and take action.
Thank you for reading my Soapbox!