While prescription drug costs have been steadily increasing, the reimbursements paid to the pharmacies have been decreasing.
The math isn’t adding up.
But this contradiction is no surprise to Matthew Olivier, who opened Matt’s Coastal Pharmacy Inc., which operates as Matt’s Local Pharmacy, in Middletown in 2018.
Part of the reason is that pharmacy benefit managers – the intermediaries that get medications from manufacturers to patients – are using their leverage to squeeze out the local neighborhood pharmacies across the state, some observers say.
Using a practice known as “spread pricing,” PBMs often charge health plans and payers more for a prescription drug than what they reimburse to the pharmacy. Then the PBMs keep the difference as revenue.
There are about 60 PBMs in the country, but the industry is dominated by Express Scripts Holding Co., OptumRx, and CVS Caremark, which is owned by Woonsocket-based pharmacy chain CVS Health Corp.
State lawmakers have introduced several bills that aim to rein in the use of spread pricing by PBMs and managed care organizations in order to protect independent pharmacies from discriminatory treatment, as well as to keep costs down for Rhode Island patients and taxpayers.
Olivier says the $69 billion acquisition of Caremark by CVS Health in 2018 should never have been allowed to happen because it gives CVS too much control over the drug supply chain.
Matt’s Local Pharmacy has been struggling with what Olivier says are unfair and anticompetitive contracts that he has no choice but to sign. More than half of his customers’ prescriptions are reimbursed by CVS Caremark. For example, Olivier says, his business loses $39 every time it fills a prescription for Eliquis, a medication designed to prevent strokes and blood clots for patients with atrial fibrillation.
“We need to just be reimbursed at a fair rate,” he said.
In January, the Federal Trade Commission found that PBMs are steering patients to use specialty drugs at their affiliated pharmacies, raking in billions of dollars and adding about 30 cents per dollar to the price consumers pay for prescriptions. The FTC also found evidence of lopsided and unilateral contracting practices that disadvantage independent pharmacies.
And if local pharmacies decide to start refusing patients, the insurance companies can send a cease-and-desist order threatening to pull the contract, which Olivier says would put him out of business within a month.
“This is why they can give a garbage contract that I have to take,” he said. “Because if I don’t, I can’t accept half my customers. So, I’m just trapped.”
Reimbursement rates for drugs used to help transplant patients or treat HIV were marked up by more than 100%, according to the FTC. Between 2020 and 2022, the big PBMs marked up 63% of the specialty generics they dispensed by 100% or more. And 22% were marked up 1,000% or more, the FTC said.
Sen. Lori Urso, D-Pawtucket, says the legislation she has sponsored to end spread pricing has been simplified over previous failed legislative attempts by simply requiring PBMs to ensure the amount required to be paid by the health insurer and patient for a prescription medication does not exceed the amount paid to the pharmacy for dispensing the drug.
“This has been really painful for the independent pharmacies,” she said. “This is not in the spirit of free commerce.”
Urso says she has watched the effects of spread pricing play out locally with the closure of Green Line Apothecary LLC in Providence in 2024, a business she patronized for years.
Since then, Urso says PBMs have made it difficult for her to get medications by steering her to their affiliated pharmacies.
CVS Health is the largest PBM, with a 21.3% market share, earning $1.64 billion last year.
CVS Health spokesperson Phillip Blando pushed back against the assertion that chain pharmacies are to blame, saying its clients have a choice of different types of contracting arrangements “to meet their employee and financial needs” and that eliminating spread pricing will increase the cost to employers.
Blando said CVS Caremark does not use spread pricing in Medicaid and “in recent years” has reimbursed independent pharmacies 56% more for generic drugs and 79% more for brand drugs than it does to CVS Pharmacy.
“Employers who chose spread pricing are looking for price certainty,” he said. “With a spread pricing model, we guarantee our client a discounted rate on every claim, regardless of what the pharmacy filling the claim actually charges.”
Rep. Jennifer Stewart, D-Pawtucket, co-sponsor of a bill to stop spread pricing for Medicaid reimbursements, believes reform is on the horizon. The March 6 House Health and Human Services Committee hearing included the testimony of dozens of people who said they were harmed by spread pricing.
“Neighborhood pharmacies know their patients,” Stewart said. “When it comes to health and well-being, the human condition involves this personal connection that is not available in the larger chains. It’s about maintaining community institutions.
“How is it that at a time when prices are increasing, we have all these providers saying they can’t make it?” she said.
Olivier is one of them.
“I’m taking financial hits daily,” the pharmacist said. “I want to retain my customer base and take care of my community. But I’m forced to dispense at a loss. These guys are squeezing us out of business.”
