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However, pharmacists can help mitigate these effects.
Pharmacy benefit managers (PBMs) have long been significant players in the health care system, managing prescription drug benefits for insurance companies, health plans, and Medicare Part D plans. Their primary role is to negotiate drug prices with manufacturers, manage formularies, and reimburse pharmacies for the medications they dispense to patients. Although these negotiations often help insurers and consumers by keeping prescription drug prices down, they have unintentionally created serious challenges for independent pharmacies. In an increasingly competitive and complex health care landscape, independent pharmacies are particularly vulnerable to the ripple effects of PBM price negotiations.
Pharmacist and a calculator, drug costs | Image credit: Kannapat | stock.adobe.com
PBMs act as intermediaries between insurance companies, drug manufacturers, and pharmacies, with responsibilities that include negotiating drug prices with pharmaceutical manufacturers, creating formularies or lists of drugs that are covered by insurance plans, processing claims and reimbursing pharmacies for medications dispensed, and managing drug utilization to encourage cost-effective prescribing.
By pooling the buying power of millions of patients, PBMs can negotiate lower prices from drug manufacturers. However, over time, these entities have become incredibly powerful, and their focus has shifted toward prioritizing profit—sometimes at the expense of patient care and the financial health of smaller, independent pharmacies.
One of the biggest issues facing independent pharmacies is the steadily decreasing reimbursement rates for medications. PBMs may negotiate lower prices with manufacturers, but they don’t always pass these savings on to pharmacies. Instead, pharmacies often receive less reimbursement for the medications they dispense.
For big-box chains with large buying power and diversified revenue streams, this might not be a problem. But independent pharmacies operate on much tighter margins. In many cases, they’re left dispensing medications at a financial loss, which puts their entire business at risk. Imagine running a local pharmacy and being forced to sell life-saving medications for less than it costs you to purchase them. Over time, these kinds of unsustainable reimbursements can devastate a small pharmacy’s bottom line.
Spread Pricing and Clawbacks
PBMs also use something called ‘spread pricing’ to make money. Here’s how it works: they charge health plans or insurers a higher price for a medication than they reimburse the pharmacy for. The difference between what the PBM charges and what the pharmacy receives—the “spread”—goes right into the PBM’s pockets.
On top of this, PBMs may implement clawbacks, which retroactively reduce reimbursement amounts after a drug has been dispensed. Imagine a pharmacist thinking they’ve made a modest profit on a prescription, only to find out later that part of that money has to be returned due to a clawback. This type of uncertainty makes it difficult for independent pharmacies to manage their cash flow and predict revenue.
DIR fees are another complex issue. Initially introduced to improve accountability in Medicare Part D programs, these fees are now applied in ways that are often opaque and unpredictable. PBMs assess DIR fees based on a pharmacy’s performance metrics, but these metrics are rarely clear, and they often don’t reflect the quality of care the pharmacy provides.
Worse still, these fees are usually assessed after the point of sale, meaning pharmacies have no way of accounting for them when dispensing medication. For some independent pharmacies, DIR fees can add up to tens of thousands of dollars annually, significantly impacting their ability to stay profitable.
PBMs often create “preferred pharmacy networks,” limiting where patients can fill their prescriptions. Independent pharmacies may struggle to gain access to these networks, as they can’t always afford to offer the deep discounts that larger chain or PBM-owned pharmacies can provide. As a result, patients are often steered toward these big chains, reducing the patient base of independent pharmacies.
Think of a community pharmacy where the same families have filled prescriptions for years, only to be told by their insurance company that they now must go to a corporate chain instead. This loss of loyal customers can be devastating for a small business.
PBM consolidation with large retail chains or mail-order pharmacies presents another challenge. Some of the largest PBMs are now owned by or affiliated with major pharmacy chains, leading to an inherent conflict of interest. These PBMs often steer patients toward their own pharmacies, effectively cutting out the independent competition.
For independent pharmacies, this vertical integration feels like an unfair fight. They’re competing with larger entities that can negotiate better terms, have bigger marketing budgets, and are part of the same corporation that determines which pharmacies patients can use.
Although independent pharmacies face significant challenges due to PBM practices, there are steps they can take to lessen the blow and keep their doors open. These include advocacy, new revenue streams, new technologies, and collaboration with other health care providers as well as patients.
One of the most powerful ways to fight back against unfair PBM practices is through legislative reform. Independent pharmacies should work together to advocate for laws that promote greater transparency in PBM practices—particularly around spread pricing, clawbacks, and DIR fees. Supporting “any willing provider” laws, which would require PBMs to accept any pharmacy willing to meet their terms, is another critical strategy.
Some states have already made strides in curbing harmful PBM practices, but there is still a lot of work to be done at the federal level. By joining forces with local pharmacy associations and advocacy groups, independent pharmacists can help push for meaningful reform that protects their businesses and their patients.
Pharmacists can no longer rely solely on dispensing medications as their primary source of income. To remain financially viable, independent pharmacies should explore offering additional services, such as medication therapy management, immunizations and travel vaccinations, point-of-care testing for conditions like diabetes or hypertension, compounding services, and wellness consultations and chronic care management.
By expanding their services beyond traditional prescription dispensing, pharmacists can attract new patients and create additional revenue streams that aren’t as directly tied to PBM reimbursements.
Leveraging technology can help independent pharmacies become more efficient and reduce operational costs. For example, automated dispensing systems, inventory management software, and e-prescribing platforms can streamline workflows and free up time for pharmacists to focus on patient care. Investing in tools like customer relationship management systems can also help pharmacies build stronger, more personalized relationships with their patients, boosting loyalty and retention.
Independent pharmacies can position themselves as an essential part of the healthcare ecosystem by collaborating with local physicians, hospitals, and other healthcare providers. These partnerships can lead to increased referrals, especially if the pharmacy offers specialized services like medication synchronization or adherence programs. Building strong, trust-based relationships with health care providers can also help keep independent pharmacies relevant and ensure that PBMs have less of an opportunity to steer patients elsewhere.
Many patients are not aware of how PBMs affect their pharmacy choices or their out-of-pocket costs. Independent pharmacists can play a crucial role in educating patients about these dynamics. By explaining PBM practices and advocating for their patients’ right to choose their pharmacy, pharmacists can build stronger relationships and loyalty with their customers.
Helping patients understand the benefits of using an independent pharmacy—such as personalized service, shorter wait times, and access to a health care professional who knows their medical history—can also reduce the likelihood of patients switching to chain pharmacies.
Muhammad Cheema earned his Doctor of Pharmacy degree and is a current candidate in the University of Pittsburgh’s Master of Pharmacy Business Administration program. He has built his career as a pharmacy manager in the Greater Pittsburgh area, where he oversees a high-traffic pharmacy, balancing the demands of patient care and operational excellence.
PBM price negotiations have unintentionally placed significant financial pressure on independent pharmacies, threatening their ability to provide care to their communities. However, by advocating for legislative reform, diversifying services, embracing technology, and educating patients, independent pharmacists can begin to mitigate the negative effects.
At the end of the day, independent pharmacies have long been a cornerstone of personalized health care. With the right strategies in place, they can not only survive the challenges posed by PBMs but continue to thrive—providing essential care to patients who rely on them. But action is needed now, before more community pharmacies are forced to close their doors for good.
