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Drug supply companies squeezing pharmacies out of existence, Oregon lawmakers warn

Seven bills, featuring bipartisan support, aim to clamp down on pharmacy benefit managers.
Emily Savage and Michael Daher, who manage Myrtle Drugs in Myrtle Creek, told the House Behavioral Health and Health Care Committee during an online hearing on Jan. 24, 2023, that pharmacy benefit managers' business practices are destabilizing independent pharmacies. | SCREENGRABS VIA OLIS.OREGONLEGISLATURE.GOV/THE LUND REPORT
January 26, 2023

After graduating with her doctor of pharmacy degree in 2009, Emily Savage moved back to her hometown of Myrtle Creek to settle into her career as a pharmacist in the rural community south of Roseberg. 

But none of the pharmacies she worked for could stay in business. The chain she worked for initially closed because of “profitability issues.” Then the grocery store pharmacy she worked for announced it was closing and moving customer files to a store half an hour north. Savage said patients were “devastated,” and the closure was a problem for elderly residents who couldn’t drive. 

When Bi-Mart closed most of its pharmacies in 2021, Savage said another 35,000 prescriptions in Douglas County needed to be redistributed and that meant hours-long waits for patients to pick up their medications or going without. 

That year, Savage agreed to help open Myrtle Drugs to an appreciative community. But she said the new business ran into its own financial problems, and she realized the extent pharmacies are losing money to pharmacy benefit managers — companies that act as go-betweens in the drug supply chain.  

“I really feel like PBMs have to be reined in, and something has to happen otherwise this is the demise of pharmacy,” Savage told the House Behavioral Health and Health Care Committee this week. 

Savage, along with pharmacists and lawmakers from across Oregon warned the committee during hearings Tuesday and Wednesday that local pharmacies are teetering on collapse due to the squeeze by pharmacy benefit managers. The committee is considering seven bills aimed at curbing what critics say are strong-arm practices.

Pharmacy benefit managers are companies that negotiate drug prices between manufacturers, health insurance plans and pharmacies. As they’ve become integral to the health care system, critics say they’ve used their clout to negotiate better deals on prescription drugs and pocket the savings. 

State legislatures have seen a wave of efforts to more tightly regulate the industry. Oregon lawmakers have sought and enacted pharmacy benefit manager regulations over the last decade. 

The lawmakers who introduced the bills belong to both the Democratic and Republican parties.. Overall, they give the state more oversight, demand the industry reveal more about its business practices and carve out protections for rural pharmacies. The legislation follows recent closures of pharmacies that have brought renewed scrutiny to pharmacy benefit managers. 

“As public awareness on the role of PBM has increased in recent years, it’s become clear that the predatory nature of some of their business practices need regulations,” state Rep. Anna Scharf, R-Amity, told the committee. 

The committee also heard from representatives of pharmacy benefit managers who stressed their commitment to lowering drug costs or raised technical concerns with the legislation. 

“There’s no evidence that any of the seven (bills) will actually reduce prescription drug costs in Oregon,” the Pharmaceutical Care Management Association, which represents the industry, told The Lund Report in a statement that called for increased competition and blamed drug companies for driving up prices. 

The overwhelming majority of hearing testimony, including from conservative lawmakers, cast pharmacy benefit managers as ruthless, accusing them of using confusing contracts and opaque processes to underpay pharmacists. 

Calls for transparency 

Pharmacy benefit managers work on behalf of health insurers, Medicare Part D drug plans and large employers. Some, such as CVS Caremark and Express Scripts, Inc., are vertically integrated with their own pharmacy networks. These companies act as brokers, negotiating prices for prescription medications with drug manufacturers and pharmacies. 

Leveraging their purchase power, pharmacy benefit managers negotiate rebates and discounts from drug manufacturers. They contract with pharmacies to reimburse them for drugs dispensed to patients. Pharmacy benefit managers develop tiered lists of covered medications, giving them an outsized sway on which medications are available and how much they cost. 

State Rep. Nancy Nathanson, D-Eugene, told the committee Wednesday that pharmacy benefit managers were created in the 1960s to streamline administration.

“But over time it's clear that PBMs, originally designed to bring cost efficiency and savings to patients, are responsible for doing the opposite,” said Nathanson. She referenced a study by the Oregon State Pharmacy Association highly critical of the industry. 

Nathanson is sponsoring House Bill 3012, which would require pharmacy benefit managers to report information on prescription drug costs and rebates to state regulators. 

Maribeth Guarino, Oregon State Public Interest Research Group health care advocate, told The Lund Report that pharmacy benefit managers’ business model is rife with conflicts of interests. She said drug manufacturers want their newer and costlier drugs on higher tiers of pharmacy benefit managers lists of covered medications. 

Drug manufacturers offer rebates to pharmacy benefit managers during negotiations, giving them an incentive to put the costlier drugs higher on lists of covered medication, said Guarino. She likened rebates to “kickbacks” and said the bill would help shed light on where drug prices are rising in the supply chain. 

Tonia Sorrell‑Neal, senior director of state affairs for the Pharmaceutical Care Management Association, told the committee that concerns about transparency were overblown. She said pharmacy benefit managers contract with health plans for labor unions, state government and private industry. These contracts, which cover 3.7 million Oregonians, bring transparency because each has different goals. 

 “A realtor is hired by a consumer or resident to help sell a house because they know how to get the best price,” she said. “We do the same thing.”

Other bills include House Bill 2762, which requires health plans and pharmacy benefit managers to provide information requested by enrolled patients on prices of drugs, costs to dispense them and other details. House Bill 3013 establishes licensing requirements for pharmacy benefit managers, giving regulators more oversight over their operations.  

Other legislation, House Bill 2715, blocks “white bagging,” where a pharmacy benefit manager requires a drug administered in a clinic or hospital to be supplied by an outside pharmacy. Scharf, the bill’s sponsor, said white bagging forces hospitals or clinics to bypass their safety protocols.  

House Bill 2716 prohibits pharmacy benefit managers from discriminating against pharmacies operated by hospitals and clinics that purchase discounted prescription drugs under a federal program intended to help low-income or uninsured patients.

Fees and rural pharmacies

Other bills are aimed at “clawback” fees and pharmacy benefit managers’ dealings with clinics and hospitals. 

House Bill 3015, also sponsored by Nathanson, would restrict pharmacy benefit managers from imposing fees on pharmacies after the settlement of a reimbursement claim. 

Michael Daher, the owner of Myrtle Drugs, told the committee he’s lost hundreds of thousands of dollars in fees he doesn’t fully understand to pharmacy benefit managers. Others shared similar complaints. 

Priya Patel, a pharmacy owner, said she hasn’t taken a salary for the last two years after having to give half her gross profits to pharmacy benefit managers. 

Some of the sharpest criticism came from rural Republicans, worried their constituents will see longer pharmacy wait times for life-saving drugs or closures. 

“The biggest problem facing pharmacy today are the pharmacy benefit managers,” state Rep. Christine Goodwin, R-Canyonville, said Tuesday who called them “unregulated monopolized giants.” 

Between 2008 and 2022 the number of independent pharmacies in Oregon dropped from 248 to 90, Goodwin said, citing numbers from the National Community Pharmacists Association. Oregon’s total number of pharmacies declined from 681 to 499 during the same period, Brian Mayo, executive director of the Oregon State Pharmacy Association, told the committee, citing the same source. 

A representative of the Pharmaceutical Care Management Association provided different figures to The Lund Report, saying independent pharmacies are “very stable” and increased from 132 stores in 2022 to 137 in 2023. 

Goodwin is a lead sponsor on House Bill 2725, which bans pharmacy benefit managers from charging fees to “rural pharmacies” after completing a sale. The bill defines rural pharmacies as the sole pharmacy serving a city where residents tend to be poorer. The also included pharmacies located at least 15 miles away by car from the other nearest pharmacy. 

LuGina Mendez-Harper, a lobbyist for pharmacy benefit manager Prime Therapeutics Pharmacist, told the committee that some of the fees pharmacists complained about are Medicare-related and being addressed by the federal government. She also said other bills may conflict with or already be covered by Oregon law, and had concerns about definitions in the rural pharmacy protection bill she wanted to discuss. 

“Having an adequate network of pharmacies, especially in the rural areas, is very important,” she said. 

You can reach Jake at [email protected] or via Twitter @jakethomas2009.