WHITE PAPER
Addressing Barriers to Pharmacy Profitability: Challenges of Pharmacy Benefit Managers and Beyond
Table of Contents
Introduction
Impact of Pharmacy Benefit Managers
on Profitability.
“Parasitic traffic cops,” was the description used by National Community Pharmacists Association (NCPA) CEO B. Douglas Hoey to describe the negative impact pharmacy benefit managers (PBMs) have on the nation’s prescription drug processes and pharmacy probability. Hoey added to his blistering assessment by comparing them to “uninvited guests who won’t leave,” who embed themselves “into the flow of every prescription drug transaction from the pharmaceutical manufacturers’ corporate headquarters to the consumers’ kitchen table….”
PBMs have been around since the late-1960s, when they first emerged as a way to facilitate claims processing by insurance companies. Prior to that, according to The Pulse podcast, patients were responsible for mailing prescription claims to their insurance companies, and then waiting for reimbursement. “With PBMS,” the report noted, “the process was streamlined and digitized, easing the burden on insurance companies, and becoming an important link between pharmacies and health plans.”
Gradually, PBMs’ responsibilities expanded and today, according to Health Affairs, PBMs represent not only insurers, but also self-insured employers, union health plans, and government purchasers. PBMs essentially serve as brokers, the analysis notes, between payers (representing patients), drug manufacturers, and pharmacies, which has earned them the frequently used title of “middleman.”
PBMs are widely cited as a key reason for the drop in profitability that currently plaques America’s pharmacies. This includes the roughly 19,000 community pharmacies that serve as lifelines for patients nationwide. PBMs are called out for their role in reducing pharmacy reimbursement rates and fee assessments, among other activities. How bad have things gotten? Consider a few facts:
- A typical independent pharmacy will want a gross profit margin of at least 22%, according to DiversifyRx. “Any lower than that, then your pharmacy is at severe financial risk.” But in 2023, the average pharmacy’s gross profit margin fell to a record low 19.7%.
- 2024 NCPA research found 32% of pharmacies said they were considering closing their doors due to poor financial factors. This, after more than 300 independent pharmacies ceased operations during 2023.
- 93% are considering dropping out of Medicare Part D.
- 95% of pharmacists who dispense popular and expensive GLP-1 medications lose money on the drugs, with 14% saying they no longer stock the drugs, and 59% saying they were considering dropping them.
Not surprisingly, NCPA and other pharmacy associations have put PBM reform at the top of their legislative priority lists. The groups are currently working to support federal legislation that would revise Medicaid drug reimbursement practices and dispensing fees, along with Part D contract terms.
PBM reform would certainly help address some of the pharmacy industry’s more significant “barriers to profitability.” But there are obstacles that do not fall under the purview of the nation’s PBMs. This includes pharmacists’ lack of federal “provider” status, which prevents reimbursement for many non-dispensing services, escalating drug costs, and the simple fact that pharmacists’ workloads have increased significantly.
NCPA’s Hoey calls the current situation “an emergency,” and notes that “time is running out” for beleaguered pharmacies. There are things pharmacists can do though, to gain control of their pharmacy’s financial condition and improve the bottom line. The use of technology, for example, is a good place to start. Pharmacy management systems including PrimeRx can be tremendously helpful in allowing visibility, automating key workflows, and identifying opportunities for cost efficiency.
The following discussion focuses on several of the more challenging obstacles to pharmacy profitability and offers insight about options for managing those challenges.
Barrier to Pharmacy Profitability #1: Declining Reimbursement Rates
Dispensing medications is the mainstay of the typical pharmacy, accounting for roughly 90% of revenue. Increasingly though, filling prescriptions has become much less profitable, with many medications dispensed at an actual loss to the pharmacy.
According to The New York Times, PBMs determine the amount pharmacies are reimbursed and control an estimated 80% of all prescriptions filled in the United States. “Pharmacies buy those drugs from wholesalers, in the hope that PBMs will reimburse them at a profit when the medications are provided to patients,” the Times article explained. “But the largest benefit managers have strong incentives to set those rates as low as possible. A key reason: They make money in part by charging employers more for certain drugs than what PBMs pay pharmacies for them.”
A few examples include:
- The New York Times research found that with regard to the blood thinner Eliquis, pharmacists located in different states reported reimbursements as much as $100 less than what it cost them to purchase the medication from a wholesaler.
- A survey by NCPA found more than 90% of independent pharmacies may opt out of stocking the 10 drugs for which Medicare Part D recently negotiated lower prices. According to NCPA, pharmacists would have to front as much as $27,000 of their own money each month to stock the drugs, and then wait several weeks for a likely “underwater reimbursement.”
- Research by the New York City Pharmacists Society found almost 90% of local independent pharmacies said they had “been forced to turn away patients” due to sub-par reimbursement rates.
- More than half of pharmacy owners are losing money on over 60% of the Part D prescriptions they fill, according to NCPA.
New York City
Pharmacists Society:
Almost 90% of local independent pharmacies said they had “been forced to turn away patients” due to sub-par reimbursement rates.
Pharmacy reimbursement rates are generally the result of negotiations between pharmacies and PBMs. Pharmacists accept the negotiated rates in exchange for inclusion in health insurers’ networks of “approved” pharmacies. Increasingly though, the negotiated rates do not reflect the actual costs incurred by the pharmacy. In a December 2024 letter to the U.S. Congress, a broad coalition of pharmacy-aligned groups expressed strong – and urgent – support for federal legislation to address current PBM practices, including reimbursement models. “It is past time for action,” the letter stated.
Solutions
In the meantime, pharmacists can help mitigate the impact of under-reimbursements through steps that include:
- Understanding their vulnerabilities. Pharmacists can eliminate the “surprise” of under-reimbursements by understanding how each contract is structured, and the terms of each payer’s reimbursement model. Although this will not affect a reimbursement rate, knowing what to expect can help a pharmacist better plan, and understand which plans are especially hurtful to the bottom line.
- Understanding patient plan usage. Technology systems including PrimeRx allow pharmacies to track the plans most-utilized by patients, and the volume of medications dispensed to those patients. This may present opportunities for soliciting additional patients with favorable plans. For example, a pharmacy may decide to engage with a local business that offers a healthcare plan with fair reimbursement practices.
- Increasing sales of OTC medicines and consumer products. Pharmacies can address consumers’ growing preferences for convenience by establishing themselves as sources for “one stop shopping” for everything from personal care goods to household supplies to pet food and groceries. This is supported by Acosta Group research which found 59% of consumers favored the convenience of shopping in a drug store over a grocery store. Pharmacies can promote themselves as viable retail options by utilizing the Pointy by Google solution. Pointy helps a local pharmacy appear in consumer internet searches. A small device attaches to the pharmacy’s point-of-sale barcode scanner. When a product is scanned, it is immediately added to a “Pointy Page” located on the pharmacy’s website. The pharmacy will then appear as a buying option for subsequent searches for that product.
- Expanding Revenue Opportunities. Pharmacists are offering an increasingly innovative array of patient services, and improving their bottom lines in the process. According to NCPA, products and services increasingly found in today’s pharmacies include:
- 340B contract pharmacy services.
- Administration of long-acting injectables.
- Clinical trials.
- Compounding.
- Diabetes care prevention services.
- Health screenings.
- Hospice services.
- Immunizations.
- Lab testing.
- Pet medications.
- Pharmacogenomics.
- Point-of-Care testing.
- Preventative health.
- Smoking cessation.
- Specialty pharmacy.
- Travel health.
- Weight management.
- Women’s health.
- Wound care.
Barrier to Pharmacy Profitability #2: Rising Medication Costs
Pharmacists are also challenged by the high costs of prescription medications. According to the American Hospital Association (AHA), the U.S. Department of Health and Human Services found that “between 2022 and 2023, prices for nearly 2,000 drugs increased faster than the rate of general inflation, with an average price hike of 15.2%.” That 15.2% increase, the AHA noted, amounted to an average increase of $590, which was more than three times the previous year’s increase of $172.”
Similar research by KFF found above-inflation cost increases among the nation’s three best-selling drugs. This included blood thinners Eliquis with a 5.9% price increase and Xarelto with a 4.1% increase, and multiple myeloma treatment Revlimid, which had an increase of 6.5%. Two of these drugs, Eliquis and Xarelto, are included on the list of 10 medications scheduled for price reductions, as the result of an agreement between manufacturers and the Biden administration. However, as mentioned above, a strong majority of pharmacies have indicated their reluctance to stock the drugs due to excessive out-of-pocket costs and unclear reimbursement rates.
Increased costs have forced pharmacists to spend time conducting cost comparisons to identify the low-cost supplier for each medication. Not only is this time consuming, but it is also costly. According to PBA Health, “pharmacists report spending at least an hour per day searching for and ordering inventory,” which, the analysis estimates, results in an annual cost of more than $15,000 in staff time.
Inventory is a pharmacy’s largest expense, accounting for nearly 70% of total expenses. Ideally, a pharmacy will have adequate supplies of desired medications available when they are needed, no more and no less. But striking the right balance can be difficult, and a pharmacy risks having to tell a patient a medication is unavailable.
Solutions
There are options though, to help pharmacies navigate the burden of escalating costs. A few considerations include:
- Increase generic dispensing rates. Generic drugs offer higher profit margins for pharmacies than their brand-name counterparts. Analysis by the Commonwealth Fund cited a study which found “gross generic margins for pharmacies averaged 42.7% compared to 3.5% for brand-name drugs.” This is due largely to extreme price differentials and volume, with generic drugs costing roughly 85% less than brand-name drugs, according to the Food and Drug Administration (FDA). While generics already account for most drugs dispensed in the pharmacy, there is room for pharmacies to increase their generic dispensing rates. Pharmacies must be careful to follow state law, but the FDA suggests the importance of educating patients about the effectiveness of generics, and the significant savings they enable.
- Improve 90-day supply rates. Increasing the number of prescriptions filled with 90-day supplies is another good option for saving on prescriptions. Pharmacies benefit from increased dispensing rates, cost savings achieved from volume purchases, and the ability to retain patients who would otherwise turn to online pharmacies, the traditional source of 90-day supplies. Pharmacies also benefit from improvement in their Star ratings, particularly regarding medication adherence.
- Join an online market for real-time cost comparisons. Thousands of pharmacies are turning to technology-based online marketplaces as a way to compare drug prices across multiple suppliers and simplify the inventory management process. PrimeRx MARKET, for example, is an industry leader that allows pharmacies real-time access to 40+ suppliers. Pharmacists can identify low-cost options in a matter of seconds, replacing a process that used to take hours. Orders can be placed for each medication, all within the PrimeRx MARKET platform.
- Strategic Re-Ordering. Technology can also help pharmacies make smart choices about their inventory holdings. PrimeRx, for example, provides real-time dispensing data for each medication, along with information about patients with upcoming refills. A pharmacist can rely on this information to guide purchasing decisions. The system can also assist pharmacies in purchases of costly medications. PrimeRx identifies patients with prescriptions for high-cost medications and allows the pharmacy to text/email the patient when a refill is upcoming. This confirms the patient wishes to continue with the medication and avoids purchases of expensive medication that go unused.
Barrier to Pharmacy Profitability #3: DIR Fees Still a Problem
Although they are no longer retroactively “clawed back,” direct and indirect renumeration (DIR) fees continue to pose an enormous financial hardship for the nation’s independent pharmacies.
DIR fees, according to the American Pharmacists Association (APhA), refer to “price concessions negotiated between PBMs and pharmacies participating in Medicare Part D networks.” Historically, DIR fees were assessed retroactively, often weeks or months after prescriptions were filled. During the 2010-2020 period, the APhA notes, retroactive DIR fees increased by a “staggering” 107,400%.
Pharmacists cautiously welcomed the news when the Centers for Medicare & Medicaid Services (CMS) announced changes to fee assessment practices. Effective January 2024, fees would no longer be imposed retroactively. Instead, they are included “in the negotiated price the patient pays at the pharmacy counter.” At the time, NCPA called the change “not perfect,” but “a huge step forward to bring much needed transparency.”
To be clear, the final rule did not eliminate DIR fees. Instead, it moved collection to the point-of-sale negotiated price.
The fees are now referred to as “performance fees,” and the new rule has been in force since January 2024. While pharmacies have found relief from the uncertainty associated with the previous claw back approach, the fees still impose a significant financial burden.
For one thing, the regulation was structured such that pharmacies were required to pay 2024 fees up front. However, pharmacies still faced a final round of retroactive fees from 2023. This caused a severe cashflow crunch for many pharmacies, sending many deeply into debt.
Further, reporting by Chain Drug Review notes the new regulation has resulted in “additional complexity that is reducing the transparency needed by pharmacies to operate with financial confidence.” This is due, the analysis notes, to a lack of visibility into the specific transactions impacted by fee assessments, and a failure by payers to articulate the data elements necessary for the claims submission process. Once this information becomes available, “pharmacies will need to make new, additional system changes to capture data specific to DIR.”
American Pharmacists Association (APhA):
“Retroactive DIR fees increased by a “staggering” 107,400%.”
Solutions
How can pharmacists fight back? Technology is a good place to start. The PrimeRx comprehensive management solution, for example, offers functionality that includes:
- PrimeRx Planning Tool. A unique “planning tool” allows pharmacies to anticipate fee assessments based on historical averages for a particular plan. The planning tool can help with budgeting and forecasting and allows visibility regarding the tremendous impact of these fees on the bottom line.
- Performance Metrics. Fee assessments are largely determined by a pharmacy’s performance in meeting CMS “Star Ratings” criteria. Although pharmacies themselves do not receive a star rating, McKesson notes that pharmacy-related measures are weighted heavily, and can impact up to 50% of a Medicare plan’s overall star rating. It’s easy to see then, why plan administrators scrutinize pharmacy performance, and only want to engage with high-performers. By focusing on Star-related priorities a pharmacy can meet its contractual benchmarks and reduce DIR fee assessments. The PrimeRx system can be especially helpful with capabilities that include:
- Medication Adherence. PrimeRx allows the pharmacy to maintain patients’ prescription histories, which means a pharmacist can have immediate access to patient records. Ready access to this information can help a pharmacist explain how a particular drug works, and discuss any potential side effects, which can allay patient concerns. In addition, a pharmacy can automatically generate outbound text messages, emails and phone calls, to remind patients about renewals and pickups. These simple messages can have a tremendous impact in reminding patients that a prescription is about to run out, thereby helping to avoid a missed dosage, or even worse, a patient simply deciding to forego renewing a prescription.
- Comprehensive Medication Review. According to the American Journal of Health-System Pharmacy, CMS directs that medication therapy management programs target patients who have two or more chronic diseases, take Medicare Part D-covered drugs, and have estimated drug spending that exceeds a CMS-established threshold. PrimeRx can assist pharmacists in addressing these requirements in several ways that include:
- Identification of eligible patients.
- Determination of ideal medication dosage and usage schedule.
- Synching of all medications so that pick-ups for all medications occur on a single day.
- Availability of information describing purpose of each medication, along with information about potential side effects.
- Tracking of all pharmacist-patient interactions.
- Outbound texts and phone calls to remind patients about scheduled refills.
- Ease of Obtaining Medications. PrimeRx allows pharmacies to help patients easily receive their medications by facilitating the prescribing workflow process, along with the patient pharmacy experience.
- PrimeRx seamlessly allows electronic prescriptions to enter the dispensing workflow and converts hard copy prescriptions into the system as well.
- Patients receive an alert when prescriptions are filled and ready for pickup.
- When the time comes for the medication to be refilled, the system automatically generates a text or email asking the patient if a refill is desired.
- Use of Statins. With CMS now assessing information about diabetes patients who are prescribed statins, PrimeRx can easily identify eligible patients, notify them about the role of statins in diabetes management, and initiate the process for obtaining a prescription.
- Reporting capabilities. PrimeRx allows critically needed visibility into all aspects of the pharmacy’s business operations. Pharmacy managers can select the metrics most relevant to their businesses, and within PrimeRx, request detailed reporting across those topics. Specific to DIR fees and other PBM-related fees, report topics can include:
- Claims Analysis
- Identification of rates at which fees are assessed on generic versus prescription medications.
- Historical DIR fee assessments
- Overall value of fee assessments.
- Performance categories on which fees are based.
- Reimbursement rates
- Based on individual plans.
- Based on generic/prescription medication.
- Transaction fees
- Comprehensive tracking of bottom-line impact of all PBM fees on the pharmacy’s bottom line.
- Claims Analysis
NCPA President Hoey:
“There are many opportunities for the pharmacist or someone on their team to be able to check in with that patient.”
Barrier to Pharmacy Profitability #4: Lack of Payment for Services Rendered/ Federal Provider Status
In many ways, this is a time of great opportunity for pharmacies. Pharmacists remain among the most trusted professions in America, with nearly 60% of patients saying they generally turn to their local pharmacist as a first option for non-emergency healthcare. Patients increasingly look to their pharmacies as viable sources for immunizations, screenings, information, and advice. Unfortunately, though, because pharmacists are not officially recognized by the federal government as “healthcare providers,” they are not paid for many of the services they provide to their Medicare patients.
NCPA President Hoey explained the situation in a recent Surescripts podcast interview. “Medicare provider status would allow pharmacists to be able to provide services and be paid for those services which would lower overall healthcare costs for the entire system, for patients and other providers,” Hoey said. He offered as an example, a scenario in which a high-cost patient visited a pharmacy. “There are many opportunities for the pharmacist or someone on their team to be able to check in with that patient. ‘How are you doing today, Mrs. Smith? Are you taking your medicine OK? Are you able to swallow those tablets? Are you keeping them in the refrigerator? Maybe we could take your blood pressure today and record that.”
Solutions
Technology is at the core of the eCare plan initiative. A critical factor in building the framework, in fact, was to ensure simplicity, so that the concept would appeal to as many pharmacies as possible. As such, several leading pharmacy management solutions, including PrimeRx, feature eCare plan functionality.
Pharmacists can easily create eCare plans within PrimeRx with functionality that includes:
Medication Reconciliation
All medications are evaluated, including herbal supplements and OTC medications, to avoid medication errors. This service is especially important during transitions of care when patients are most vulnerable to medication errors or mishaps.
Face-to-Face Access
Capability to provide each patient with access to unscheduled face-to-face meetings with a pharmacist employed by the participating CPESN pharmacy during operational hours.
Immunizations
Patients are screened for recommended immunizations, with the appropriate vaccines administered and recorded.
Personal Medication Record
The system can generate a comprehensive list of patient medications.
Comprehensive Medication Reviews
A systemic assessment of medications, including prescription, over-the-counter, herbal medications and dietary supplements to identify medication-related problems, prioritize a list of medication therapy problems and create a patient-specific plan to resolve medication therapy problems working with the extended healthcare team.
Medication Synchronization Program
All routine medications are scheduled for dispensing at the same time each month. The pharmacist provides clinical medication management, and monitors progression toward desired goals when meeting with patients at time of medication pick-up.
Pharmacy eCare plans provide a standard format for pharmacists to use in documenting the precise services provided to patients, and to share that information with doctors, clinicians and other members of a patient’s health care team. With PrimeRx, pharmacists have direct access to this important tool, and an opportunity to further their role as care providers and ensure the highest levels of collaboration in patient care.
Conclusion
When U.S. Representative Buddy Carter (R-GA), one of two pharmacists currently serving in Congress, addressed the NCPA’s annual congressional gathering, he gave an optimistic assessment of legislative PBM reform efforts. “We are winning the battle, and we cannot give up,” he said. “I’m telling you we have the wind in our sails. I’m encouraging all of you to please hang on. If it’s possible to hang on, please hang on.”
For pharmacists who seem stretched to the near-breaking point, hanging on may seem like a tall order. But help is available, with technology-based solutions including PrimeRx and PrimeRxMARKET providing opportunities for cost savings and improved efficiency. Together, these technology solutions can help pharmacies hang on, and hopefully find a way to succeed despite the many obstacles in their way.
References
- “2023 NCPA Digest,” National Community Pharmacists Association and Cardinal Health, August 18, 2023.
- Abelson, Reed and Robbins, Rebecca, “The Powerful Companies Driving Local Drugstores Out of Business,” The New York Times, October 19, 2024.
- “Changes in the List Prices of Prescription Drugs, 2017-2023,” U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, October 6, 2023.
- “Competition, Consolidation, and Evolution in the Pharmacy Market,” The Commonwealth Fund, August 12, 2021.
- Cubanski, Julie and Neuman, Tricia, “Prices Increased Faster Than Inflation for Half of all Drugs Covered by Medicare in 2020,” KFF, February 25, 2022.
- Hoey, B. Douglas, RPh, MBA, “Lower Prescription Drug Costs, Pass PBM Reform Legislation,” Pharmacy Times Opinion Article, October 2, 2024.
- “Independent Pharmacies Reluctant to Stock Drugs in Medicare Negotiation Program, New Survey Shows,” NCPA press release, October 15, 2024.
- Johnson, Daniel, “Responding to declining pharmacy reimbursement with an alternative channel strategy,” PharmaVoice, July 24, 2023.
- Krishnamurthy, Bharath, and Parikh, Megha, “Drug Prices and Shortages Jeopardize Patient Access to Hospital Care,” American Hospital Association, May 22, 2024.
- Levin, Lois, “The DIR Hangover One Year Later: How Have Pharmacists Fared?” Drug Topics, December 6, 2024.
- Levy, Sandra, “Study: Consumers shop drug stores for grocery, household items as much as pharmacy,” Drug Store News, April 27, 2023.
- “Local Pharmacies on the Brink, New Survey Reveals,” NCPA press release, February 27, 2024.
- Lovelace, Berkeley, Jr., “Medicare announces lower prices on 10 common, high-cost drugs,” NBC News, August 15, 2024.
- Meara, Killian, “Community Pharmacies Must Diversity Their Revenue Streams to Survive in Today’s Landscape,” Drug Topics, November 19, 2024.
- “NCPA Releases 2024 Digest Report,” National Community Pharmacists Association press release, October 27, 2024.
- “Pharmacy Organizations Call On U.S. Congress To Deliver PBM Reform This Year: “It Is Past Time For Action,” National Association of Chain Drug Stores, December 6, 2024.
- Schiffner, Bill, “DIR reform in 2024: One step forward, two steps back,” Chain Drug Review, March 17, 2024.
- “Rep. Buddy Carter urges pharmacists to fight,” National Community Pharmacists Association press release, April 17, 2024.
- “Star Ratings: What pharmacists needs to know,” Health Mart, October 1, 2017.
- “Survey Finds 89% of NYC Pharmacies Forced To Turn Patients Away Since The New Year,” Harlem World, April 8, 2024.
- “The Evolving Role of Pharmacy with NCPA’s Doug Hoey,” Surescripts Podcast, Season 3: Episode 1, May 22, 2024.
- “The Most Overlooked Cost of Pharmacy Inventory Buying,” Elements, March 5, 2020.
- Traynor, Kate, “CMS releases medication review performance data as part of Medicare Star ratings,” American Journal of Health-System Pharmacy, Volume 74, Issue 24, December 15, 2017.
- Tung, Liz, “The hidden players putting independent pharmacies out of business,” The Pulse podcast, February 12, 2021.
- “Wolters Kluwer’s Pharmacy Next survey shows 58% of Americans likely to first seek non-emergency healthcare at pharmacies,” Wolters Kluwer press release, May 17, 2023.
Talk to an Expert!
With PrimeRx, pharmacy workflow tasks can be automated, leaving more time for pharmacists to engage with patients and focus on other pharmacy matters.
