The Network

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<!–– The Network ––>
Not a social network, but where pharmacy benefit managers (PBMs) sign up pharmacies to participate in their network. This network, in my opinion, is the backbone of prescription drug plans. Being able to have access to a large number of pharmacies that will honor your drug benefit insurance is an asset that PBMs bring to the table for plan sponsors.

Yet the take-it-or-leave-it attitude of PBM contracts gives pharmacies little choice, if they do not want to lose prescription business. Now we have the direct and indirect remuneration (DIR) situation that is putting even more pressure on a pharmacy’s profit. The problem is that the PBM market is really controlled by three players, all publicly owned companies. Needless to say, Wall Street looks at the numbers, particularly growth in revenue and growth in earnings per share. There is pressure on these companies to perform at both ends. So where do they look for growth? One area is winning business from their competitors. But another is pulling more money from the prescriptions dispensed in pharmacies. The latter is at the expense of the pharmacy’s profit. Even the drug manufacturers are feeling the pinch, with the concessions needed to keep product on the formulary.

We all know that pharmacies of all stripes are taking it on the chin. This includes the major drug chains. The chains are not seeing the growth in profits from the prescriptions filled these days that they have been accustomed to. The chains, however, have robust front ends that help offset the decline in the pharmacy department.

So where am I going with this, you may ask? Getting back to the network. If more and more pharmacies are forced to close their doors, this does not bode well for the consumer. The independents that are located in less populated areas are not in locations the major chains covet. So as the network of pharmacies shrinks in size, this places a hardship on the consumer. Where they could get a prescription filled before at the local pharmacy, it might now mean driving 20 miles. The employer is certain to hear about this and, as the plan sponsor, start asking the PBM for answers.

It just appears that from all the current tactics of the PBMs, they are endangering an important asset — the pharmacy network. Some might say that mail order is their workaround, but this a far cry from a panacea. There have been studies done that show mail order has a number of deficiencies. For one, there is the waste factor where automated refills arrive, when the person may be deceased or had a change in therapy. The plan sponsor is paying for this.

In a nutshell, I see a shrinking network as something that is going to come back and haunt the PBMs — something that the PBMs will have brought on themselves to pump up sales and profits to satisfy the folks on Wall Street.


Bill Lockwood, chairman/publisher, can be reached at wal@computertalk.com.

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