Jeff Roberson/AP Photo
Only recently have pharmacy benefit managers like the Cigna-owned Express Scripts gotten into the business of distributing drugs.
In late November, at a strip mall in the rural Pennsylvania town of Bedford, Stephanie Over worked behind the Fisher’s Pharmacy counter, filling prescriptions into translucent orange pill bottles and administering shots. As strip mall pharmacies go, Fisher’s stands out. A recently restored art deco facade juts out, and the store’s name runs down vertically in Broadway font. The store is a local fixture in Bedford, population under 3,000, and has been around for almost 100 years, of which Stephanie has worked nearly 30.
Stephanie was about to check out for her lunch break when the letters flooded in. Regulars at Fisher’s began marching up to the counter, clutching notices from the University of Pittsburgh Medical Center (UPMC), a leading health insurer in Western Pennsylvania, and Express Scripts, the pharmacy benefit manager for UPMC.
The letter told them that under a new policy, UPMC’s insurance plan would not cover prescriptions at Fisher’s anymore. Instead, UPMC’s beneficiaries would be encouraged to go to other pharmacies in the health plan network for their own “convenience,” which meant national chains like Rite Aid, Walmart, or Giant Eagle, a regional grocery chain. Bedford is a remote town, 100 miles from both Harrisburg and Pittsburgh. Residents, many of whom had gone to Fisher’s for decades, would have to drive several towns over, maybe 30 or 40 minutes, just to get their prescriptions filled. Fisher’s knew them, their families, and medical history, a personal touch that would be lost at a chain.
“Why should our people have to drive through 20 signal lights to get a prescription filled when they could just call us and we’d have it ready,” said Over.
The letter offered no explanation for the policy change. Stephanie called the owner, Jennifer Leibfreid, who had not been notified by UPMC. Fisher’s tried calling other local pharmacies and associations to piece together whether other independents were receiving the same letters from customers.
Most had. In an overnight purge, UPMC, the third-largest insurer in the state and the most powerful hospital network, dropped over 1,200 pharmacies from its health plan, around half of the stores it previously carried. Most were independents. The decision impacted tens of thousands of individuals who bought their insurance on the state health insurance exchange, known as Pennie, as well as company plans for businesses with fewer than 50 employees. Patients covered by Medicare and Medicaid are not affected by the change.
The UPMC kill-off will have devastating consequences for pharmacies and patients across rural Pennsylvania. Fisher’s estimates that it might lose 20 percent of its customers, some of whom need prescriptions filled every other day. They’ll have to decide whether to drive several towns over or pay out of pocket at Fisher’s for generic drugs.
Thirty miles south of Bedford, Potomac Valley Pharmacy in Hyndman was another retailer cut out from UPMC’s plan. Pharmacist Dan Iseminger doesn’t know how much business he’ll lose because “frankly, I’ve been too scared to look.” In that area, as in many other rural parts of the state, UPMC is often the only health plan locals can afford.
In an overnight purge, UPMC, the third-largest insurer in the state and the most powerful hospital network, dropped over 1,200 pharmacies from its health plan.
“This is UPMC country around here … that’s the amount of power they have over us,” said Iseminger.
The shake-up to the health network has put Iseminger in a particularly bizarre predicament, because his own store runs on UPMC’s health plan. Iseminger and his employees won’t even be able to get covered for prescriptions at their own store.
UPMC’s letter conveniently offered another option in plain text. Customers were recommended to sign up for Express Scripts’ very own mail-order pharmacy service, which will deliver prescriptions right to their front door.
In a statement to the Prospect, UPMC defended its decision. A spokesperson said: “UPMC Health Plan has heard from its members that affordability is key, and we modify our plans when we find opportunities to save costs for our members.”
ONLY RECENTLY HAVE PHARMACY benefit managers like Express Scripts gotten into the business of distributing drugs. Their primary function is to act as middlemen in the health care supply chain, working on behalf of insurance companies and other health plans to coordinate with drug manufacturers and reimburse pharmacies for distribution. In the past few years, insurance companies have outright bought the three largest PBMs: Express Scripts (owned by Cigna), OptumRx (UnitedHealth), and CVS Caremark (Aetna). Combined, the big three control an 80 percent market share.
Each PBM collects rebates from drug manufacturers, sets drug formularies that determine what medications are covered by insurance, and issues reimbursements for prescriptions to pharmacies. This information advantage over every part of the supply chain, and the propensity for PBMs to skim off the top of transactions, is suspected to be a major cause for rising drug prices. The FTC has been investigating PBMs since June.
PBM giants like Express Scripts throttle pharmacies primarily by shortchanging retailers on reimbursement rates, and forcing other restrictive policies into contracts. This includes clawing back money from future reimbursements based on obscure and hard-to-meet performance requirements.
Most big retailers with a pharmacy arm, such as Walmart or Kroger, don’t rely heavily on in-store pharmacies to make money. It’s enough just to get customers in the door. That means those chains are more willing to accept Express Scripts’ abusive contracts, even if it pushes them to take a loss on drug sales. The brunt of the pain from PBM practices, therefore, falls on independent pharmacists.
As middlemen, both Express Scripts and CVS Caremark get inside access to the sales numbers for pharmacies and can use that information for their own growing mail-in services. Those programs are direct competitors to local pharmacies and aim to stamp out the entire business of brick-and-mortar retail, similar to what Amazon has done across e-commerce. That makes UPMC a natural ally. The president and CEO of UPMC, Jeffrey Romoff, has fittingly said that he strives to turn UPMC into the “Amazon of health care.”
UPMC rapidly bought up hospitals across the state starting in the 1990s and has become the largest nongovernment employer in the state, epitomizing the Rust Belt’s economic shift from manufacturing to services and health care. The tax-exempt nonprofit health provider has stripped services in rural and other poor areas to cut costs while raking in record profits. In Bedford, mothers can’t deliver babies in town because UPMC closed the only maternity unit in 2017. They have to drive 45 minutes away to the nearest hospital; same for most major surgeries.
“UPMC has basically tried to conquer the universe and now they’re destroying our hospitals and pharmacies,” said Over.
BOTH UPMC AND EXPRESS SCRIPTS have a common enemy: the retail distributors that both intend to jawbone. When the Pennsylvania Pharmacists Association tried contacting the UPMC for clarification on why certain local pharmacies were kicked off and not others, Pat Lavella, the president of PPA, ran into an all-too-familiar case of corporate bunburying.
“Express Scripts told us UPMC made the decision, then we called UPMC and they said, ‘Well you’d better call Express Scripts, they issued the letter,’” said Lavella.
The kill-off didn’t just stop at dropping local pharmacies to promote Express Scripts’ mail-order service. Within a few weeks of UPMC’s policy change, many of the independent pharmacies then received contract offers from Express Scripts to buy back into the UPMC network and regain their customers. Re-entry into the health plan would come at a steep cost: The pharmacies would be forced to accept reimbursement rates for brand prescription drugs that put them deep in the red, 5 to 6 percent below cost for many drugs, and with no dispensing fee. To fill a common 60-tablet prescription of the blood thinner Eliquis, the pharmacy would lose $50 per bottle, double what most stores already have to eat on a sale for that prescription.
Many pharmacies can’t afford to sign that contract. Others don’t feel like they have much of a choice. They fear that Express Scripts, given its market power, might punish them down the line for rejecting the contract, especially because Express Scripts works for other insurers that their stores serve. Their calculation is not unlike the Roko’s basilisk theorem: If you don’t bow down now, the overlord will make you pay later.
“I don’t know what else to call this besides outright mafia extortion,” said one local pharmacist, who hasn’t decided whether to sign the contract.
For many pharmacies in Pennsylvania dropped by UPMC, this isn’t the first time insurers at the behest of Express Scripts have turned the screws on them. Earlier this fall, veterans health insurer Tricare, which uses Express Scripts, eliminated 15,000 pharmacies from its plan after a policy change that forced the retailers to take a reduced reimbursement rate and no dispensing fee. The move left 400,000 veteran beneficiaries on the plan without a nearby local pharmacy to go to, and promoted Express Scripts’ mail-in service as an alternative.
“We decided to go with the contract even though it’s the worst one we’ve seen because we have an obligation to serve the veterans in our community,” said Leibfreid, the owner of Fisher’s Pharmacy.
In other instances, small pharmacists have documented cases where customers received letters from other insurers, claiming that their local pharmacy wasn’t in the network anymore. After the store owners called for an explanation, the insurer said the letters were a mistake by Express Scripts. However, many customers still thought they couldn’t go to the local pharmacy, so the pharmacy lost their business.
“Tell me what kind of business can survive like this,” said Iseminger.
The Pennsylvania Pharmacists Association reached out to several state representatives about the situation with UPMC. None of the state representatives’ offices could be reached for comment, nor could UPMC to clarify the health plan change. PPA has scheduled a meeting with UPMC executives early in the new year to discuss the issue. By then, incoming Gov. Josh Shapiro will have taken office. As the state’s attorney general, Shapiro took an adversarial position to UPMC in a major settlement case that forced the health giant to stop turning away patients at its hospitals covered by rival health insurer Highmark.
“We have a lot of hopes for Gov. Shapiro and expect to get this situation sorted out in the new year,” said Lavella.
