Why PBMs suck

And believe it or not, this post has nothing to do with our friends over at CVS/Caremark.

Quick question- how many of you pharmacists out there are aware of the terms of your contract with the PBMs?

I already know the answer... not many. And that makes perfect sense given that a majority of pharmacists are not owners, but mearly employees of a pharmacy. Only the owners know the terms are. Well, as long as the owner is reviewing the contracts and not leaving it to a third-party service.

I'm going to share a story from my recent past to illustrate exactly how pharmacy benefits managers screw over pharmacies on reimbursements and how pharmacies go along for the ride.

At my previous job, working for a regional grocery chain as pharmacy manager, I was brought in for a little discussion with both my store manager and the director of pharmacy operations for the chain. The subject... declining pharmacy margins. I'm not talking a percent or two. I'm talking big time declines, the kind that make your P&L statement dip into the red.

Let's take a step back, to let you know the climate that I was working in. I was working for a high end grocery chain. Exceptional customer service was the minimum acceptable level of performance. A majority of our pharmacy patients had insurance thru a local insurance company (XYZ Insurance). XYZ Insurance only operates in about five counties, and they are the major insurance carrier for all of the counties. At my pharmacy, the accounted for 35 percent of our business. Our business lived and died on XYZ's reimbursements.

Our original contract with XYZ had your typical reimbursement structure:

• Brand: AWP - 15% + 2.25 dispensing fee
• Generics: MAC + 2.25 (MAC being the HCFA MAC*, or the GEAP MAC* if there was no HCFA MAC)
• or AWP - 30% + 2.25 if the medication was on neither the HCFA nor GEAP MAC lists

Pretty standard reimbursements. We made a nice little profit from them. Then XYZ Insurance stuck the screws to every pharmacy it was contracted with.

Quick history lesson, who can name what blockbuster products have gone generic over the last four years? If you answered every one of them, you are right.

Well right before all of these products went generic, XYZ changed the reimbursement structure ever so slightly. The people signing our contract with them didn't pick up on it, not until I asked for a copy of the contract and saw the change XYZ had made.

The contract language now stipulated that MAC means Maximum Allowable Cost as determined by the lessor of the Federal Upper Limit (FUL)... or the XYZ Insurance MAC. Then it had the same language about GEAP and AWP - 30.

That's where they screwed us. They could put any freakin' drug on their MAC list and we agreed to take it. You know how the acquisition price for the first generic manufacturer is usually about 15 percent less than the brand name price? During this period they were XYZ MACing us. Nothing like losing 15 bucks on each and every prescription. The best part...they wouldn't release a list of the XYZ MAC drugs. Proprietary information.

That's what happens when you don't read the contracts and just accept whatever the insurance company throws out at you. When you figure that you can't reject the terms because you can't afford to lose the customers/ script count, that's when they nail you.

How long until XYZ decides to MAC brand name medications? Wait, I better not say that. It might give them an idea.

*if you don't know what HCFA MAC s, GEAP MACs , or FULs are, you shouldn't be signing any contracts