Prescription for Trouble: Local Pharmacies Struggle in PBM-Controlled Industry
Independent pharmacist Larry Thompson is struggling to survive in a business where he has flourished for decades. He often works six days a week at Wall Street Hometown Pharmacy in downtown Eagle River filling thousands of prescriptions for people of all ages. Thompson says he cares deeply about his customers and has many long-standing relationships, but he is concerned that the current pharmacy business environment will force him to close his doors permanently if a fast solution is not found.
The major challenge, according to Thompson, is that pharmacy benefit managers (PBMs) have been forcing him, and others in the region, to frequently dispense medication at costs less than acquisition. At the same time, he says, other PBM practices unnecessarily drive the price of all medications to levels that are unaffordable for many of his patients. Thompson indicates that the last hope for survival may be the passage of Wisconsin Senate Bill 203, often referred to as Cole’s Act.
This bill is named after Cole Schmidtknecht, who in 2024 went to his local Wisconsin pharmacy for asthma medication only to learn that his prescription unexpectedly increased in cost from $66 to $539 without any advanced notice. He could not afford to make the purchase and subsequently died of an asthma attack just days later. State Senate President Mary Felzkowski and state Rep. Todd Novak blame predatory practices of PBMs as a contributing factor in the death and together have led a charge for reform in the state legislature.
PBMs are often hired by health insurance companies or by health plan sponsors to act as administrators of drug benefits. This has been a common trend during the last 20 years as industry leaders cite sophisticated claims processing, the development of formularies (lists of approved drugs covered under benefit plans), and negotiated fee discounts between select payers, pharmacies, and drug manufacturers as the best path to claims savings of 35% through the PBM management process.
One of the challenges, however, of this business model according to Felzkowski and Novak is the vertical integration of PBMs. “In theory, PBMs are middlemen hired by insurance companies to manage and negotiate better prices for patients’ prescription drug benefit programs,” they said in a joint statement. “In practice, 89% of drug claims are controlled by the three largest PBMs, which are part of vertically integrated Fortune 500 healthcare companies that also own large pharmacy chains. These huge corporations discriminate against local pharmacies and make unexpected changes to drug coverages. These actions make PBMs richer to the detriment of consumers.”
Fair Playing Field for Reimbursement
There are several elements to Senate Bill 203, including language calling for a formal appeal process when a PBM payment amount is lower than a pharmacist acquisition cost. This includes a requirement of a formal response by the PBM within seven days of an appeal. In the current environment, Thompson said his appeals about reimbursements often go unanswered or are denied without explanation.
The proposed legislation will allow a PBM to deny an appeal only if the pharmacy has available access to a product priced below the maximum allowable reimbursement table from a regularly used wholesaler. For Thompson, this is a much-needed change. “Unfortunately, many of the lower cost drug options are not available from the wholesaler so I have to purchase something more expensive to meet the medical needs of the customer,” he said. “In return, I fill the appropriate prescription, but only receive reimbursement for the lower cost product, even though it was not available to our pharmacy.”
The top three PBMs in the United States are CVS Caremark, Express Scripts and Optum Rx, and the proposed legislation falls on the heels of recent national scrutiny of these companies. According to a report earlier this year by the Federal Trade Commission, each has engaged in unfair practices, including the specific price mark-up of two specialty generic cancer drugs by thousands of percent, while paying their affiliated pharmacies hundreds of millions of dollars above the actual acquisition costs. This type of arrangement would not be allowed under the proposed Senate Bill 203.
Communication Changes and Fiduciary Responsibility
One of the concerns that Sen. Felzkowski points out in the death of Cole Schmidtknecht is the fact that the cost of his specific prescription skyrocketed without notice, which left him suddenly unable to afford important medication. Senate Bill 203, if passed, would address this issue through a requirement that any change to plan formulas, including a shift in coverage tier levels, be communicated to plan enrollees at least 30 days in advance of the change.
A related change in the proposed bill would not allow PBMs to remove drugs from a formulary during the 90-day period before a plan renewal. This is another overdue change according to Thompson, especially in a community such as Eagle River with a large Medicare eligible population. “As it stands today,” he said, “our customers sign up for, or renew, a Medicare plan during the open enrollment period late in the year, only to discover days later in January that the formulary has changed.”
The final area of change in the proposed PBM legislation may be the most significant because the bill would require that PBMs owe a fiduciary duty to a health plan sponsor, typically an employer providing health benefits for its employees. In addition, the bill calls for a list of annual disclosures, including details of indirect profits from owning a pharmacy.
Bill is Gaining Support
Wisconsin joins a long list of states in recent years to expose the complex internal operations in the PBM industry and to establish legislation to control drug costs and to increase operation transparency. While there are several steps to go before a passage of the bill, a first public hearing was held late last month where Felzkowski was joined by several supporting organizations. Momentum is growing in Madison as there are now 40 cosponsors, including a bipartisan mix of senators and representatives.
As for Thompson, he says he is holding on but the financial grip is not very strong. His wife, Shirley, is also a pharmacist and runs the Hometown Pharmacy in Land O’ Lakes where she faces the same challenges. They both participate in community events and raised their family in the Northwoods and would like to continue with their pharmacy business.
“In our little communities, a pharmacist is more than just someone who fills a prescription,” Thompson said. “I know most of my customers very well and they often call me about a medical situation even before they call their own doctor. While I get rewards in the business through helping our community, I would like to see the state join me in wanting to getting this done for the good of everyone.”
About the Author: Bill Zuelke is a freelance journalist who moved to the Northwoods more than a decade ago after a long career in the health insurance industry. Writing has always played a key role in his work through the years where he has produced and edited several large corporate publications, presentations, and a wide variety of marketing print material. In recent years, he has been a news and sports contributor for the Vilas County News-Review and Three Lakes News, and has won awards for his sports photography by the Wisconsin Newspaper Association.