Klimesh’s Corner: Pharmacy Benefit Managers and their impact on Iowa pharmacies

By Senator Mike Klimesh

More than a hundred thousand Iowans participated in their precinct caucuses Jan. 15 and made their voice heard in the first contest of the presidential nominating process. It will be nice to get a break from television ads and the flood of text messages. Even with the occasionally annoying aspects of the caucuses, it is a great privilege for Iowans to have this opportunity to play such a key role in picking presidential candidates. The caucuses have a significant economic impact to the state, and it gives Iowans the ear of the candidates in the shaping of their policies and agendas.

I wanted to talk about Pharmacy Benefit Managers, or PBMs, and their impact on Iowa pharmacies. When health insurance companies began to offer prescription drug coverage as a benefit to their health plans, PBMs came into existence to administer the drug benefit and to create formularies. Formularies are the list of prescription drugs that are covered by your health insurance plan. In the 80s, their role expanded, and they began to adjudicate disputed claims on behalf of the insurance companies. Having control of the formulary lists gave them direct control over market access of drugs. This led to the common practice of the PBMs demanding either coupons or rebates to be paid for the drug to find its way to the formulary. This led to the pharmaceutical manufacturers having to increase their retail cost to recoup the cost of the rebate or coupon. This has led to an artificial price structure surrounding prescription drugs in America.

They have continued to evolve and now three PBMs account for 89 percent of the prescriptions filled in this country and affect the health plans of over 279 million Americans. Those same three PBMs also own their own pharmacies. CVS, Express Scripts, and OptumRx are the three largest PBMs in the country and all three are fortune 10 companies. While CVS maintains some brick-and-mortar presence, all three of them own and operate large mail fulfillment centers to provide mail order fulfillment of their prescriptions, what is commonly referred to as “brown bagging.” These PBMs work in conjunction with large insurance companies and own their own insurance companies as is the case with CVS, who purchased Aetna Insurance. This allows even greater vertical integration of their services. This integration leads to them excluding small privately owned retail pharmacies through contract manipulation. The PBMs will only offer their contracts to certain pharmacies and through that limitation slowly starve our retail pharmacies in the state.

A Drake University professor recently released a study showing that nearly 100 pharmacies have closed across the state since 2008. Thirty-eight percent of those were privately owned independent pharmacies. Nineteen percent of the closures occurred in rural Iowa. According to Seth Brown from the Iowa Pharmacy Association, “That represents more than 133,000 patients in the state losing access to medications.”

In 2022 I had the privilege to floor-manage the first PBM reform bill that cleared the Iowa Senate and was signed into law. That bill provided protection for Iowa pharmacies from three main predatory practices implemented by PBMs. I will cover those provisions and what I am working on for PBM reform this session in my next newsletter.

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