Protect local pharmacies

In small communities across Eastern Washington, the local pharmacy is a business you rely on. Often it is the only outlet for miles around where you can get your prescriptions filled and find a well-stocked selection of over-the-counter medications. Imagine what you would do if it closed.

This is the troubling prospect facing many independent pharmacy owners today, due to a convoluted business model that has put them at the mercy of a handful of firms that process benefits for health insurers. Known as pharmacy benefits managers, these middlemen have gained a stranglehold over the pharmacy business, influencing what doctors may prescribe, dictating what patients pay out of pocket, offering take-it-or-leave-it terms to independent pharmacies – and steering business to their own affiliated pharmacy chains and mail-order houses.

How bad has the situation gotten? Bad enough that conservative Republicans like myself are calling for state regulation, and more authority for the state Insurance Commissioner.

I was the lead Republican cosponsor this year of Senate Bill 5213, which would have laid down strict rules for the first time in this state to rein in the anti-competitive practices of these largely unregulated major players in the health care field. This bill was lobbied to death this year. We’ll be back next session with a proposal even more comprehensive.

In any field other than the convoluted business of health care, I think the problems would have been apparent to everyone long ago. Health insurers, themselves heavily regulated, utilize PBMs to control prescription drug costs. The PBM business is highly concentrated – three firms control about 76 percent of the market. In some cases they are the tail that wags the dog – one PBM, Caremark, has a 34 percent market share, and also owns Aetna, a major health insurer, as well as the CVS pharmacy chain and mail-order operation.

This concentration gives PBMs enormous power over the marketplace. They determine which pharmacies can operate within their networks, and at what terms – even charging them to participate. One small Seattle-based pharmacy chain told us during committee testimony this year that 95 percent of its business comes through PBMs and can’t afford to say no. Others told us PBM reimbursements for prescription drugs are often lower than their costs, or allow profits so slim they just can’t make it. In metro areas like Vancouver and Seattle, pharmacies with robust business are closing as a result; in smalltown Eastern Washington we face the prospect of “pharmacy deserts,” where your only option might be mail-order or a trip to a large city.

PBMs wield their power to maximize profits, with mechanisms that squeeze every end of the toothpaste tube, from paying independent pharmacies less than they do their affiliated chains and mail-order houses, to negotiating rebates with manufacturers they keep for themselves. The latter practice, known as “spread pricing,” is one of the largest sources of their profits. PBMs often point to high prices from drug manufacturers, and certainly they provide a leveling force, but it doesn’t help consumers if the savings never reach them.

A balanced solution is state oversight. A U.S. Supreme Court decision in 2020 established that states can regulate PBMs, and Washington needs to join the growing number of states taking action. This year I have sponsored Senate Bill 5066, which requires PBMs to disclose business relationships to the Insurance Commissioner’s Office. But we must go further.

Our regulatory bill this year would have banned many of these tactics that interfere with the pharmacy-patient relationship. It would have prohibited spread pricing and mandatory mail order service. It would have banned practices that discriminate against independents at the expense of affiliated chains and mail-order firms, like requiring higher patient copayments or paying independents less.

Even this isn’t enough. This year Kaiser Permanente, another major insurer, cut independent pharmacies out of the market by decreeing all routine prescriptions must be filled through mail order or through its in-house pharmacies – meaning, for some, a long drive to Spokane. We will deal with this issue again next year. We must address these business practices that unfairly reduce patient choice, to assure access to medical services for everyone in our state, regardless of where they live.

— Sen. Shelly Short, R-Addy, represents the 7th Legislative District.