Independent pharmacies feeling squeezed by pharmacy benefit managers

Independent pharmacies in the state are feeling squeezed by intermediaries called pharmacy benefit managers via lower reimbursements, limited drug choices and preferred pharmacies. 

“PBMs are by far the biggest reason you see so few truly independent pharmacies any more,” said Matt McGowan, a pharmacist from Mount Horeb. “PBM reform has to happen, and it has to happen soon, or the local pharmacies so many people in Wisconsin and throughout the nation trust for their front-line health information will soon be a thing of the past.”  

McGowan practices retail pharmacy at the independently owned Mount Horeb Pharmacy and also works with Hometown Pharmacy, which operates more than 30 independent pharmacies in the state. 

Businesses like these have been struggling in recent years, with more than 16 percent of the country’s independent rural pharmacies closing between 2003 and 2018, according to the RUPRI Center for Rural Health Policy Analysis at the University of Iowa. 

McGowan says many of these companies have been driven out of business by “alarmingly low reimbursements” as more and more patients have prescription insurance. That’s particularly problematic in rural communities, where independent pharmacies have relatively low bargaining power due to their smaller size and patient populations. 

“Pharmacists are often ranked as one of America’s most trusted and knowledgeable health professionals. Many patients who have questions trust their local pharmacist most,” McGowan told “If pharmacies continue to close their doors because of decreasing reimbursements and increasing penalty fees, who will these patients turn to for their questions?” 

In a statement, the Pharmaceutical Care Management Association pushed back on criticisms leveled by independent pharmacies. The PCMA is the national trade group representing PBMs. 

“Pharmacy benefit managers are the advocates for consumers and health plan sponsors in the fight to keep prescription drugs accessible and affordable,” the group said. “PBMs have been able to achieve an overall stable cost trend for prescription drugs by innovating consumer-friendly, market-based tools that encourage competition among drug manufacturers and drugstores.” 

The nation’s top PBMs have relationships with the largest pharmacy chains in the country. CVS Health/Caremark works with CVS and Target; Express Scripts is connected to Walgreens; and Humana and WalMart are also linked. The top two — Express Scripts and Caremark — had just under 50 percent combined market share in the United States in 2017.

These major pharmacy benefit managers cover about three-fourths of U.S. residents, McGowan estimates. They create contracts for filling prescriptions with both pharmacy chains and individual pharmacies. 

Mount Horeb Pharmacy has been owned by Karen and Dave Roby since 2004, when they bought the business from the previous owner. According to Karen, it was “quite a different business” just 15 years ago. 

At the time, she says there wasn’t much competition from Walgreens in town, and reimbursements for prescriptions were “much more favorable.” 

But as PBMs have boosted incentives for patients using mail order and large chain pharmacies, she says independent pharmacies have taken the hit. When patients use mail order, they often get reduced copays. But she says they’re losing out on in-person consultations and other services pharmacists can provide. 

“Pharmacists are able to monitor drug interactions, side effects, and adherence issues with the patient directly involved,” she said. 

Due to lower reimbursements and other new fees, she said Mount Horeb Pharmacy is making little profit on many prescriptions while losing money on others. At the same time, larger competitors have steadily increased their buying power, and can purchase drugs in large quantities at reduced price compared to independents. 

“It makes it very difficult for the independents to survive,” she said. 

PBMs set the terms of reimbursement with their contracts, and McGowan says they’ve been able to set better rates for themselves due to their larger negotiating power. PBMs use these formulas to determine the average cost of a drug, but the cost for a “big box” pharmacy to buy these drugs is often much less than for rural or independent pharmacies. 

“Back 20-30 years ago, before most patients had prescription insurance, pharmacies could set their price to make the wage/revenue they needed to stay open at the end of the day, and the cash price was what it was,” McGowan said. “Now with so many patients having prescription insurance — 95 percent or more in the United States — reimbursements continue to shrink and making money on filling prescriptions has become extremely difficult.” 

Another factor putting pressure on independent pharmacies is PBMs steering patients to their preferred pharmacies, where patients are given lower copays and other benefits. McGowan says the smaller pharmacies have to accept these contracts the way they’re written, or risk losing the business altogether. 

“Patient steering has been the major reason for loss of business at rural pharmacies for a number of years, becoming worse in the last 10 to 15 years,” McGowan said. 

At the same time, PBMs have been forming relationships with specific drug manufacturers and will only allow certain medications from that manufacturer on their formulary, or list of pre-approved drugs. 

“We could have a patient on a medication for a number of years, who is being treated successfully, when out of nowhere the PBM can decide they wish to no longer cover that medication,” McGowan said. “The patient will be forced to try something new that very well may not work for them, or forced with the cost of the medication which can be hundreds or even thousands of dollars.” 

It’s also becoming more common for PBMs to “claw back” money from pharmacies, according to McGowan. He says that often results in pharmacies not being paid enough to cover the cost of the medications themselves, “much less the operating costs for filling prescriptions.” 

On top of that, PBMs have been leveling DIR fees, which stands for direct and indirect remuneration. McGowan says these entities have been re-assessing claims several months after the pharmacy has filled and dispensed a medication to a patient, often taking back “very substantial amounts of money.” 

“I would call this a relatively new ‘phenomenon’ or tactic being used by PBMs,” he said. 

In the statement provided to, PCMA countered that DIR fees are “an important tool for keeping independent drugstores accountable for doing their part to improve quality, increase access, and lower prescription drug costs.” 

Before this practice started, McGowan says claims would be approved or denied on the spot, so the pharmacist could see the reimbursement and let the patient know if the prescription could be filled. 

“If we lost significant amounts of money on a prescription — a few hundred dollars or much more — we let the patient know we cannot fill that prescription for them, since we cannot operate at a loss,” he said. 

Now, he says, claims are still getting approved by PBMs, but they are charging DIR fees down the road, “taking back thousands of dollars the pharmacy has already made.” 

To improve the sustainability of independent pharmacies, Roby says lobbying is needed to improve reimbursements and cut out claw backs and DIR fees by the PBMs. That effort is being done in part by Dan Strause, managing member for Hometown Pharmacy. According to McGowan, he’s been working at the state and federal level “to help move PBM reform forward, and reign-in on their unfair, criminal practices.” 

According to McGowan, any overhaul of PBM regulations would involve increasing transparency for these businesses, and eliminating many of the practices he says are choking out independent pharmacies. 

According to the PCMA statement, PBMs already “support and practice transparency that empowers patients, their providers, plan sponsors and policymakers, so that there is informed decision-making that can lead to lower prescription drug costs.” 

–By Alex Moe