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KFF Health News reports that the Biden administration’s first major step toward imposing limits on the pharmacy benefit managers who act as the drug industry’s price negotiators is backfiring. Instead, it’s adding to the woes of the independent drugstores it was partly designed to help.

PBMs have long clawed back a fee from pharmacies weeks or months after they dispense a drug. A new rule, which governs Medicare’s drug program, is set to take effect Jan. 1 and requires PBMs to take most of their “performance fees” at the time prescriptions are filled.

The clawbacks have ballooned from about $9 million in 2010 to $12.6 billion in 2021, according to the Medicare Payment Advisory Commission, an agency created to advise Congress on the program for people who are 65 and older or have disabilities. Performance fees have also boosted Medicare patients’ prescription costs at the pharmacy counter by hundreds of millions of dollars, although insurers assert that the fees enable them to charge lower premiums.

Pharmacist groups supported the Medicare rule change, but they didn’t anticipate the PBMs’ response, which has been to demand they accept new contracts with draconian cuts to their payments for dispensing medicines, said Ronna Hauser, vice president of the National Community Pharmacists Association, which represents independent drugstores. If pharmacies refuse the contracts, they risk losing Medicare customers – likely to the same giant PBM conglomerates, which have absorbed a growing share of the pharmacy business in recent years.

PBMs sit at the center of the U.S. supply chain for drugs, where they say they negotiate lower prices for insurers – including Medicare – and for employers and their workers. But the organizations are loathed by independent drugstores, drugmakers, and patients alike, who accuse them of siphoning money from what is already the world’s most expensive health care system without providing additional value.

PBM practices even put the squeeze on national chains like Rite Aid, Kroger, and Walgreens, which aren’t part of the conglomerates. Even CVS Health, which owns one of the three leading PBMs, has closed stores or trimmed staff as it pushes consumers to mail-order pharmacy services.

In the early fall, PBM giant Express Scripts sent out confidential contracts announcing that in 2024 it will pay pharmacies roughly 10% below what they typically pay to buy wholesale brand-name drugs – meaning they could lose money on every prescription they fill, according to two independent pharmacists who received the documents. They declined to share the contracts because they are subject to nondisclosure agreements with Express Scripts.

For the first months of 2024, pharmacies will face a double whammy. PBMs will pay them less for the drugs they dispense, while the pharmacies also face clawbacks on drugs dispensed in the last quarter of 2023.

Some pharmacies are setting aside savings or taking out short-term loans to cover losses in the early months of next year. “I’m hoping we’ve made the right calculations and will get through this,” said Marc Ost, co-owner of Eric’s Rx Shoppe in Horsham, Pennsylvania.

Express Scripts has said it wants to help independent pharmacies survive, Doug Hoey, CEO of the National Community Pharmacists Association. said, but hasn’t responded to a June letter in which he asked the company to provide breathing space by imposing the 2023 clawbacks gradually over 12 months. CMS this month said it “strongly recommends” but does not require PBMs to come up with payment plans for pharmacies.

In its statement, Express Scripts said it was “committed to reimbursing pharmacies fairly, ensuring Medicare beneficiaries have safe, quality pharmacies in their network, and giving beneficiaries all available discounts at the pharmacy counter.”