Pharmacy deserts threaten Iowa’s picture of health

It’s a good bet Iowans would sit up and take notice if 40.8% of the state’s independent pharmacies closed their doors in 2025. Yet that’s the prediction of pharmacists who responded to an October 2023 survey by the Iowa Pharmacy Association.

This session’s legislative grandstanding has sucked most of the oxygen out of the room, but House File 2401, Regulation of Pharmacy Benefit Managers, flew under the radar to House passage. The bill is aimed to address the threat to Iowa pharmacies and hold pharmacy benefit managers (PBMs) accountable to fulfill their “duty of good faith and fair dealing.” It’s now in the Senate, eligible for floor debate.

Third-party PBMs play a pivotal but powerfully opaque role in negotiating drug prices and reimbursements. PBMs also control which pharmacies are included in your prescription drug plan’s preferred network, as well as how much these pharmacies will be paid. They regulate the drugs covered under your health care plan and copays, and routinely extract discounts and rebates from drug manufacturers.

PBMs have been holding pharmacists hostage between a rock and a hard place, reimbursing them at lower rates and forcing them to sell common, brand-name prescriptions at a loss. Although PBMs were created in the 1960s to help insurers contain spending on drugs, they now commonly exert market leverage to bloat their own profits, and tack fees onto pharmacies in exchange for inclusion in their preferred networks.

Legislation would bar ‘spread pricing’

Iowa lawmakers have attempted to curb the powers of PBMs over the past 15 years. But they’ve faced a substantial lobby. In 2020, a U.S. Supreme Court ruling allowed states to regulate PBMs. In 2022, Iowa passed legislation to bring PBM oversight under the Iowa Department of Insurance.

HF 2401 would prohibit spread pricing, which allows PBMs to charge health insurers more than what they pay to pharmacies for medications. PBMs would be required to use the National Average Drug Acquisition Cost, which is based on a government retail price survey and focused on community pharmacy costs.

Retired pharmacist Rep. John Forbes, D-Urbandale, supports this more standardized method of pricing prescription drugs.

The bill also protects pharmacists who have been reluctant to file complaints with the Iowa Insurance Division, out of fear of retaliation from PBMs. HF2401 would prohibit retaliation. Iowa’s insurance commissioner would have the authority to investigate such claims, and review PBM pricing in a step-by-step required claim report.

Deck is stacked against independent pharmacies

In my previous column, “Rx is needed for rural pharmacies,” I highlighted the concentration in the pharmaceutical industry. The issue is compounded when you realize these companies also have their own PBMs, allowing them the unfair advantage of being vertically and horizontally integrated. CVS purchased Aetna in 2018; it also owns CVS Caremark, a PBM company. Cigna owns Express Scripts, and United Health Groups owns OptumRx.

This combination of consolidation and vertical and horizontal integration is accelerating the decline of independent pharmacies. Research has shown that pharmacies’ retail list prices (cash prices) are higher for generic drugs at independent pharmacies and small chains than at large chain pharmacies.

Three companies — Optum Rx, CVS Caremark, and Express Scripts — control about 80% of the market. According to Health Industries Research, a nonpartisan health care market research organization, here’s how the PBM market stacks the deck:

• CVS/Caremark, 34%;
• Express Scripts, 25%;
• OptumRx , 21%;
• Humana, 8%

Vertical integration allows PBMs to steer their health plans toward using their pharmacies, and undermining the free market. Take it or leave it!

Data from the University of Iowa’s Carver College of Medicine reinforces the Iowa Pharmacy Association survey. Michael Andreski, RPh, PhD, associate professor of pharmacy at Drake University in Des Moines, has surveyed Iowa pharmacies, finding that the state lost almost 14% of its pharmacies between 2008 and 2022. He says this decline is hitting independent pharmacies harder, especially in rural communities. Andreski is using his survey results to design pharmacy desert maps to convince Iowa legislators of the need for serious action to stem these losses.

“Currently Iowans are paying a large amount of money to the three PBMs that dominate the market,” Andreski says. “HF 2401 would ensure that the money insurance companies now are paying to PBMs now will go to pay pharmacists for the medications they dispense.”

Andreski testified earlier this session in a subcommittee on the closures of Iowa pharmacies. He warns that lobbyists will work hard to water down this legislation. “Representatives of the PBM industry stated that costs will increase for patients and insurers if the bill passes,” he says. “This is a scare tactic that’s been used in other states, and hasn’t been proven to be true anywhere regulations have passed. The bill would allow pharmacies to be adequately paid with the money PBMs already are charging insurance companies, not retained as profit for the PBMs.”

Today’s independent pharmacies also must compete with big box retailers and supermarkets selling generic drugs at lower prices, or as a loss leader. (Think Walmart, Target, Costco, or Hy-Vee.)

Mail order pharmacies, another source of competition, aren’t the answer for rural or inner city residents, especially for pain medications, antivirals, or antibiotics. Insulins and other medications lose their effectiveness when delivered by truck during extremely hot weather. Furthermore,  elderly people rely on face-to-face interactions to discuss side effects and dosages.

Pharmacies need clean bill of health

This issue hurts pharmacies in low-income, underserved urban areas, as well as rural communities, where residents already face health disparities. But all Iowans ultimately pay the price.

It’s a national issue, and Congress has several PBM transparency bills in the hopper. But they’re likely low on the totem pole, compared to higher-profile bills, including keeping the government operating, funding Ukraine, or passing the farm bill. However, Rep. Mariannette Miller-Meeks introduced a bipartisan PBM bill at a House panel on Feb. 20.

The Department of Justice’s recent antitrust suit attempts to take a bite out of Apple. The pharmaceutical industry merits similar scrutiny. However, it will be years before any DOJ action. Much depends on the 2024 election.

As of June 2023, 15 states had imposed transparency or reporting requirements for PBMs; seven states had added oversight into prescription drug pricing, and eight states had specifically targeted PBMs for reporting, according to the National Academy for State Health Policy.

If the Senate acts, Iowa could join this list. HF 2401 won’t cure the problem of vertically integrated health insurance companies, PBMs, and pharmacies. But it could sustain independent pharmacies on life support until more can be done.

How healthy is your pharmacy? The failing health of Iowa pharmacies impacts the quality of our health care across the state. PBMs should not be coming between you and your next prescription. Reforms may be a bitter pill for the pharmaceutical industry to swallow. But it would be just what the doctor has ordered.