Independent Pharmacists Fight for Survival, Lobby for Reform

A lot has changed since Anthony Ciarletta’s first day of employment at a pharmacy.

It was the early 1980s, and he was only in the fourth grade. Ciarletta tagged along for work that day with his dad for a lesson in service at his father’s business in Spanish Harlem.

“I was paid with a Matchbox car – that was to learn how to do stock – that was my very first day in his pharmacy,” the proprietor of Taconic Pharmacy in Jefferson Valley recalled with a chuckle.

But independent pharmacists in New York State aren’t laughing much these days, given the grim state of their industry.

From paper records and limited insurance coverage then to digital systems and complex reimbursement processes now, the pharmacy industry has undergone a technological and regulatory metamorphosis over the past two generations, with independents relying on expanded product diversity and services, including patient consultation, to remain relevant and viable in a new world.

And now, here in New York, industry advocates say they’re scrambling to persuade state legislators to keep a plan in place to move away from managed care, which has worked to destroy their businesses.

Wonk

OK, let’s get at least a piece of the wonky part out of the way.

The policy at the center of the latest debate is the New York State 340B Medicaid Managed Care program. Under this program, pharmacies that serve Medicaid patients say they receive an average reimbursement of about 50 cents per prescription on average, noting the unsustainable nature of those economics.

The reimbursement rate is set by pharmacy benefit managers – also known as PBMs – like CVS, Optum, and Express Scripts, which are essentially third-party middlemen companies that negotiate drug prices on behalf of insurance plans.

“Three vertically integrated companies now control access to more than 80 percent of all prescriptions filled in the United States,” Matthew Seiler, general counsel for the National Community Pharmacists Association, complained in a letter last August to the New York State Department of Financial Services. “They also have access to competitively sensitive information about their competitors.”

Critics argue that PBMs have been granted too much control, allowing them to dictate reimbursement rates to pharmacies without sufficient oversight or regulation.

April Fools 

To address this issue, New York State passed the NYRx transition in 2020, which is finally set to take effect at the start of next month.

The potential torpedoing of the measure feels like the world’s worst April Fools’ Day joke to New York’s pharmacists. But how significant those efforts truly are remains unclear.

The transition to NYRx favored by independent pharmacists would (and, speculatively, probably will) move the state’s Medicaid Managed Care program to a fee-for-service model, meaning that pharmacies would be reimbursed based on the actual cost of the drugs they dispense rather than a fixed rate set by PBMs.

However, some advocates of needy constituencies are now pursuing a policy designed to halt the NYRx transition as planned. More on the political reality on that effort in a moment.

Industry advocates warn how repeal could produce dire consequences for pharmacies.

Small independents in poor neighborhoods feel particularly imperiled, unable to make ends meet for the long term under the current circumstances.

But at the heart of this story is a human story – about pharmacies and the communities they serve – regardless of what happens with the desired (and seemingly likely) transition to fee-for-service via NYRx.

Luck of the Irish 

Annette Ray has been a patron of Taconic Pharmacy for the past two decades. The Shrub Oak resident, a native of Ireland, said how the crew at Taconic “reminds me of the pharmacies from home.”

It’s the personal touch she values and hopes is never lost.

“They know me by name,” she said in a phone interview last week. “They know my kids’ names. I know them.”

When her now 13-year-old son Anthony was in kindergarten and broke his leg, the pharmacist immediately offered her an available pediatric wheelchair.

“He goes, ‘You can just take it. Just take it.’ When you’re done with it, just bring it back to me,’” Ray recalled. “CVS wouldn’t do that.”
A longtime lupus patient, Ray said she would not feel comfortable at a larger chain.

“When I was in between insurances, I ran out,” she remembered about a medication issue. “I mean, they would fill my prescription without my insurance and wait to submit it until I got my insurance.”

Delivering the Goods

Ciarletta, for his part, emphasized all the extracurricular work community pharmacies performed amidst COVID to help customers with deliveries.

“Pharmacists care for patients that are in the community,” Ciarletta said. “We’re the most accessible health professional that’s out there, so people can come in at any time and ask questions and get advice a lot of times for free. We don’t charge for our advice, so therefore, you’re a very big part of the community.”

Ciarletta has been a pharmacist for 27 years, working a job he considers a mission.

But the mission is also a business with bottom-line demands.

He runs six establishments in Westchester – a long-term care in Yonkers, two pharmacies in Yonkers, and pharmacies in Harrison, Larchmont, and Jefferson Valley.

“It’s not that we’re paying a lot more than what the market will bear,” said Ciarletta, a Pharmacists Society of the State of New York board member and chairman of the Westchester & Rockland Society of Pharmacists. “We buy very aggressively. And even with that, they are paying us many times below cost.”

Giving Notice

Heather Ferrarese is the board president of the Pharmacists Society and the owner/operator of Bartle’s Pharmacy in upstate Oxford. She stressed how the Department of Health has worked hard over the past couple of years to prepare all stakeholders – health plans, health care providers, patients, and pharmacies – to be ready for the upcoming Apr. 1 transition.

“The patients have received notifications that this transition is happening,” she explained. “The pharmacies have received notifications that the transition is happening. The plans have been notified. Everyone has been notified.”

Examiner reporter Abby Luby did a terrific job in the summer of 2021 covering the broader industry issues in the aftermath Pleasantville Pharmacy’s closure, a departure that shook many local residents.

Abby explained in her coverage how contractual agreements between pharmacies and PBMs serve to silence many pharmacists about the issues they face.
“A gag order means I can never speak to the insurance company or the drug manufacturer about my contract with the PBM,” Roger Paganelli, a third-generation pharmacist and owner of Mt. Carmel Pharmacy in the Bronx, told Abby for our in-depth report. “There is a veil of secrecy which gives PBMs a competitive advantage.”

Repeal and Replace

A budget document from the state Assembly outlines the desire “to reject the implementation of the pharmacy benefit carve-out transition to fee-for-service,” but the potency of the current repeal effort remains murky.

Language in a Senate budget resolution in response to Gov. Kathy Hochul’s proposed budget from earlier this year articulates the effort at repeal.

In the Senate, however, a pending bill – trumpeted by supporters as a “compromise bill” – would require PBMs and managed care providers to reimburse retail pharmacies for each outpatient drug at the national average drug acquisition cost. But the bill would revoke the transition from managed care to fee-for-service.

From the consumer’s perspective, if the NYRx transition goes through as planned, New York State Medicaid patients in mainstream Managed Care Plans, Health and Recovery Plans and HIV-Special Needs Plans would get their pharmacy benefits through the NYRx program, cutting out the middle man of their Managed Care Plan.
State Sen. Gustavo Rivera (D-Kingsbridge Heights), the health committee chairman, introduced the repeal bill.

Do No Harm

Rivera believes the transition could cause unintentional harm to certain providers participating in the federal 340B program. His office notes how the senator’s bill is designed to maintain protections for pharmacies and reduce administrative costs associated with the federal program.

I asked if it’s fair to say he’s confronting ample pushback from Hochul and her office on the repeal piece.

“It’s very good to have a governor who’s not a sociopath,” he replied in a phone interview last week. “We have disagreements, and we have strong disagreements at times, but it’s been a different situation than dealing with the last governor. So, yes, we are in discussions with them, and they are insisting that they’re going to go forward as is, but we’re doing the work that we need to do to try to make some sort of compromise work.”

Rivera stressed how he’s a strong advocate for independent pharmacies and sympathizes with all the issues they describe. He said his bill aims to address those concerns.

The Bronx lawmaker more than acknowledged the issues with the current 50-cent reimbursement and noted how his bill sets a floor of $8.50.

Breaking Bread

“I can understand where they’re coming from because the governor’s proposal – the transition – gives them the full baked loaf,” Rivera said of independent pharmacy proprietors. “And what I’m saying to them is like, ‘Folks, I’m not going to give you a full loaf, I’m going to give you three-quarters of a loaf.’ But what I’m really looking forward to is trying to make sure that the bread factory that makes the loaves for these other folks doesn’t go up in flames.”

Despite the significant concerns of pharmacy owners, Rivera said the current 340B program helps support HIV-positive patients and other vulnerable populations.

“They will no longer be able to avail themselves of the program that allows for them to do this,” he said of the needy under the transition plan to NYRx. “And I don’t want that to occur.”

But the governor’s director of communications, Cort Ruddy, told me how the transition is designed to “create transparency in reimbursement to pharmacies, eliminate profiteering from intermediaries, leverage the states purchasing power to negotiate with drug manufacturers, streamline administration for practitioners and reduce confusion for the Medicaid recipients themselves when they pick up their medication.”

The Hochul spokesman also addressed the unease over how the transition could impact the poor.

“Moreover,” Ruddy said, “the budget will reinvest a significant level of savings realized by this transition to support 340B providers so that they can continue serving the vulnerable populations that rely on their services.”

History Lesson

As for some historical background, the 2021 budget had delayed the transition to the looming transition.

With 7.8 million people enrolled in Medicaid in New York, state officials told me last week how next fiscal year’s budget plans are designed to leverage pharmacy rebates to ensure care for the needy.

They point to the Fiscal Year 2024 spending plan, which calls for the reinvestment of more than $700 million to support 340B providers, including Ryan White Clinics, Federal Qualified Health Centers, and hospitals.

In fact, even after the transition, the officials said how eligible entities can continue using the 340B program to receive medication at reduced prices.

The bottom line is that the final details are being negotiated, with the Apr. 1 budget deadline right around the bend, just as a long laundry list of other unrelated policy debates are being hammered out in the annual late March Albany scramble.

After researching the legislative landscape, my sense is that the alarm bells the pharmacy industry are sounding about repeal might be way louder than the significance of the threat NYRx actually faces, even if negotiating final details remains in play.

Madam Chair

One of the area’s local legislators, Assemblywoman Amy Paulin (D-Scarsdale), happens to be the Health Committee chair in the Assembly.

“As we approach the final budget negotiations, the future of the Medicaid pharmacy benefit is one of the major issues we’ll be looking to address,” Paulin shared with me last week through a press representative. “Having a robust and extensive pharmacy network is essential to our health care system and I am working to ensure that the final budget protects New York’s pharmacies.”

Brace yourselves now for a little more (relevant) policy background to understand the broader context as I try to avoid putting you to sleep.

Those worried about the NYRx transition – especially elected representatives with poorer constituencies like Rivera – worry for a reason.

The 340B Drug Pricing Program was created by the federal government in 1992 to assist hospitals and clinics in caring for the less fortunate by allowing them to buy prescription drugs at a discount while billing insurance for the full market price.

But many independent pharmacy industry advocates say the program has become problematic due to the Affordable Care Act, Managed Care, and the entry of PBMs and their siphoning off of profits.

Chain Reaction

Large PBMs like CVS Caremark and OptumRx UnitedHealth have inserted themselves into the pharmaceutical supply chain, and no one maintains any significant oversight over how they operate.

The Anthony Ciarlettas of the world try to sell more over-the-counter products to mitigate the impact but it’s often not enough to avoid cutting hours and services.

Although the loosening of standards for who and what can be a 340B covered entity was meant to expand the program’s availability to reach more needy patients, critics say it has instead allowed hospitals to game the system, expand their networks and cash in.

Health care providers that oppose NYRx argue they will lose money and have to cut services or close centers.

But community pharmacy advocates highlight how the state Department of Health disputes this claim. The department reportedly expects to save more than $410 million in the first year alone and would plan to reinvest these savings annually into the same 340B-covered entities that would lose funding by exiting the Managed Care model.

Covering the Spread

PBMs are also criticized for engaging in so-called “spread pricing” techniques. Spread pricing is the difference between the payment the PBM receives from the state or managed care organization and the reimbursement amount it pays to the pharmacy.

The Drug Price Transparency in Medicaid Act, a bipartisan federal bill introduced in 2021 by Reps. Buddy Carter (R-George) and Vincente Gonzalez (D-Texas), is designed to limit the power of PBMs to artificially spike Medicaid drug prices.

On the more local level, a 2019 report from the New York State Senate cites a claim that the state was overcharged by at least $300 million in spread pricing fees – attributing the finding to researchers who actually frame the $300 million figure as a conservative estimate.

“The data suggest that New York managed care PBMs are pricing most generic drugs below a pharmacy’s cost to dispense and potentially using these savings to subsidize spread pricing on the remaining generic drugs,” a 2019 Pharmacy Society of the State of New York white paper stated.

Sustainability Advocates

While Ciarletta took pains to avoid being an alarmist, there’s no sugarcoating the blunt reality.

“If we continue to be paid with managed care and this doesn’t go through, we’re going to have to significantly decrease services,” he said. “And for a couple of our stores, it may even mean that we have to close those stores. The business model is not sustainable the way it is now and hasn’t been sustainable in a while.”

It’s worth emphasizing how not all big pharmacies are bad and not all small pharmacies are good. In fact, it’s not uncommon for some chains to deliver the type of quality customer service people prize from mom-and-pop pharmacies.

As a layman, while NYRx sounds like an enormously positive step to me, it’ll be important to keep an eye on how any changes impact the poor, not just the middle class.

But if you accept the premise that people benefit from having independent pharmacies on Main Street, all signs seem to suggest NYRx is a significant step in the right direction, with more work to be done in order to shore up a broken, critical, community-forging industry.

The status quo would be a death knell, but the likely reform appears poised to help inject the industry with some life.