Healthcare industry middlemen hurt little pharma


Local pharmacies are being driven out by large national chains, says Donald Cantalino, the owner of Glen Cove Chemists on Forest Avenue. Through entities called Pharmacy Benefit Managers, or PBMs, explained Catalino, a former president of the Pharmacists Society of the State of New York and a prescription benefits consultant for companies seeking health plans, the pharmacy chains have the ability to stamp out independent competition.

PBMs are hidden among the complexities of the health care system. They first appeared in the 1980s, as middlemen between insurance companies and employers offering health plans to their workers. “Basically they started out as administrators,” Cantalino said.

Since then, PBMs have morphed into “behemoth” companies. Currently, three companies — Caremark, OptumRX and Express Scripts — control two- thirds of the market, according to a study by Neeraj Sood, vice dean for research at the Leonard D. Schaefer Center for Health Policy and economics.

These companies are largely free from government oversight, according to Cantalino, and because they can drop pharmacies from insurance networks, PBMs essentially have the power to cut off their customer base. “Basically we are at their mercy,” Cantalino said. “Whatever they say goes.”

The Herald Gazette contacted five independent pharmacies on the North Shore. Some said they could not comment for fear of reprisals by the PBMs with which they have contracts.

Sood’s study found that on the whole, PBMs actually earn smaller profit margins from drug sales than most other players — pharmacies, manufacturers, insurance companies — and save insurers about the same amount of money that they make from manufacturer rebates. It also found that all stakeholders, except the manufacturer, earn higher profits on generic rather than branded drugs.

But according to Cantalino, the problem isn’t merely that PBMs are profitable. It’s that they profit off smaller pharmacies like his.

PBM’s have the ability to audit independent pharmacies to make sure that their clients — insurance providers — aren’t being subjected to frivolous claims. But in the case of Caremark, which is owned by CVS, that means local pharmacies are subject to audit by their competition, Cantalino said.

He gave several examples of audits that he described as “abusive.” In most of these, the PBM said that he gave the patient too much medicine. But instead of recouping what the PBM deemed to be the appropriate amount for the claim, it simply refused to pay it altogether.

Auditors visit Cantalino on a weekly basis, he said, and a recent visit cost him $14,000 in unpaid claims and fines. “They got us on their little rules,” he said, recalling an instance when the PBM deemed the quantity of a tube of rash ointment –– worth $165 — to be “excessive,” even though the doctor had written “large tube” on the prescription.

“They’re coming more and more often,” Cantalino said, adding that he frequently receives no warning that an auditor will show up. Pulling together the records for an audit takes time, as does sitting with the auditor and explaining the claims. “You just don’t walk in here,” he said, “and say, ‘I want all these claims.’”

In 2015 testimony before the House Judiciary Committee, Natalie Pons, a lawyer for CVS Caremark, argued that the pressure that PBMs put on pharmacies is a balancing act. “We want [pharmacies] to buy [drugs] at lowest possible cost, but we also want them to get a fair margin,” she said. By using the tools at its disposal to encourage the use of generic, rather than branded, drugs, Pons added, Caremark works “to get the best prices on behalf of our [insurance company] clients to help keep their premiums down for their members and help keep costs affordable.”

A state bill that passed the Assembly on March 5 would force PBMs to give two weeks’ notice before an audit, establish a maximum number of randomly sampled claims in an audit, and restrict the time period of the random claims to two years. “It’s a matter of fairness,” said Assemblyman Charles Lavine, a Democrat from Glen Cove who sponsored the bill and is a longtime client of Cantalino’s.

The bill passed the Senate just before the end of session last year, and Lavine said he expected it to pass there again.

Regarding Caremark, Cantalino said, “I have a competitor who controls my destiny. I’m transmitting my claims, my patient data, to Caremark [CVS]. They know all my patients. They know what drugs my patients are taking.” He said that on two occasions, the PBM used that data to poach his clients. “They automatically decided they were going to turn them into Caremark mail-order customers,” without allowing them to opt in.

Pons said that a 2009 Federal Trade Commission investigation of the CVS merger with Caremark cleared the company of accusations of failing to adequately maintain a “firewall” between the two entities to protect consumers’ personal information.

PBMs have been under scrutiny since the early 2000s, when business publications began running stories coining terms like “the Big Three” — Caremark, OptumRx and Express Scripts — and taking aim at a number of practices, including their lack of transparency, their monopolistic activities and, more recently, a gag order that prevented pharmacists from informing their clients about cheaper drug.

While there are several PBM reforms that Lavine wants to pursue, he said that smaller solutions are the most likely way to effect change. The smaller the scope of a bill, the easier it is to pass it. “Doing things more comprehensively is much more challenging,” Lavine said. “There would be more stakeholders involved,” which means a greater number of forces pushing legislators in different directions.

Cantalino also works as a consultant for unions and employers who offer insurance through their organizations. He said that the best way to get the best plans and the best rates is put them out for bid. “I have about 165 questions, to address fiscal issues, coverage quality and customer service,” he said.

Even so, he refuses to do business with the PBMs he calls the “Big Three.” Even if they were to offer a cheaper bid, he said, “I will never bring them to the table because I know the other [side of the story]. They got extremely wealthy by sucking money out of every American that takes the medication.”