If Walmart or CVS tried charging five times more than local grocers for bread, milk and bananas, their customers would promptly start buying locally. Yet a new report from the Consumers Union shows those same chains get away with pricing prescription drugs several times higher than local pharmacies.
Researchers called more than 150 pharmacies in six metro regions for cost quotes on five commonly-prescribed drugs. They found the total cost of these drugs was dramatically lower at independent retailers ($107). Chain drug stores charged an average of $849 for the same five drugs, big-box discounters charged $527, and grocery chain pharmacies charged $565.
So how do Walmart, Walgreens, CVS and other major chains get away with charging us 500 to 800 percent more than independent competitors?
The rise of pharmacy benefit managers (PBMs) is one reason. Decades ago PBMs were contracted by health plans to process prescription drug claims while collecting a flat fee for each claim processed. The top three PBMs – Express Scripts, CVSHealth and OptumRx – cover more than 180 million Americans, or roughly 78 percent of the market.
These middlemen now have power beyond processing claims and can prevent patients from gaining information needed to make well-informed decisions. Many have instituted “gag clauses,” contractually prohibiting pharmacists from telling patients when they could save money by paying cash instead of using their insurance.
Lisa Gill, deputy editor at Consumer Reports, considers such clauses a travesty. “It’s deeply troubling that a pharmacist can be barred from speaking honestly with a patient,” said Gill. “Such clauses are likely indicative of deeper problems within these PBM agreements harming consumers as well as independent pharmacies.”
PBMs claim such restrictions are uncommon, but a 2016 National Community Pharmacists Association survey found 59 percent of pharmacists had encountered multiple gag clauses in the months prior to responding. Sen. Debbie Stabenow, D-Mich., and Sen. Susan Collins, R-Maine, introduced a bill into Congress to ban gag clauses nationwide, while 19 states have enacted legislation out of the 38 that considered prohibiting these restrictions.
PBMs aren’t the only ones standing in the way of lower prescription drug costs. Many health plans (including Medicare) steer people to “preferred” pharmacies, typically meaning a chain with which they’ve negotiated the most profitable arrangement. These almost invariably exclude most community pharmacies.
Excluding independent pharmacies from preferred lists can drive consumers toward seemingly cheaper drugs online. The Consumers Union found the lowest prices among online merchants at HealthWarehouse.com, which did undersell independents in cases where time was no concern. For anyone needing their medications faster than the 1-2 weeks they allot for free delivery, however, shipping costs exceeded savings for four of the five drugs examined.
Mail and online orders also pose serious drawbacks for customers. “The problem with bypassing the trusted community pharmacist is the patient loses a caregiver who is more familiar with them and their situation,” says Amanda Ross Goyke, owner of Cheney Owl Pharmacy, which has been operating since 1882. Patient adherence to dosage, frequency, duration, and avoiding dangerous drug combinations is better when prescriptions are filled with independent pharmacies.
John Norton, director of public relations at the NCPA, says, “If you have side effects and call an online merchant’s 800 number with questions, they’ll do their best, but there’s no substitute for the personal knowledge and bond between a patient and their community pharmacist.”
Despite the forces working against them, the number of independent pharmacies has been stable in recent years (22,041 as of 2017). Goyke says, “Because it is difficult to compete with the resources available to chains, their affiliated insurances, and PBMs, we succeed by doing what we do best: providing knowledge, care and support to the communities we serve for as long as we can.”
Unless we demand rules enabling us to know our real costs for medications, large corporations will continue to profit from our ignorance. The drug price investigation is just the most recent from the Consumers Union showing independent business beating national chains in overall value, so clearly bigger is not always better for consumers.
Our local businesses play an essential role in sustaining healthy communities. We should give them the first chance to earn our business.
Mariah McKay is the founder and executive director of the Spokane Independent Metro Business Alliance.
Janna Williams is the engagement coordinator for the American Independent Business Alliance.