New drugstore lobby mandate would increase prescription drug costs in Medicare
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Legislation being pushed by various special interest drugstore lobbies would undermine Medicare Part D and destabilize the program for millions of seniors.

A few years ago, lower cost preferred pharmacy plans were an innovation that offered great promise. Today, they are the foundation of Part D, with nearly 75 percent of seniors enrolled in plans featuring preferred pharmacy networks.  


Preferred pharmacy plans are so popular because they offer convenience and have lower premiums across the board.  A study by Milliman estimates that plans with preferred pharmacies will reduce federal Medicare spending by $7.9 to $9.3 billion over 10 years.

In many cities, there are multiple drugstores on the same block. Today, in the U.S., there are 67,000 pharmacy locations — more than the number of Taco Bells, Kentucky Fried Chicken, McDonald’s, Burger Kings, Pizza Huts, Wendy’s, Domino’s Pizzas and Dunkin Donuts locations combined.

To leverage this competition, pharmacy benefit managers (PBMs) and Part D plans promote drugstores that offer better discounts than their local competitors. To be included in a network, a drugstore chooses to sign a network contract and in turn gains additional foot traffic from plan enrollees who not only purchase prescription medications, but “front-end” store items like shampoo and toothpaste.

Drugstores have significant clout when negotiating their participation in pharmacy networks. The Government Accountability Office has reported that most independent drugstores hire powerful Pharmacy Service Administrative Organizations (PSAOs) to bargain collectively on their behalf with PBMs and other payers. The contract provisions that PSAOs negotiate include reimbursement rates, payment terms, and audits of pharmacies. The PSAOs also act on behalf of drugstores as payment intermediaries.

Nonetheless, this year special interest drugstore lobbyists are pushing legislation (S. 413/H.R. 1038) that increases costs for Medicare beneficiaries and taxpayers by banning the use of direct and indirect remuneration (otherwise known as DIR) in Medicare Part D.  DIR, which is determined post point-of-sale, is a cost-saving and quality improvement tool used by plan sponsors that helps beneficiaries save money on premiums, drug costs, and other out-of-pocket costs.

Plans use DIR to encourage pharmacies to dispense generics, help patients stay adherent to medications, and otherwise improve their services. A recent report by the Centers for Medicare & Medicaid Services highlights how DIR reduces premiums for beneficiaries, which also leads to lower costs for the federal government.

Simply put, the real reason drugstores attack DIR is that they don’t want to hold up their end of the contractual bargain and offer lower costs for Medicare beneficiaries. The reality of the competitive structure of the Part D program is that PBMs and plans must negotiate rebates and other discounts to reduce costs and pass those savings along to beneficiaries.

Instead of piling on new government mandates that restrict the ability of PBMs to reduce drug costs, policymakers and Congress should be pushing for ways to enhance these tools.

Charles Cote is the vice president of strategic communications at Pharmaceutical Care Management Association (PCMA)

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