How a St. Paul pharmacy's fight for survival is tied to the 'middle men' of drug pricing

“I’d venture to say 99% of people in America don’t know what PBMs are, or who they are,” says John Hoeshen, pharmacist and owner of St. Paul Corner Drug. 

Hoeschen is talking about pharmacy benefit managers, or PBMs.

Pharmacy benefit managers are often considered the “middle man” in prescription drug pricing, and that's no understatement. PBMs work on behalf of health insurance companies to negotiate lower drug prices from manufacturers and reimburse pharmacies for dispensing specific drugs, among other important tasks like deciding which brand of drugs to cover in a plan. 

Most agree that pharmacy benefit managers entered the market in the 1980s as Americans started using more drugs than ever before, the presence of the PBMs initially let pharmacists focus more on their own businesses by handling backend tasks and saved insurers money through bargaining with drug manufacturers. 

In the 40 years since, the industry has taken off, with a recent study suggesting pharmacy benefit management is worth at least $145 billion annually beyond its resource costs. 

“We can't continue to do business with PBMs that aren't going to pay us the cost to do business,” said Hoeschen. 

Hoeschen is talking about the reimbursements that PBMs pay to pharmacies for dispensing specific drugs. When he took over ownership of the pharmacy in the 1990s, those reimbursements were enough to pay the pharmacy's bills and keep its doors open. However, those reimbursements from PBMs have continued to drop, and according to Hoeschen, the drop has been so severe that the pharmacy is now losing money on most of the prescriptions it fills for patients, which, in turn, led the pharmacy to stop taking new patients. 

As PBMs have grown, so too has their power. Hoeschen says he nor any other pharmacy can serve patients who are represented by a PBM that he hasn’t signed a contract with. And he says those contracts have made it impossible to keep the shop up and running.

"It's my honest belief that if the pandemic hadn't happened, St. Paul Corner Drug would not be a business today," said Hoeschen. 

The first stage of the pandemic brought retail business to the corner drug store as customers eagerly gathered to stock up on sanitizers, then came COVID testing.

"To be able to provide tests to people was kind of a boon for us until the vaccine started and we did as many vaccines as we possibly could," said Hoeschen, who estimated his pharmacy provided between 120-160 vaccines daily after they became available for the public. 

American pharmacies, both independent and chain, quickly became hubs for the general population to get vaccinated. 

"Pharmacies really stepped to the plate when it came to providing vaccinations for patients and losing that resource can be a really big loss for communities," said Joel Farley, a researcher and professor of pharmacy at the University of Minnesota.

Farley worries about pharmacy closures in both cities and rural areas and believes the added task of administering vaccines placed another stress on the drug stores that were already under growing duress. He's also concerned about reimbursements for pharmacies.

"Reimbursements have gotten to the point where a lot of pharmacies are determining whether or not they can continue current contracts with PBMs and whether or not they need to close shop," Farley said. 

As pharmacy closures continue to garner public awareness, PBMs have been put in the spotlight. Pharmacists like Hoeschen are pushing for more regulation at the state and federal levels.

While those legislative actions work their way through the capitol, PBMs are fighting back against what they call unfair attacks on their work. 

"Nobody has to hire a pharmacy benefit manager," says Michelle Mack, the state director for a national pro-PBM lobbying organization, the Pharmaceutical Care Management Association (PCMA). "There's a lot of pharmacies and there's a lot of competition." 

Mack and the PCMA argue that PBMs aren’t to blame for pharmacy closures, but an evolving landscape and stiff competition in the industry are causing the closings. 

"We were created because of a necessity and we are hired by our clients to bring down the price of prescription drugs," said Mack, who added that brick-and-mortar pharmacies are an "essential" part of PBM networks. 

"We are trying to do different things with them, relative to pharmacy reimbursement and we're working with them on certain programs," said Mack. 

When she was asked if it would be unfair to hold PBMs accountable for pharmacy closures, she agreed.

"There's a lot of entities in the supply chain, it's not just PBMs that are in the supply chain," added Mack, who identified PSAOs or Pharmacy Services Administrative Organizations as a factor in pharmacy closures. 

PSAOs negotiate with PBMs for groups of independent pharmacies nationwide. 

Mack's organization argues that PSAOs stand between independent pharmacies and the rest of the business world, including payers and PBMs.

The National Community Pharmacists Association pushes back against that claim, saying without PSAOs, independent pharmacies wouldn't have any negotiating power with PBMs. 

The rapidly evolving pharmacy landscape in Minnesota leaves loyal customers like LaVonne to hope for the best.

"I just hope it's here as long as I am," said Meyer of the sort of business she's frequented throughout her life.