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Script for disaster: PBM practices widely blamed as Pennsylvania 'pharmacy deserts' grow

A woman reaches for a medication bottle from the shelves at a drugstore.
Roger DuPuis
Dushore Pharmacy owner Melissa Keller reaches for a medication bottle from the shelves at the drugstore in Dushore, Sullivan County. The business, which Keller took over last year, is the rural county's only pharmacy, with the nearest competitors nearly 20 miles away. While Dushore Pharmacy has a loyal customer base, Keller acknowledges that her business faces many of the same challenges as other independent drugstores in Pennsylvania, notably from pharmacy benefit managers, or PBMs. 'Sometimes we'll lose $50 to $100 on a prescription,' she said.

Sullivan County is perhaps the greenest desert you will ever see.

It is a picturesque and rural corner of Pennsylvania tucked midway between the Williamsport and the Scranton/Wilkes-Barre metro areas in the state’s Endless Mountain region.

It’s also one of Pennsylvania’s growing “pharmacy deserts,” defined as places where the nearest drugstore is at least five miles away. That benchmark is on the low side here.

“We see people from 20, 30 miles away,” Dushore Pharmacy owner Melissa Keller said of her customers.

Sullivan County’s only pharmacy is on South German Street in the borough of Dushore, a block from the county’s only traffic light. Keller’s nearest competitor is 17 miles away, and her service area spills into neighboring counties.

“We deliver as far down as Hughesville,” Keller said, referencing a Lycoming County community that is a 40-minute drive in good weather. “They had a couple of independent pharmacies close down there, so we want to try to get into that area.”

It is a scenario with parallels statewide. Based on available 2022 data, an estimated 540,000 rural Pennsylvania residents, or 27%, lived at least five miles from the nearest pharmacy, said Kyle Kopko, executive director of the Center for Rural Pennsylvania. In urban counties, 151,000 people (2%) lived in such pharmacy deserts.

Sullivan is one of two counties in the state with only one pharmacy each — Cameron is the other — and Pennsylvania Pharmacists Association board president Chris Antypas wrote in a recent op-ed piece that 21 of Pennsylvania's 67 counties have fewer than 10 pharmacies.

A graphic illustrating the expansion of 'pharmacy deserts' in Pennsylvania as of 2022.
Courtesy The Center For Rural Pennsylvania
This graphic from The Center For Rural Pennsylvania illustrates the expansion of 'pharmacy deserts' in the state as of 2022. While more recent statistics were not immediately available, officials said the trend has only continued as more pharmacies have closed.

Pharmacy deserts continue to expand as independent and chain pharmacies close amid growing financial pressures, particularly low reimbursement rates from pharmacy benefit managers, or PBMs, which act as intermediaries between insurance providers, drug manufacturers and pharmacies.

The trend is not unique to Pennsylvania. Numerous national outlets have covered the issue, as have academic and trade-based groups, such as the National Community Pharmacists Association, U.S. Pharmacists, and researchers at Boston University.

While other segments of Dushore Pharmacy's business remain profitable and keep the store afloat, Keller’s negative margins on PBM orders are rising, doubling from about $1,500 per month last year to $3,000 per month this year, she said.

“Sometimes we’ll lose $50 to $100 on a prescription,” Keller said.

Legislating PBM reform

State Rep. Jessica Benham (D-Allegheny County) calls PBMs “shadowy middlemen” who shortchange independent pharmacies and look to steer customers to fill their prescriptions at corporate pharmacies they own or do business with.

“They're putting our local pharmacies out of business by underpaying for prescriptions, causing pharmacies to sometimes lose money when they fill a prescription,” Benham said, adding that more than 140 pharmacies have closed across Pennsylvania so far this year.

Three people stand behind a counter in a pharmacy.
Roger DuPuis
Allentown Pharmacy owner Nik Patel, left, talks with state Reps. Joshua Siegel and Jessica Benham as state Rep. Steve Samuelson listens. Benham is the sponsor of House Bill 1993, which she says would help community pharmacies stay afloat and lower the cost of prescription drugs for patients by limiting or banning certain practices by pharmacy benefit managers. Patel said he has had to put $50,000 from his own pocket into the business since January to stay afloat amid rising costs. Without some relief, Patel said the outlook is bleak. 'Probably we won't survive the next two years,' he said.

Benham and fellow Allegheny County Democratic Rep. Valarie Gaydos have co-sponsored legislation which Benham says would help community pharmacies stay in business and lower the cost of prescription drugs for patients by limiting or banning certain practices by PBMs.

House Bill 1993 was approved unanimously by the state House Health Committee earlier this month and is now eligible for a full vote in the House. Parallel legislation has been proposed in the upper chamber as Senate Bill 1000. Gov. Josh Shapiro, also a Democrat, cited the need for PBM reforms in his February budget address, and so far it appears the bills have some bipartisan support.

Benham, together with state Reps. Joshua Siegel (D-Lehigh County) and Steve Samuelson (D-Northampton County), described key aims of the legislation during a recent press conference outside an independent pharmacy in Allentown:

  • Prohibiting “spread pricing,” a practice where PBMs overcharge insurers and underpay independent pharmacies, pocketing the difference.
  • Ending “patient steering,” in which PBMs push customers to use their corporate pharmacies or mail-order services through incentives such as lower copays.
  • Giving the Pennsylvania Insurance Department the ability to audit rebate payments to PBMs from pharmaceutical companies. Such payments are made in exchange for negotiating which drugs are placed on insurers’ formularies, the list of drugs covered under their plans.

“Many people think that their pharmacists and their physicians are the ones determining which drugs they have access to. But the truth is that those decisions are made well in advance,” Siegel said.
He called PBMs “massive, vertically integrated firms that have tremendous market power,” noting that the top three – CVS Caremark, Express Scripts and Optum Rx – control 80% of the PBM market. That, he said, “allows them to essentially rig the rules in their favor.”

CVS Health, for example, owns CVS — the nation’s largest pharmacy chain — as well as the CVS Caremark PBM and health insurer Aetna.

“HB 1993 will make sure that more pharmacies are ‘in-network’ with these PBMs so that you can go to the pharmacy closest to you and aren’t forced to order your prescriptions by mail if you don’t want to,” Benham said.

Critics of PBMs also note that strict contract terms have made it nearly impossible for lawmakers and the public to see how much they are paying pharmacies, and how much they reap from manufacturers through rebates. Those contracts also make it harder for pharmacists to tell their side of the story.

“As of now we have no idea what those rebates look like … we have no access to that information,” Siegel said. “And those dollars and cents don’t trickle back to the consumers.”

Efforts to reach a spokesperson with the Washington, D.C.-based Pharmacy Care Management Association, a national trade organization for the PBM industry, were not successful.

Advocates of PBMs argue that they keep drug costs down and question partisan motivations for opposing them, while CVS Health has a section of its website dedicated to the benefits they say PBMs provide. Among those benefits, CVS says, are lower costs, enhanced competition and customer choice.

'Our customers require more service'

DePietro’s Pharmacy is located in Dunmore, just outside Scranton. While owner Tom DePietro may not face the same issues as rural operators like Dushore Pharmacy, the economics of PBM reimbursements and failing independents around him are just as acute.

“Even though it’s Scranton, we’re a pharmacy desert because increasingly you can only get service from a chain,” said DePietro, who has been in business for 12 years.

“One mile from us an independent pharmacy went out of business. People might say, ‘Oh, that’s good for you, right, Tom?’ No. it’s not good for me,” he said.

A man packages medication in pouches inside a pharmacy.
Roger DuPuis
DePietro's Pharmacy owner Tom DePietro talks about how his Dunmore business packages medication for customers in pouches designed to help them keep their prescriptions organized. 'We're here for people that need a pharmacist, and the service offerings are much more than what you would expect a chain pharmacy to do,' DiPietro said. 'There's certainly room for chain pharmacies, for mail-order pharmacies, but we serve a different subset of patients, and without us that service offering goes away.'

That’s because many of the shuttered store’s patients require enhanced services chain pharmacies don’t typically provide. Taking on 70 additional patients in two weeks created both a business opportunity but also significant pressure for DePietro, whose business is similarly built around personalized care and serves a predominantly older population.

"Currently we organize over 700 people’s medications on a monthly basis. Their assorted medications come in pre-sorted, organized, easy-open packets delivered to their doorstep,” he said, demonstrating the packaging equipment used to bundle up patients’ pills.

The big chains “dabbled” in that type of service, he said, “but then quickly got out of it, realizing that it was too much to handle,” he added.

“And it’s not convenience for these patients. It’s truly to allow them to remain in their home and live independently,” DePietro said.

“Not everybody needs a pharmacist. Some people just need a pharmacy. So if you’re just buying one prescription and grabbing some shampoo and toothpaste, that’s fine — go to a chain pharmacy. Our customers require more service,” he said.

DePietro and his staff of 20 to 25 people work to provide such service amid rising costs and paltry PBM reimbursements.

"They dictate what I get to earn," he said.

DePietro, who recently testified at a state House Democratic Policy Committee Hearing on the issue, said existing regulations call for managed care organizations to pay pharmacies “a fair price” and “a fair dispensing fee” for drugs, but the meaning of that language is vague.

Reimbursement rates are, as noted, set under contracts with closely guarded terms. On the other side of the equation, DePietro said he receives a 50-cent dispensing fee per prescription.

That is supposed to cover "the cost of my bottle, my lid, my label, my bag, my lights, my taxes, my property upkeep, my payroll,” DePietro said, adding that the average cost to dispense a prescription is $12.40.

“That’s just to get the drug out the door,” DePietro said. “They expect us to be able to service the customer on a 50-cent fee."

Pennsylvania Pharmacists Association (PPA) CEO Victoria Elliott said what DePietro is experiencing also is being felt by community pharmacies across the state.

"These pharmacies are being asked to do a lot more, being really the only frontline accessible healthcare provider with the inability to be fairly reimbursed for the products they're purchasing," Elliott said. "So they are not even getting paid for the cost of the inventory on their shelves, let alone their time, which really in any other industry is unheard of."

Rick Seipp, PPA's legislative advisory committee chair, said the trend has been for reimbursements to be "ratcheted down" over the years under PBM contracts with "very little negotiation."

"It's typically a take-it-or-leave it agreement. And so you're now to the point where you're not going to get reimbursed even for the amount you pay for the product," Seipp said. "It's a really tenuous situation where you don't have a really good solution."

And DePietro isn't swayed by arguments that PBMs offer customers greater choice.

"They'll claim they're not steering customers to use the pharmacies that they own, they're just 'incentivizing' them," DePietro said.

"A customer might come here and have a $10 copay, but if they go to the the PBM-owned pharmacy it's $0," he added. "We could dice words, but to me, you're forcing a patient to use your pharmacy."

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'The situation has grown critical'

Eric Pusey, owner of Better Health Pharmacy & Wellness in Olyphant, Lackawanna County, raised concerns about not making ends meet in a 2018 news interview, when he was looking to take out loans to cover rising costs.

"It's gotten much, much worse, no question about that," Pusey said recently. "The situation has grown critical."

In his testimony to the recent House Democratic Policy Committee Hearing, Pusey described taking out hundreds of thousands of dollars in additional loans and borrowing from his 401(k) to keep the drugstore running.

Pusey, who opened the pharmacy in 2004, said pharmacy brokers who have called to express an interest in the business tell him it is worth $1.6 million.

"The problem is that my debt is $1.7 million," Pusey told the committee. "Not good math."

In 2022 the store lost $110,000. His estimated loss for 2023 was $122,000. Pusey said that his gross profits on brand-name sales for the first four months of this year were less than his total payroll for two weeks.

Like the other pharmacy owners interviewed for this story, he lays the blame squarely on PBMs, their "take it or leave it" contracts, and the low reimbursement rates for what should be profitable brand name drug prescriptions.

Generic drugs account for 90% of the prescriptions he fills, with brand-name drugs making up 10%.

"On generic the margin is great but the dollars are nothing," Pusey said, adding that the pharmacy basically is "trying to survive on 10% of our total revenue."

That is a challenge because Pusey said he receives no rebates on brand-name drugs, and for the first four months of this year lost nearly $36,000 on those prescriptions.

Cost-cutting efforts and added customers only exacerbate the problems. Like DePietro, Pusey said the closure of several nearby pharmacies actually brought in new business, but at a price.

They went from filling 1,400 prescriptions per week to 2,100, with sales increasing by nearly 50%. What sounded like a good thing was anything but.

"Many of the (additional) 700 prescriptions per week were brand name drugs. We lost money," he said, citing the low reimbursement rates and higher overhead costs to fill those prescriptions."

Like DePietro, Pusey serves a largely older population living within a few miles of his store. Among his patients are at least 80 considered "medical at home."

"We're trying to keep these patients in their homes, out of facilities," Pusey said.

In addition to making deliveries, Pusey's staff provides weekly medication boxes and planners to make sure those older customers stay on track with taking their prescriptions, and the store offers monthly billing for those on fixed incomes.

That's the type of service Pusey says his and DePietro's and other community pharmacies provide.

"Patients need our services," he said. "And if we're not here, they're going somewhere else to live."

Corporate vs. community

Independent community pharmacies aren't the only ones closing: Among the Pennsylvania drugstores to close this year have been dozens of chain store locations.

As The Washington Post and other outlets have reported, major national chains have been closing stores around the country following years of intense competition, the impact of opioid lawsuits, and in the case of Philadelphia-based Rite Aid, the need to restructure as it seeks bankruptcy protection.

Rite Aid's woes are particularly poignant in Northeastern Pennsylvania. It was founded in 1962 in Scranton, where the chain's first store was located. The headquarters were later moved to Camp Hill, near Harrisburg, and in 2022 to Philadelphia.

As part of a round of closures earlier this year the chain shuttered its North Washington Avenue store across from the Lackawanna County Courthouse in Scranton, marking the end of an era in the city center.

But as Dushore's Keller points out, the decline in chain pharmacies also points to a darker trend for many communities.

"I've witnessed it happen where a big chain will go into a small community, buy up their independent pharmacy, and then leave because it's not profitable for them to be in a small area," she said.

PPA's Elliott has seen that as well. She cited Rite Aid closures in particular.

"When a Rite Aid closes in a particularly underserved rural area — or more importantly in the case of Rite Aid, in an underserved urban area — if they were the only option, customers really have nowhere to go," Elliott said. "They are forced, usually on fixed incomes or low incomes, to get on a bus or a train or find transportation to get to the next pharmacy."

Having seen that history, Keller bought Dushore Pharmacy from its former owner last year with an eye on her own career, but also on the long-term wellbeing of the area.

"This is a healthcare desert up here. We don't have specialty care, we're 30-40 minutes from the nearest emergency center. We have two primary care doctors in the area and we have two dentists."

A woman stands next to a small, grey SUV with a sign reading "Dushore Pharmacy" on the door.
Submitted photo
Dushore Pharmacy owner Melissa Keller stands next to a delivery vehicle used to serve the drugstore's customers, some of whom are over 30 miles away from the store. 'We deliver as far down as Hughesville,' Keller said, referencing a Lycoming County community that is a 40-minute drive in good weather. 'They had a couple of independent pharmacies close down there, so we want to try to get into that area.'

Keller's journey took her away from Dushore for many years, and into the world of corporate pharmacies. She studied at Wilkes University, then went on to work as a pharmacist for Weis Markets and CVS.

"To be honest with you, as the owner here I make less than I made at CVS, but there's a part of me that feels fulfilled, that I'm doing something worthwhile and making a difference," she said. "Not that I wasn't a good pharmacist at CVS. I always say there isn't a pharmacist out there that isn't a good pharmacist. They're just put in positions where they're not given the tools to be able to do things."

She offered a painfully simple example.

"I always joke that I am able to control the thermostat here," Keller said. "Anyone that works for CVS will understand the terminology — we didn't even have control over the thermostat there."

Now, she is the only person in charge of a business with a staff of 10.

Corporate chains are "metrics-driven," Keller said, while in Dushore she can offer a range of customer-based services that might not make the cut if chains don't see them as profitable at a given location. Among them: Hearing testing, immunizations, tobacco cessation programs. She also has gotten the pharmacy recognized as a Medicaid provider, which will bring in more revenue.

Doing these things has helped Keller improve the bottom line and retain loyal customers, even if not all of the services are compensated.

"I have a man who will come almost weekly and need help checking his sugars. I may take 15 to 20 minutes with him and I don't get paid," she said.

"We know people by name. We know their fathers, their mothers, their kids, their siblings," Keller said. "I grew up here. My staff, we pretty much are all from here. A lot of times I have people get a hold of me and I'll come in for emergencies."

"We can offer personalized service that other pharmacies can't."

The loss of those services will have implications beyond customers transferring their prescriptions, said Siegel, the state representative from Lehigh Valley.

"They are very much part of the fabric of our neighborhoods," he said. "Seventy-six percent of our independent pharmacists provided immunizations during the COVID pandemic. They had the trust and faith of individuals who might have been reticent to get the vaccine, but they trusted their local pharmacists."

Future prospects?

Keller has managed to find creative ways to boost revenue and provide value to her community, but for many independent pharmacists the outlook remains bleak.

As Pusey said, failure to pass proposed PBM reforms in Harrisburg will hasten the demise of many community drugstores. And even if the legislation passes, he said federal reforms will also be needed. The Federal Trade Commission has been investigating the PBM industry, but Pusey fears that probe may not generate concrete action until 2025 at the earliest.

"We are totally in a try to sustain and survive mode," he said.

Statistics from the Pennsylvania Department of Labor and Industry, compiled here by The Center for Rural Pennsylvania, show the continued decline in pharmacies across the state.
Courtesy The Center for Rural Pennsylvania
Statistics from the Pennsylvania Department of Labor and Industry, compiled here by The Center for Rural Pennsylvania, show the continued decline in pharmacies across the state.

In Lehigh County, Benham, Siegel and Samuelson held their press conference outside Allentown Pharmacy on busy Tilghman Street, as owner Nik Patel looked on.

“Probably we won't survive the next two years,” said Patel, who has had to invest $50,000 out of his own pocket since January to stay afloat. “Hopefully before we run out of money they will pass the bill.”

The lawmakers expressed cautious optimism.

"There's this really rare sense of bipartisan urgency. It's not often that you see both chambers and both sides of the aisle approach an issue with such a tenacity and such a sense of urgency," Siegel said.

"This is an existential crisis for our local pharmacists who are on their last legs, and we have to address this now or we won't have these pharmacies in another few years," he added.

WVIA reporter Borys Krawczeniuk contributed to this report.

Copyright 2024 WVIA.

Roger DuPuis | WVIA News