Kim Wright didn’t want to do it. The longtime pharmacy manager for Farmville Family Pharmacy and its sister operations in Amelia and Cumberland notified customers of a change on June 18, posting it on social media. Effective July 18, the Cumberland location will be shutting down, with operations being consolidated with Farmville. It was a decision Wright said she had to make, mainly due to the constant lack of Medicaid and insurance reimbursement. 

The issue here involves Pharmacy Benefit Managers (PBM). These are the groups that administer prescription drug insurance benefits. They negotiate prices between drug manufacturers and pharmacies, as well as determine the list of covered drugs and reimbursement. Let’s say a drug costs $600 for Wright to buy for a patient. The PBM attached to that patient’s Medicaid or insurance then decides she only gets $550 or $575. In other words, the pharmacy doesn’t break even. And it’s not because Wright is buying the most expensive option or not shopping around. 

“We have our main supplier, we have five or six secondary suppliers,” Wright said. “We are diligent in trying to find the best price for the prescriptions that we dispense.”

Those reimbursements keep getting lower and lower, Wright said. Over the last decade, she’s seen the payments constantly shrinking. What used to be a $575 reimbursement on a $600 medication became $550, then $525. And it’s not like there’s a chance to appeal or get the money somewhere else. 

“The contracts they give you are take it or leave it, so it’s pretty much you sign it or you can’t service any patients (that have that insurance),” Wright said.

Targeting the Medicaid competition 

That’s how benefit managers earn their money. A 2023 study by the Brookings Institute found that PBMs’ contracts with insurance companies “sometimes allow them to retain a portion of rebates rather than passing them all through.” In theory, the whole point of a benefit manager is to negotiate lower prices with drug companies, making things cheaper on both the insurance company and the customer. But that Brookings report found that more than 50% of the benefits managers are “integrated” with specific companies right now. Express Scripts, for example, merged with Cigna and CVS Caremark merged with Aetna. 

As a result, benefit managers can “steer business to their own pharmacies, to drive other pharmacies out of the market,” the Brookings report said. And that’s highlighted in cases where, even if there isn’t another pharmacy in the county, prices can be higher for customers to stay with independent operations. The PBM can decide to require, for example, a $50 co-pay with the independent operation, then turn around and either give a $5 co-pay or no co-pay if the customer will just drive to their affiliated pharmacy in the next county over. 

Pharmacy benefit managers can also come in and decide how much of a medication they’ll reimburse for. 

“A patient wants to come in and get a 90-day supply of their medicine, but their insurance plan will only let them do it for 30 days,” Wright said. “Oh and they’ll have a co-pay on top of that.” 

There are also costs attached to dispensing medication to patients, which a 2019 study cited by the National Library of Medicine put at $10.65. The pharmacy doesn’t break even there either, Wright said. 

“We typically get either nothing or 50 cents once in a while (in dispensing costs),” Wright said. “Maybe $5 if we’re lucky.” 

Not breaking even on the cost of medicine purchased, not breaking even on the cost of dispensing the medication, all of that adds up over time. And eventually, Wright said, it’s just not sustainable. That’s what led to the Cumberland location closing. 

Making their own argument

As for benefit managers, they see the job as keeping costs at a minimum for the insurance companies or whichever group has hired or acquired them. In July 2024, executives from CVS Caremark, Express Scripts and OptumRX all testified at a House Oversight Committee hearing. 

Dr. Adam Kautzner from Express Scripts testified that the plan designs and benefits are set by his company’s clients, like employers and government entities. 

As a result of the hearing, the House Oversight Committee released a report based on more than 140,000 documents obtained from the benefit managers. The report found that the benefit managers inflate prescription drug costs and interfere with patient care for profit. 

More Medicaid fees taken over time 

And the PBM costs are just one example of a system that has been taking bites out of independent pharmacies for a while now. Up until two years ago, Medicare Part D included what was called DIR fees. This stands for Direct and Indirect Remuneration fees, retroactive price adjustments made by those PBMs to pharmacies long after a prescription has been filled. In other words, let’s say the pharmacy benefit manager for this case agreed to reimburse the pharmacy $550 for a $600 medication. Under the DIR fees, they could go back later on and say ‘no, we changed our minds, you need to pay us back $50 from that.’ And so, what was a $550 reimbursement then becomes $500. 

“Every quarter, we would get a report saying oh, this is how much money we’re going to take back from you in DIR fees,” Wright said. “It gets to a point where you really don’t know if you’re going to make a profit, if you’re going to be able to pay the light bill.”

In January 2024, Congress put a severe limit on DIR fees. While still legal in some areas, they can’t be applied to pharmacies anymore. However, while that would seem to be great news, instead, Wright said, the benefit managers found other ways of taking back the money. 

“At that point, reimbursements dropped even further,” Wright said. “So we’ve been doing everything we can, making cuts everywhere we could.” 

The problem in a place like Cumberland is that roughly 30% of the prescriptions are Medicaid plans. And with constantly shrinking reimbursements from Medicaid benefit managers, it creates a problem. 

Virginia offers a solution 

On the bright side, there is an actual solution coming next year. Earlier this year, we reported on the Save Local Pharmacies Act, which overwhelmingly passed the Virginia House and Senate before being signed into law. All of our local delegation, Sen. Luther Cifers and Tammy Mulchi, as well as Del. Tommy Wright all pushed for the bill in the Assembly. 

The goal of the new law is to streamline the Medicaid process for local pharmacies, especially independent ones. It will create one single, state-contracted Pharmacy Benefits Manager for Medicaid. Rather than seeing pharmacies deal with multiple departments or contacts in an attempt to get reimbursed for Medicaid patients, there will just be one central hub they work with. No more dealing with multiple companies or groups tied to specific pharmacies or insurance operations. 

And other states have seen impressive results when making the switch, claiming they cleaned up a lot of waste. 

West Virginia reported saving $122 million in the first year after making the switch. Ohio officials, meanwhile, claimed the state saved $245 million in one year; Kentucky said it saved $283 million over two years and Texas said it saved $438 million in two years after making the switch. 

The only problem is that Wright wished it took effect sooner. As part of the negotiations involved, the new law doesn’t take effect until July 1, 2026. 

“West Virginia did it in six months, so I’m not sure why we can’t but that’s the way it is,” Wright said, adding that she was just thankful to see a light of sorts at the end of the tunnel. 

“That bill is going to go so far to help keep pharmacies open,” Wright said.