By John Norton
The National Community Pharmacists Association (NCPA) tracks newspaper articles about independent community pharmacy closings to follow why such pharmacies close. The reasons are often related to the challenges community pharmacies face often due to predatory business tactics of largely unregulated pharmacy benefit managers (PBMs). Currently topping the lists of reasons are PBM reimbursements for generic prescription drugs that fail to keep up with spiking acquisition costs and exclusionary Medicare Part D “preferred pharmacy” plans.
Some pharmacy owners exited the more traditional pharmacy business to devote their full attention to niche services such as compounding. This is examined in a Leesburg Today article (“The Compounding Center Expanding As Leesburg Pharmacy Closes”, May 12, 2014) and in a Cincinatti.com article (“Insurance rules force local business to change”, June 3, 2014).
Leesburg Pharmacy in Leesburg, Virginia was founded in 1976 by Bruce Roberts, who later served as NCPA Executive Vice President and CEO. He sold it outright in 2009 to Cheri Garvin and Jay Gill. The compounding and durable medical equipment services always performed better than other areas. Once PBMs started reimbursing for many generic prescription drugs at outdated rates well below the pharmacy’s cost, the pharmacy lost money on approximately 20 percent of its dispensed generics. The financial pressure intensified with the advent of proliferating Part D preferred pharmacy plans that made seniors pay more if they wanted to continue patronizing Leesburg pharmacy.
The status quo was becoming untenable. Leesburg Pharmacy became The Compounding Center on May 20, 2014. Not only did the pharmacy grow its long-standing, state of the art practice of specially-tailoring drugs that served patients in Virginia and four other neighboring states, but the pharmacy also expanded its durable medical equipment offerings.
Kunkel Pharmacy was founded in 1939 in Cincinnati, Ohio. John Dinkelaker became co-owner in 1987 and sole owner by 1992. It became a multi-faceted business with a stand-alone compounding practice that was run by his wife for 12 years. The business model for compounding was a forgiving one for Kunkel Pharmacy — 75 percent of payment for the specially-tailored drugs came out of pocket because, among other things, Medicare Part D does not cover them, and Medicaid needs prior authorization from the prescribing doctor. In other words, the frustrating entanglements with PBMs were limited.
That was not the case for the revenue that relied on PBM reimbursements. Starting around 2012 the traditional retail pharmacy business had trouble getting out of the “red” with the lagging generic reimbrusements being front and center. The fiscal problems were exacerbated in the first couple of months of 2014, when the Part D preferred pharmacy plans caused the pharmacy to lose 20 to 25 percent of its patients. The lagging reimbursements for generic drugs had also become another bitter pill to swallow as the pharmacy had to often go through three to four refill cycles before the PBMs might catch up to the spiking prices. As a result Kunklel Pharmacy ceased dispensing traditional prescription drugs and became Tri-State Compounding Pharmacy and Kunkel Medical later in 2014. The staff has gone from 31 to 19 employees, and they are doing one-third of the business they used to do, but they are on sounder economic footing. It was a tough and prudent decision, but also hurts the local economy as fewer jobs and less revenue comes in.
Other than helping exert grassroots pressure for policy fixes, independent community pharmacies must explore all of their options to remain financially viable. Sometimes that entails contacting NCPA’s Gabe Trahan for a front-end overhaul. Other times that means becoming a high-value pharmacy that will make independent community pharmacies more attractive to coordinated care models and also diversify their revenue streams. Ultimately, the pharmacy owner has to determine what is best for their business, their staff and their patients.
The best scenario for patients is when they have access to a wide-array of services from independent community pharmacies that drive better health outcomes. Unfortunately, that is made difficult to sometimes impossible for some pharmacies by PBMs that focus more on profits than partners. NCPA doesn’t want more pharmacy owners scaling back their businesses. Instead we want an environment more amendable to business expansion. That’s why we need all hands on deck.
That begins by attending the 2015 NCPA Annual Legislative Conference, held from May 12-13 at the Hilton Crystal City just outside of Washington, D.C. There you can advocate for pharmacy bills to reform the MAC system with more transparency and frequent updates (H.R. 244, The MAC Transparency Act), and include an “any willing pharmacy” provision in Part D preferred plans (H.R. 793, The Ensuring Seniors Access to Local Pharmacies Act) that would allow independent community pharmacies to compete for business as long as they meet the terms and conditions of the plan. And please stay engaged after you return from the Conference. It will make a difference.
UPDATE: Another excellent example of a traditional pharmacy changing to a compounding pharmacy can be seen in this article in Maranij.com about Leiter’s Pharmacy in San Jose, California (“San Jose: Family-run Leiter’s Pharmacy shuts its doors”, April 9, 2015) The owner, Chuck Leiter, makes many of the same arguments and provides further credence to why legislative reform is necessary going forward.