TL;DR
- PBM practices create unsustainable pharmacy losses through mechanisms: Retroactive DIR fees increased 107,400% since 2010, while spread pricing and artificially low rates force medication dispensing at losses.
- Pharmacy closures directly harm patient medication adherence rates significantly: Studies show 5.90% decline in statin adherence after closures, with independent pharmacy patients experiencing 34% greater decreases.
- Market concentration gives three PBMs excessive control over pricing: CVS/Caremark, Cigna/Express Scripts, and UnitedHealth/OptumRx process 80% of prescription claims, enabling widespread pricing manipulation and vertical integration.
- Solutions require comprehensive reform combining regulatory, technological, and compensation changes: Success demands legislative action, advanced contract management systems, PBM audit tools, and value-based payment models.
Table of Contents
The U.S. healthcare system faces a critical yet often overlooked crisis that threatens patient access to essential medications: negative reimbursements to pharmacies. This is the case when pharmacies lose money on prescriptions they dispense. And it’s become increasingly common and causes dangerous gaps in healthcare access. It also puts community pharmacies at risk.
This isn’t just a business problem: it’s a public health emergency with far-reaching consequences for patients nationwide.
Understanding Negative Reimbursements
When the final payment to a pharmacy for dispensing a prescription drug is less than the acquisition cost of the medication plus operational expenses it creates a financial loss for the pharmacy. And ultimately an unsustainable business model that threatens the existence of independent and community pharmacies across America.
The primary culprits behind this crisis are pharmacy benefit managers (PBMs): powerful intermediaries that administer prescription drug benefits for health insurers. Through complex practices like retroactive fees and spread pricing, PBMs have created a system where pharmacies frequently dispense medications at a loss.
The Mechanics of Pharmacy Financial Loss
Three mechanisms cause pharmacies to lose money on prescriptions.
- DIR Fees
- Direct and Indirect Remuneration (DIR) fees are charges applied by PBMs weeks or months after a pharmacy has dispensed medication
- originally designed as a reporting mechanism for Medicare Part D
- fees have grown by an astonishing 107,400% between 2010 and 2020, according to the National Association of Chain Drug Stores.
- Artificially Low Reimbursement Rates
- PBMs set reimbursement rates that often fail to cover the acquisition cost of medications
- particularly the case for generic drugs commonly used to treat chronic conditions
- Spread Pricing
- occurs when PBMs charge health plans more for a medication than they pay the pharmacy
- PBMs keep the difference as profit while depressing pharmacy payments
These three mechanisms together create a financial environment that make it financially untenable to dispense medications. And dispensing medications is the core function of a pharmacy.
The Public Health Consequences
The financial strain of negative reimbursements extends beyond business ledgers: when pharmacies close, patients suffer.
The Rise of Pharmacy Deserts
“Pharmacy deserts” are areas where patients must travel significant distances to access medications.
- between 2018 and 2021, the U.S. experienced a net decrease of 2.1% in retail pharmacy locations
- nearly 2,200 pharmacies closed nationwide between December 2017 and December 2020 creating “pharmacy deserts”.
Measurable Impacts on Medication Adherence
JAMA Network Open found that pharmacy closures led to immediate and persistent declines in medication adherence among older adults for statin, β-blockers, or oral anticoagulants. Patients who previously used pharmacies that closed showed a 5.90% decline in statin adherence while those patients who had used independent pharmacies showed a 34% greater decrease for a total decline of 7.89%.
This decline in adherence wasn’t just statistical, it represented patients completely discontinuing their medications. Among statin users in the closure cohort, 11.0% more patients stopped filling their prescriptions entirely compared to the control group.
The Role of PBMs in Creating the Crisis
Pharmacy benefit managers have evolved from administrative service providers to powerful entities that control almost every aspect of prescription drug benefits. The three largest PBMs (CVS Health/Caremark, Cigna/Evernorth/Express Scripts, and UnitedHealth/OptumRx) process approximately 80% of all prescription claims in the United States.
This market concentration gives PBMs extraordinary leverage to:
- extract deep discounts from manufacturers
- impose non-transparent terms on pharmacies
- implement complex performance metrics that often result in penalties
- create vertical integration that steers patients toward their own affiliated pharmacies
The lack of transparency in PBM contracts means community pharmacies cannot:
- accurately predict or manage their financial risk
- develop sustainable business models
The Pricing Distortion: The Gross-to-Net Bubble
PBM practices have created what industry experts call the “gross-to-net bubble”: an ever-widening gap between a drug’s list price and the actual net revenue manufacturers receive after rebates and discounts. This gap was estimated to have reached $356 billion for brand-name drugs in 2024.
This price distortion has significant consequences:
- patients pay higher out-of-pocket costs since their copays are calculated based on the inflated list price
- PBMs retain manufacturer rebates as profit
- pharmacies face depressed reimbursement rates that fail to cover their acquisition costs
Regulatory Responses and Reform Efforts
Regulators and lawmakers have begun implementing reforms because they recognize the harmful effects of distorted pricing.
The 2024 CMS Final Rule on DIR Fees
The Centers for Medicare & Medicaid Services (CMS) implemented a crucial regulatory change effective January 1, 2024.
- all price concessions, including DIR fees, must be reflected in the negotiated price at the point of sale.
This change provides increased predictability for pharmacies and reduces out-of-pocket costs for patients.
State-Level Reforms
Many states have enacted laws targeting PBM practices, such as:
- prohibit spread pricing
- require PBMs to obtain licensure
- set minimum standards for pharmacy reimbursement
- mandate transparency in PBM operations
Federal Legislative Proposals
Federal lawmakers continue to introduce legislation aimed at comprehensive PBM reform, including:
- delink PBM compensation from drug costs
- mandate transparency in rebates and fees
- ban spread pricing in government programs
- require pass-through pricing models
Technological Solutions for Pharmacies
Pharmacies must adapt to survive and not rely only on policy changes. Technology offers several pathways to mitigate financial risks.
- Advanced Contract Management
- Implement Contract Lifecycle Management (CLM) systems to monitor complex agreements and identify unfavorable terms.
- PBM Audit Tools
- Use specialized software to audit 100% of claims and verify that payments align with contractual guarantees.
- Data Analytics
- Employ artificial intelligence and machine learning to optimize inventory, predict financial impacts, and maximize operational efficiency.
Regulatory reform, tech and change needed
Addressing the crisis of negative reimbursements for pharmacies requires a comprehensive approach that combines regulatory reform, technological adaptation, and a fundamental restructuring of how pharmacies are compensated.
The long-term solution must include:
- Comprehensive Legislative Reform
- address the full spectrum of PBM practices, including banning spread pricing and requiring transparent administrative fees.
- Technological Investment
- implement advanced systems to enhance financial oversight and operational efficiency.
- Value-Based Compensation
- shift payment models to compensate pharmacists for clinical services rather than relying on product margins.
The Recap
Negative reimbursement for pharmacies threatens patient access and public health. Unfavorable PBM practices are forcing community pharmacies to struggle, leading to reduced medication access and care barriers for patients.
Resolving this crisis requires regulators, lawmakers, and industry stakeholders to create a transparent, fair system that supports pharmacies. Preserving a sustainable pharmacy infrastructure is crucial for national health and medication access.
