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State releases audit stating pharmacies overcharged by $7 million
Nationally, the disappearance of independent pharmacies creates access deserts in rural areas and Pennsylvania has not been spared.
An analysis by the Rural Policy Research Institute found that 10 rural independent pharmacies have closed their doors in Pennsylvania and only one opened from 2018 to 2023.
The institute, based out of the University of Iowa, found that the number of retail pharmacies fell by 4% in the U.S., but in rural areas, they declined by 6%.
Though some lost, others gained. According to the report, 184 rural communities lost all local pharmacies over the study period, while 195 gained.
What drives those changes, though, isn’t clear. The institute called for more research to figure it out.
“You start with the premise that the ultimate reason for closure is they can’t make it work financially,’” Keith Mueller, the institute's director, said. “That draws you to two underlying explanations: one is volume, do you have enough traffic to keep a business open? But the other is payment. A lot of the debate now at the policy level is around the payment issue.”
That pulls in pharmacy benefit managers, or PBMs, and things get wonky.
“I’ve studied it and asked about it — still, sometimes, it’s complex enough that I have difficulty trying to understand exactly how that affects the margin of the pharmacy. But it does,” Mueller said.
PBMs have attracted a lot of attention in Pennsylvania. Auditor General Timothy DeFoor released an audit Wednesday declaring that PBMs overcharged the state by $7 million in 2022 for Medicaid prescription drug benefits.
DeFoor blamed the Department of Human Services for poor oversight, allowing the charges to go unnoticed.
“PBMs are counting on the fact that no one is checking their reporting so they can get paid a higher rate and still collect a fee from the pharmacy,” DeFoor said. “We made recommendations to ensure more accountability and process improvements, but what really needs to happen here are changes in the law.”
Republicans called the report troubling, but Democrats called it “misleading nonsense.”
“The pricing issue is important and the role of PBMs in not sharing what they’re getting at a discount, and not patching that through to the pharmacist who then has to charge a standard retail price and may not be able to make money off dispensing the drug — that’s where we try to tease out some of the policy implications,” Mueller said. “That’s what we hear a lot about now.”
The effect is that things seem harder for independent pharmacies, be they rural or urban.
“The squeeze is on and the squeeze affects the lower-volume pharmacy provider,” Mueller said. “Walgreens, CVS may be able to handle it in part because they do things like CVS owns a PBM. They’re able to do that kind of maneuvering financially because of their size and scope. The smaller, especially independent, retail pharmacist can’t do all that.”
Though the auditor pointed to pitfalls in government oversight, the problem may not be as simple as troubles with regulation and the bureaucracy.
“We should be careful: it’s not government regulation and rules; in this case, it’s the behavior of the private corporations,” Mueller said. “They’re making it complex — it’s not regulations and rules making it complex. The economic model they have developed is one the rest of us are having a hard time understanding and it clearly favors the large-volume contracts.”
