A Silver Lining: COVID-19 Offers Independent Pharmacies a Chance to Shine

Independent pharmacies are on the front lines in the fight against COVID-19. NYS Governor Andrew Cuomo recognized their efforts in a recent press conference, stating, “The pharmacists have lines going out the door, and they’re showing up every day, day after day.” Independent pharmacies are integral in the fabric of our communities, with many treating generations of families, supporting local charities, and consistently going the extra mile to help us when we need it most.

Unfortunately, many independent pharmacies have been destroyed by the market power of largely unregulated pharmacy benefit managers (PBMs) who regulate the same provider networks they compete in, with predictable anti-competitive results that have decimated community pharmacy. The COVID-19 pandemic is an opportunity for independent pharmacies to remind consumers and regulators of how they excel and providesuperior products and services as well as their deep commitment to their communities.

The COVID-19 pandemic and its impact on our lives has led to the unprecedented implementation of emergency measures being taken by the federal and state governments to relax regulation onpharmacies and pharmacists and expand their role in responding to the pandemic. These emergency measures include the suspension of regulations and expansion of services, including: 

  1. Authorizing emergency refills
  2. Allowing pharmacists to refill prescriptions early based on professional judgment
  3. Remote pharmacy practice for pharmacists and technicians
  4. Mobile pharmacies and clinics
  5. Ability to serve patients via delivery (including mail), drive through, curb-side pickup, and automated pickup kiosks
  6. Waiving signature requirements for receiving drugs
  7. Waiving technician-to-pharmacist ratios
  8. Compounding hand sanitizer
  9. Dispensing chloroquine, hydroxychloroquine, and azithromycin
  10. Reusing personal protective equipment (PPE)
  11. Extending inventory reconciliation reporting
  12. Deferring license renewals and continuing education requirements

The expanded role of pharmacies during the pandemic provides an opportunity for independent pharmacies to shine and provide the full range of professional services that are often prohibited by either law, regulation, or by the PBM middlemen who increasingly constrict pharmacy services (such as delivery) to commoditize the profession of pharmacy to their own economic advantage.

While these are all welcome measures, the government should also ensure consumers are able to freely access the pharmacy of their choice and ensure that the pharmacy is reimbursed, at the very least, for the cost of acquiring the medication and a reasonable professional fee and relief from the retroactive clawbacks imposed by PBMs that have plagued them. This basic relief has not yet been addressed, even as the strain on pharmacy resources has increased.

We caution pharmacies to maintain good hygiene in their recordkeeping to ensure proper documentation and practices, as PBMs will undoubtedly increase their audits; fraud, waste, and abuse investigations; and accompanying recoupments for any noncompliance. We are also concerned with the havoc that may be caused by direct and indirect remuneration (DIR) and generic effective rate (GER) fees due to dispensing during this time by pharmacies. The urgency of the pandemic environment will someday subside, leaving in place the usual dynamics of retrospective auditing and judgments by auditors and payors.

Barclay Damon represents pharmacies across the United States. Its attorneys are actively monitoring the changing landscape and are experienced in handling issues arising out of pharmacy relationships with PBMs. We are here to assist and support younow during the rigors of the current health crisis and always.

If you have any questions regarding the content in this alert,please contact Linda Clark, Health Care Controversies Teamleader, at; Brad Gallagher, counsel, at bgallagher@barclaydamon.comor another member of the firm’s Health Care Controversies Team.

We have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. You can reach our COVID-19 Response Team at

SCOTUS to Hear PCMA Case Concerning PBM Reforms

For those of you who have followed the long saga of pharmacy benefit managers (PBM) excesses, and state efforts to reign them in, may be aware that the question of the permissible scope of State regulation of PBMs has been slowly winding its way to the United States Supreme Court. After a false start last year by the Trump Administration’s threat of federal regulation, PCMA, the PBM industry group, chose a showdown with Arkansas at the SCOTUS O.K. Corral over state reforms that impacted pharmacy reimbursement mechanisms. PCMA claims the Arkansas Law Act 900, was pre-empted by the Employee Retirement Income Security Act (“ERISA”) because it improperly impacted federal regulation of ERISA plans. In essence, Act 900 requires PBMs to discontinue their use of unfair business practices by reimbursing pharmacies for generic drugs at prices equal to, or higher than the pharmacy acquisition cost.

After the Eighth Circuit granted PCMA’s motion for summary judgment, and held that Act 900 was preempted by ERISA, the Eighth Circuit affirmed the federal district court’s ruling. Subsequently, the Attorney General for the State of Arkansas petitioned the U.S. Supreme Court for certiorari. The U.S. Supreme Court, using its “phone a friend” (i.e. “amicus”) option, called upon the Solicitor General to weigh in on whether the Court should hear the case. The result was a brief to the Court recommending that the Supreme Court hear the case because the issue presents one of legal significance where there is a split of authority. The Solicitor General further recommended that the Arkansas Law be upheld on various grounds.

Most recently, on January 10, 2020, the Supreme Court granted the Attorney General’s petition for review of the Eighth Circuit’s controversial holding, which, among other things, has broad implications for states’ ability to keep a cap on drug prices, while simultaneously disallowing PBMs to use ERISA pre-emption as a shield against unfavorable regulations.

All in all, this is a very good sign for state PBM reform efforts, but probably not a free pass for more aggressive reforms that would directly, or more explicitly regulate the plans themselves.

Author Information:

Linda is Barclay Damon’s health care controversies team leader. A nationally recognized litigator with over 20 years of experience, she serves as lead litigation counsel as well as national, regional, and local counsel in the prosecution and defense of claims brought in state and federal courts on behalf of large groups of business and institutional clients.

Author Contact Information:

Linda J. Clark, Esq.

Author Organization Information:

Barclay Damon attorneys team across offices and practices to provide customized, targeted solutions grounded in industry knowledge and a deep understanding of our clients’ businesses. With nearly 300 attorneys, Barclay Damon is a leading law firm that operates from a strategic platform of offices located in the Northeastern United States and Toronto.

Payor Insights for Manufacturers

BY: Staff

Payor formulary placement and reimbursement amounts are the two most important aspects of a manufacturer’s success in the marketplace – they create pharmacy demand which in turn leads wholesale customer demand and pricing.

So your product receives FDA approval – what needs to happen before your first sale?

Payor Coverage Decision

The very first step in having a product covered is to file the NDC with the FDA. Next, it is important for manufacturers to add the product to product compendias (MediSpan, Red Book, First DataBank, Gold Standard etc.) because that is how payors find out about new products. Under Federal law, payors have 90 to 180 days from the marketing approval date (PDUFA date) to decide on covering a product.

It is extremely important for small manufacturers to reach out payors to ensure proper coverage. The most benefit will come from targeting specific individuals at the biggest payors – of the roughly 342 million managed care lives, about 274 million (80%) are managed by one of top 10 payors.

  1. Pharmacy directors ; always a pharmacist as a lead over the entire program ;
  2. Actuary – value assessment committee (financial) – talk about disease overall 
    *PLEASE BRING BIM model – *
    must have value proposition – do a study with me…

During the discussion, there should be three focus points:

  1. PROBLEM: Presenting the epidemiology involving the product sets up the conversation. The discussion should be non-branded information where the disease area and mortality is covered.
  2. SOLUTION: The product is introduced and clinical trial information is presented.
  3. COST: Payors are most interested in the Return on Investment – it is crucial to provide a Budget Impact Model (BIM) on how there will be cost-savings over other products in the same therapy class; specifically, how it will reduce the Per Member Per Month cost.

High Cost/Reimbursement Drugs

The size of the largest payors makes it difficult for them to audit all products that make it on their formularies. This creates an opportunity for rogue companies to introduce excessively expensive products with equally high reimbursement. PBMs focus on “Per Patient Per Month” costs, which averages cost across patient populations. Therefore, if the therapeutic class doesn’t have diabetes-type volume, it may take PBMs roughly 12 to 18 months for the PBM’s to “catch up” to these problem products – possibly even longer.

Parallel Review for Devices with CMS

In 2011, FDA and CMS introduced the Parallel Review Pilot Program (Parallel Review), which established a mechanism for FDA and CMS to simultaneously review the submitted clinical data to help decrease the time between FDA’s approval and the subsequent CMS national coverage determination (NCD).  In October 2016, the FDA and CMS announced the Parallel Review program will be fully implemented and extended indefinitely.

Parallel Review has two stages:

  1. FDA and CMS meet with the manufacturer to provide feedback on the proposed pivotal clinical trial within the CDRH Pre-Submission Program.
  2. FDA and CMS concurrently review (“in parallel”) the clinical trial results submitted in the PMA or De Novo request.

Post-sale Clawbacks by PBMs

A new type of post-sale recoupment has taken the center stage: Generic Effective Rate (“GER”). This is the latest method in which PBMs continue to squeeze independent pharmacies.

Post-sale clawback by Pharmacy Benefit Mangers (“PBMs”) have become a huge issue for independent pharmacies.  Traditionally, these include audit-associated recoupment and performance-based recoupment such as Direct and Indirect Renumeration (“DIR”) fees that are charged to the pharmacies.  Recently, another type of post-sale recoupment has taken the center stage and has caused grave financial harm to the independent pharmacies.  PBMs call it Generic Effective Rate (“GER”). 

GER is a contractual rate set forth by PBMs for the reimbursement on generic claims.  Notwithstanding, the scope and extent of generic claims are dictated by the contract language and can be different from the widely accepted definition of generic claims.  The theory behind GER is to enforce stability around the reimbursements that pharmacies receive in a given calendar year.  In stark contrast, GER has only brought financial harm and burden upon the pharmacies and many pharmacies had no choice but to close and sell their stores (often to PBM-owned/affiliated chain pharmacy well below the fair market value).  

Many pharmacies first became aware of GER in late 2018 when their Pharmacy Services Administrative Organization (“PSAOs”) indicated that PBMs will begin reconciling overpayments made to the pharmacies in excess of the contractual rate.  PBMs wanted their money back on claims that they claim the pharmacies received reimbursements over the payment threshold (i.e., contractual rate).  More troubling, GER has been applied retroactively as well as at the point-of-sale.  As noted above, the pharmacies became aware of GER in late 2018 because some PBMs and PSAOs have alleged that the pharmacies were overpaid on generic claims above the GER threshold and began withholding payments to offset the alleged overpayment.  Notably concerning, these were claims that the pharmacies already dispensed prescriptions to the patients.  Thus, the pharmacies were not only forced to return the reimbursements but also could not make up the acquisition costs of the medications.  Moreover, a number of PSAOs and PBMs have begun applying GER at the point-of-sale to escrow and reserve funds in anticipation of the year-end GER reconciliation and any resulting adjustment/liabilities fall upon the pharmacies.     

Generally, PSAOs, on behalf of the member pharmacies, negotiate and enter into an agreement with PBMs in order to enable the pharmacies to adjudicate claims and receive reimbursements.  In vein, GER is borne by a contract negotiated and entered between PSAOs and PBMs.  However, PSAOs do not necessarily have the comparable bargaining power when negotiating with PBMs, which manage the drug benefits for approximately 95% of the US population or 253 million American lives.  Hence, pharmacies, especially the independently owned retail pharmacies, have zero bargaining power when it comes to PBM contracts.  Recognizing this disparity in bargaining power, several states have implemented laws and regulations to monitor and manage PBMs.  In particular, Tennessee recently enacted HB 786 effective July 1, 2019, a comprehensive PBM reform bill which, among other beneficial terms in favor of pharmacies, added Tennessee Code § 56-7-3115, which provides: “A covered entity or pharmacy benefits manager shall not charge a pharmacist or a pharmacy a fee related to a claim unless it is apparent at the time of claim processing and is reported on the remittance advice of an adjudicated claim.” 

In the current climate, pharmacists and pharmacy stakeholders must be cognizant of the different types of post-sale clawback.  It is very difficult for an independent pharmacy to operate by only focusing on the patient service.  Hence, pharmacies should also focus on the administrative and business aspect of the pharmacy practice and be in compliance with different regulations and PBM requirements.

Author Contact Information:

Dae Y. Lee, Esq.

A.J. Barbarito, Esq.

Author Organization Information:

Frier Levitt is a national boutique healthcare law firm, providing comprehensive regulatory, transactional and litigation counsel to the Healthcare and Life Sciences industries.