The Impact of Drug Pricing Transparency Laws on Independent Pharmacies

The difference between independent pharmacies and national chains cannot be overstated. Big corporations answer to boards and shareholders — and independent pharmacies answer to their patients. 

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The fundamental, structural disparities between the two mean that there are large differences in pricing, level of service, and many more aspects of the patient experience. The staff experience and business realities of both are also quite different. This is most true when it comes to the effect of PBMs and drug pricing on the success of independent and community pharmacies.

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Luckily, there is growing awareness of how PBMs influence drug prices and legislative progress is being made to help make drug pricing more transparent. Let’s dive into how these laws and regulations will likely impact independent pharmacies.

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Regulatory Action Against and Investigations of PBMs

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Not all actions that are being taken to protect independent pharmacies are legislative. The Federal Trade Commission released an interim report highlighting the significant market power of pharmacy benefit managers (PBMs) in the prescription drug industry as a part of larger regulatory action against PBMs. The report reveals that six major PBMs control 95% of U.S. prescription fills, leveraging vertical integration with health insurers and pharmacies to influence drug pricing, availability, and access. These practices often lack transparency and accountability, leading to higher costs and limited options for patients.

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PBMs also impose unfair contractual terms on independent pharmacies, threatening their survival, particularly in rural areas. The report details self-preferencing behaviors, such as steering patients to PBM-affiliated pharmacies and excluding lower-cost generic competitors in favor of higher rebates from manufacturers. Despite FTC orders, some PBMs have delayed compliance, prompting the agency to reaffirm its commitment to ensuring fair practices and affordable healthcare access for Americans.

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New Legislation Affecting Independent Pharmacies 

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There are a multitude of laws that have been proposed at the state and federal levels to help make drug pricing more fair and transparent. Here are just a handful of the proposed laws and acts from the last few years:

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Federal Legislation

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• Inflation Reduction Act (IRA) Implementation: Although enacted in August 2022, the IRA's provisions have been actively implemented during 2023 and 2024. A key feature is empowering Medicare to negotiate prices for certain high-cost prescription drugs. In August 2024, the Centers for Medicare & Medicaid Services (CMS) announced the first ten drugs selected for price negotiations, with negotiated prices set to take effect in 2026.
• Lower Drug Costs for Families Act (S.1139): Introduced in March 2023, this bill seeks to extend Medicare's prescription drug rebate requirements to private health insurance, aiming to reduce out-of-pocket costs for individuals with private coverage. It has not passed as of December 2024.
• Affordable Prescriptions for Patients Act of 2023 (S.150): This proposed legislation targets anti-competitive behaviors by pharmaceutical companies, such as "product hopping" and "patent thicketing," which can delay the entry of more affordable generic drugs into the market. It has not passed as of December 2024.

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State Legislation

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• California Senate Bill 786 (SB 786): Passed in 2023, this bill addresses prescription drug pricing within the state. It mandates increased transparency from drug manufacturers regarding pricing and requires advance notice of significant price increases.
• Maryland's 340B Program Law: Set to take effect on July 1, 2024, this law requires drug manufacturers to provide discounts to third-party pharmacies contracting with hospitals and clinics serving low-income populations under the federal 340B drug discount program. Novartis has filed a lawsuit challenging this law, arguing it conflicts with federal regulations and imposes undue burdens on interstate commerce.

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Drug pricing transparency laws have become a double-edged sword for independent pharmacies. On the one hand, these laws aim to create accountability among drug manufacturers and pharmacy benefit managers (PBMs) by requiring greater disclosure of pricing practices and rebate structures. This transparency helps expose how PBMs set reimbursements and charge hidden fees, shedding light on the financial pressures faced by independent pharmacies. With more clarity on how pricing decisions are made, independent pharmacy owners can better advocate for fair reimbursement rates and challenge practices that undermine their financial stability. Transparency laws also give patients insights into drug costs, fostering trust and potentially increasing patient loyalty when they see independent pharmacies championing fair practices.

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However, transparency alone does not address the fundamental power imbalance between PBMs and independent pharmacies. PBMs still leverage their market dominance to dictate unfair contractual terms, delay reimbursements, and impose clawback fees, which transparency laws often fail to mitigate. While these laws shine a light on harmful practices, they do not prevent PBMs from steering patients toward their own vertically integrated pharmacies.

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For independent pharmacy owners, this creates an urgent need to combine the benefits of transparency with advocacy for stronger legislative protections. By staying informed about these laws and actively engaging with policymakers, independent pharmacies can turn transparency into a tool for accountability and a pathway toward leveling the playing field in the pharmaceutical marketplace.

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