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Are PSAOs Looking Out for Your Pharmacy’s Best Interests? A Request for Pharmacy Feedback

A pharmacy owner recently lamented that she experienced a sudden and significant reduction in reimbursement rates for compounds dispensed to patients whose insurance coverage had not changed. The decrease in reimbursement began immediately after a particular insurance plan switched from managing its own pharmacy benefit, to using a PBM. The pharmacy client wondered why its reimbursement for a given compound would change drastically when the PBM entered the picture.

The answer to our client’s question may lay deep in the murky arena of Pharmacy Services Administrative Organizations (PSAOs). These organizations are either the “underbelly” or an essential component of the pharmacy world. We want to hear your opinion.

This pharmacy client was under contract with a PSAO. PSAOs, in turn, enter into contracts with managed care organizations and PBMs on behalf of their pharmacy members. PSAOs provide individual pharmacies with negotiating representation, assistance with applications into PBM and insurance networks, and (allegedly) with payment reconciliation. PSAOs often act literally as the “attorney-in-fact” for independent pharmacies, actually entering into contracts with PBMs and insurance networks on behalf of pharmacies. PSAOs also “bind” independent pharmacies to other contracts that the independents may not know about—this will be the subject of a subsequent article. PSAOs also collect accounts receivable on behalf of the pharmacy, and frequently hold onto the monies for a few days before paying them over to the pharmacy (so that the PSAO keeps the interest that accrues on the monies). In short, PSAOs exhibit significant control over the independent pharmacy business model. 

But, how confident are you that your PSAO is negotiating contracts with the independent pharmacy’s best interest at heart? In our client’s example above, the pharmacy was being forced (by the PSAO contract) to fill scripts for compound medications through the PBM at a below-cost reimbursement (actually below the cost of the compound ingredients). When the insurance plan began farming out its pharmacy benefits to the PBM, the contract between the PSAO and the PBM governed the pharmacy’s reimbursement. 

Under the pharmacy’s contract with the PBM, which was purportedly negotiated on behalf of the pharmacy by its PSAO, the PBM expressly carves out for reimbursement eligibility several compound ingredients. For example, the PBM’s Manual (which is incorporated into the underlying agreement between the pharmacy and PBM) expressly states that, with regard to reimbursement for compounds, it will notcompensate for “any compound that contains ingredients not approved by the FDA”, as well as “various bulk chemical ingredients”. This is ridiculous because many compound bulk ingredients are not “FDA approved” and therefore many of the actual ingredients in compounds for this PBM are not reimbursable. Moreover, the PBM’s Manual states that it will only reimburse for “eligible ingredients”.  Thus, the pharmacy loses money on most compounds for this PBM.

In addition, PSAOs typically pool monies that they receive on behalf of a pharmacy from various PBMs. Thus, if a pharmacy is audited by a PBM and the PBM purportedly finds discrepancies, the PBM will recoup from all of the monies in the pool that the PSAO is holding on behalf of the pharmacy, regardless of whether those funds were originally paid to the PASO by that PBM or by a different payor PBM.

We have heard significant “chatter” in the independent pharmacy marketplace about PSAO motivation and performance. We want to hear from you regarding your pharmacy’s PSAO experience. Contact us and tell us your experience.