We spoke with Benjamin Jolley, a third-generation pharmacist from Jolley‘s Compounding Pharmacy, Senior Fellow at the American Economic Liberties Project, and pharmacy podcast influencer, about the ups and downs of owning an independent pharmacy and the frustrations brought on by PBMs.
Q: How did you get involved in the pharmacy industry?
A: “I got involved in pharmacy because of my grandfather. My grandpa started a pharmacy and was a business partner in 1954. He then bought him out eventually and ran that pharmacy until 1994 when my dad and his brothers took over the business. Then, 10 years later, my dad bought one of the pharmacies and sold his stake and sold the other pharmacy to his brothers. My dad has a pharmacy in Salt Lake City, and I started working there that same year in 2004. I was clerking; I was stocking shelves; I was checking people out at the register. Then, I started driving and doing deliveries. I got my technician license when I was 18.
In 2014, I went to pharmacy school and graduated in 2018. I then went back and worked for my dad again. My dad went on vacation for two weeks the day I got back, and that morning he said, ‘This is Benjamin. He‘s in charge. Good luck, everyone! I‘m going on vacation!‘
I was a brand-new graduate pharmacist and had not actually received my license yet because I hadn‘t passed the boards. But my dad put me in this position of being in charge of a pharmacy. At the time, I found several Facebook groups and started talking to people. I then found myself kind of obsessively answering every single question and giving my position on how things should be done on everything. Then, about a year after that, several people started offering to pay me money to tell them how to run their pharmacy.
Direct and indirect remuneration fees were a very big chunk of pharmacy‘s expenses, and no one understood what was going on. I had figured out how to use my software and a couple other software packages to tell the computer this is what the DIR is for, for this plan; this is what it is for that plan. I then started doing a lot of work for other pharmacies where I would just put in the numbers for them, so that when they built prescription claims, they would know how much they were going to get charged in DIR.“
Q: What‘s a typical day for you?
A: “My typical day looks like most remote workers. I wake up, open my email and see what‘s going on with various things that people are asking me, and try to answer some emails. I usually work on a scheduled basis for my consulting work. Pharmacies will book my time around 15-minute to hour-long segments, and I call them at the scheduled time. I typically do three to four calls a day, calling a pharmacy saying, ‘Hey, let‘s talk about Medicare plans, let‘s talk about generic effective rates, let‘s talk about inventory control, and so on.‘
Depending on what they want to talk about, it will usually occupy two to five hours in my day. In between calls, I check more emails. I get a lot of emails, text messages, and review various public policy stuff with my American Economic Liberties Project, such as white papers and various proposed legislation. There‘s always a lot going on. One day a week, I go into the pharmacy and work a shift on a bench. I check prescriptions, I order drugs, I take phone calls. I practice in a community pharmacy. It keeps me very grounded.“
Q: How did PBMs come into existence, and why do we need them?
A: “PBMs exist for the same reason that clearinghouses in banking exist. There are just too many notes to be able to administer payment. Anytime you have a many-to-many marketplace, generally someone will eventually step in as a middleman to just do all the connections to everyone so that you don‘t have to figure out billing 100,000 different employers. Public policy over the last 50 years has said, ‘Yes, we want third-party payment for drugs.‘ So, convenience emerged out of the necessity for someone to coordinate these things.
PBMs haven‘t always owned pharmacies. They haven‘t always been associated directly with insurance companies. The PBMs today exist because without the existence of something like a PBM, every single company, no matter how big or small, would have to stand up to their own claims-building architecture. Or every patient just has to pay 100% of their drug costs and then submit receipts to their insurance to get paid. That‘s how things used to work until the ‘90s. It was mostly paper claims billing, and patients oftentimes just submitted claims. But the volume of claims just became incredibly large. It‘s far more expensive than doing some kind of electronic claim billing process. And the PBMs emerged out of that. That, to me, is why PBMs exist and how they came into existence.“
Q: PBMs front for their own mail-order distribution. How does that impact independent pharmacies?
A: “This, to me, is the biggest problem in pharmacy public policy today. I don‘t think that PBMs should be allowed to own pharmacies in any way, whether it‘s mail order, retail, or long-term care. I think that if you are a pharmacy benefit manager, your job is to be a fiduciary of making sure that a health plan, a union‘s plan, an employer‘s plan, spend as little as possible on drugs, while making sure that people are able to get the drugs that they need. If you are also a pharmacy, a pharmacy‘s shareholder value perspective is to sell as many drugs as possible at the highest price possible. The opportunities for a PBM to manipulate pricing and where drugs go to—for their own benefit—is just far too tempting for anybody. So, we should just remove that opportunity from the marketplace. There‘s good evidence of the manipulations that happen and the consequences of those.
The Federal Trade Commission has been doing a so-called 6(b) study of PBMs for the last two years, and they released their second interim report by the staff recently, and it quoted internal PBM documents to describe so-called optimization strategies. These would be used by PBMs to channel high-profit drugs to their mail-order pharmacies and channel low-profit drugs away from their mail-order pharmacies towards retail pharmacies, and competitor network pharmacies, like independents. This is a big problem.
The reason for that is because PBMs have mail-order pharmacies, and that small fraction of drugs where you make money are the products that they try to send to their own pharmacies. So, when a PBM sends all of the highest profit drugs to their own pharmacies and all of the lowest profit drugs to your pharmacy, that means they‘ve just sucked all of the profit out and now there‘s no money to be made. The PBMs also use multiple different price lists, and they favor their own pharmacies dramatically more than their competitors.
The Mississippi Board of Pharmacy released an audit that they had performed of Optum Rx. They found in this audit that Optum Rx unlawfully paid their own mail-order pharmacy 22 times as much as independent pharmacies in their network for common drugs, such as Z-packs. For example, they might have paid two dollars for a Z-pack at an independent pharmacy and then they paid their own pharmacy something like $50 for the same Z-pack. That really harms pharmacies because employers are going to want to keep getting their drug costs down, and so the PBM is then in a situation where they say, ‘Well, we can get your drug costs down by doing all these things that benefit us. You can send more stuff to mail order; you can change your pharmacy network to exclude all these pharmacies. As long as you aren‘t too greedy on the mail-order side, they can reduce overall drug costs for an employer while creating more and more of the profit dollars for themselves.“
Q: PBMs are going to have their own generics. What are your thoughts on that?
A: “This is just another way for PBMs to manipulate the value chain of pharmacy. If you have your own generic, if you are the labeler, then the ability to manipulate pricing is even more than you already have under just the standard PBM system. Labelers, generic manufacturers like Cordova, set the average wholesale price and set the wholesale acquisition cost for the products that they produced. There‘s an old saying of, ‘I‘ll give you whatever discount you want so long as I can set the starting price.‘ It‘s just an opportunity to manipulate.“
Q: What is it like dealing with PBMs from your perspective?
A: “Working with PBMs from my perspective is both seamless and incredibly frustrating depending on the specific situation. When things work, they work really well and it‘s great. I sort of think of this as if you want to know how the AI revolution is going to go over the next couple years, just walk into a pharmacy and ask a pharmacist about PBMs and how they usually interact with them. That will give you a good sense of how that‘ll work because PBMs are basically a very slow, artificial intelligence. They‘re an automated computer system that you say, ‘Hi. I want to give Mrs. Jones some Atorvastatin,‘ and the computer system sends back, ‘No, she got it last week at Walgreens,‘ and you say, ‘OK. Fine, I‘ll give it to her in a month.‘
Or the computer system will sit back and say, ‘Yep! Great. Go ahead. Collect a $10 copay from her and we‘ll pay you $5.‘ When it works, it‘s a pleasant and easy system. You build a claim, and you get your money two weeks to a month later. I don‘t think a lot of pharmacists talk about it because we‘re much more focused on the frustrations there are. A lot of the time it works well, we get paid, and that works great. But when things don‘t work for whatever reason, it‘s just incredibly frustrating.
The biggest thing is that the PBMs are not a friendly, slow artificial intelligence. They‘re hostile and want to pay the pharmacy as little money as they can and move as much business as they can to their own pharmacies that they own. This results in all sorts of situations where pharmacies get paid. Instead of collecting 10 dollars and ‘I‘ll pay you five and everything‘s fine,‘ it will pay you a grand total of 37 cents and a 20-cent fee for filing this claim. So, you end up getting 17 cents in a check. It‘s incredibly insulting and frustrating. So, when it works well, it works well. When it doesn‘t, it‘s just constant anger and frustration.“
Q: How does that impact your business?
A: “For prescriptions that are billed to insurance, it‘s a very dominant relationship. The PBMs are the bosses of basically every pharmacy in the country. It‘s a very analogous relationship to an Uber driver. The PBM is very similar to Uber in that they decide how much you get paid. They take the money from the client and give you some of it. They make that system work relatively well, but again, they‘re not a kind actor and so they‘re trying to extract as much money out of the middle as they can.
I gathered information in the first 8 months of 2024 and found that 2,275 pharmacies closed just between January 1 and August 31 of 2024. That‘s like 10 pharmacies a day closing. About half of those were independent pharmacies and about half were traditional chain pharmacies. It‘s largely due to PBMs pricing drugs at those insultingly low prices. You can‘t pay a professional pharmacist 60 or 70 dollars an hour when the pharmacy is getting paid 30 cents a prescription. Just to be able to pay a pharmacist‘s salary at that price point, you would have to fill 400 prescriptions an hour or something like that. So, that just doesn‘t work.
There are two factors to that pricing: First, a number of PBMs have just decided that for brand-name drugs they will just pay pharmacies less than the drugs cost, and in some cases less than any pharmacy can buy drugs for. I call this counterfeit drug pricing because the PBMs are setting a price that doesn‘t exist in the legitimate drug market. The only way you can fulfill that prescription for a profit is to buy drugs from a counterfeiter.
The other half of that is so-called maximum allowable cost pricing in the generic market where PBMs can set whatever price they want. Pharmacies, in a sense, don‘t really have a contract with PBMs. There are words written on paper, but it just says basically, ‘I‘m the PBM. I can pay you whatever I want, and you‘ll do what I say.‘
So, while drug costs have dropped for generics to some degree, they haven‘t dropped as fast as PBM reimbursement. And brand-name drug prices have gone up, not down. When a contract is structurally upside down like this, where they say, ‘We‘re going to pay you less than the drugs cost you,‘ then every time a drug price goes up, you lose more and more money.“
Reasons why PBMs are seen as a problem:
- Opaque pricing and hidden fees: Oftentimes PBMs negotiate complex deals with drug manufacturers. This makes it really hard for patients and even insurers to understand the true cost of medications and how much negotiated rebates are actually given to them.
- Spread pricing: Essentially, PBMs charge health plans or insurers more for a prescription drug than what they reimburse pharmacies. The difference, or “spread,” is kept by the PBM as profit.
- Formulary manipulation: PBMs control the drugs that are included in a health plan’s formulary. These likely limit patient access to certain medications based on cost or manufacturer relationships. Sometimes they force patients to switch to less preferred or more expensive medications.
- Conflicts of interest: There are some PBMS that own or are affiliated with pharmacies. This is concerning because they may steer patients towards their own pharmacies to maximize profits.
- Market merger: A small number of large PBMs dominate the market, reducing competition and potentially enabling them to exert more influence on drug pricing.
Q: What do you think the government should do to help community pharmacies?
A: “I think that the Patients Before Monopolies Act (the PBM Act) that was introduced in the last Congress will go a long way. It would say you cannot be a PBM and a pharmacy. I think that would make the system a lot more fair, because there would not be an incentive for a PBM to set this very concentrated profit type of system where we‘re going to pay you nothing for very common drugs and we‘re going to pay you a ton of money for uncommon drugs.
I think that the pricing methodology only makes sense in the context of a PBM owning their own mail-order pharmacy and being able to channel those uncommon drugs to themselves. I think that would make a big difference. I think that the government can also just say, ‘Look, the way you‘re pricing drugs is inherently unfair.‘ It‘s written into statute. The Federal Trade Commission has authority to define and ban unfair trade practices, and I think that the entire current reimbursement system for prescription drugs in the United States is an unfair trade practice.“
Q: What do you think of Mark Cuban‘s cost model?
A: “It‘s very reasonable. Mark Cuban sells drugs at the cost of the drug and adds a 15% markup as it‘s supposed to be. That‘s really how things should be. Anyone who tries to give you some kind of discount off AWP is selling you a bill of goods. It‘s something akin to the way that he prices drugs. The system that we are currently in is incredibly stupid, and a Cost-Plus model like this just makes a lot more sense. So, I think it‘s a good idea.“
Benjamin Jolley offers one-on-one consulting with pharmacies to understand effective rate contracts (GER, BER, DFER and DIR). Pharmacy owners and pharmacy staff that would like to reach Jolley can email him at: benjamin@apexpharmacyconsulting.com
He also takes appointments at apexpharmacyconsulting.com.
For more information about the American Economic Liberties Project, visit https://www.economicliberties.us/about/#.
More articles from the March 2025 issue:
- White Label vs. Private Label Products
- Welcoming AI into Your Pharmacy
- AI-Powered Patient Counseling
- Diagnosing Childhood Asthma
- New Weight-Loss Drugs
- Secondary Stress
- Sight-Loss Support
- PBMs and How They Affect Your Pharmacy
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