Secondary wholesalers (aka “independent” wholesalers) play a unique part of the pharmaceutical distribution business. Although, little loved by the largest manufacturers and wholesalers, their existence is entirely legal—and valuable to the overall healthcare system. These wholesalers function by arbitraging pricing among primary wholesalers (who purchase drugs directly from manufacturers) and other sources of drugs, to deliver better pricing to pharmacies and other drug purchasers. Often they are a valued backup to the prime-vendor contracts that pharmacies have with the major wholesalers, in that they can deliver drugs in short supply, or at better prices, than the prime vendors. As represented by organizations like the National Coalition of Pharmaceutical Distributors or the Assn. of Independent Pharmaceutical Wholesalers, Inc. (AIPW), they have engaged regularly with FDA and other regulatory bodies to ensure a level playing field in supplying safe, legal drugs.
In August 2016, OptumRX, a leading PBM, announced a sweeping policy change to their Network Pharmacy Provider Manual: A “pharmacy MUST purchase ALL Covered Prescription Services for claims being dispensed to OptumRx members from a Verified-Accredited Wholesale Distributor (VAWD).” The VAWD accreditation program is offered through the National Association of Boards of Pharmacy (NABP). If pharmacies don’t comply, they are at risk of being denied reimbursements, paying chargebacks (100% of the reimbursements) and being dropped from the OptumRX network—all potential death penalties for these small businesses.
So why has OptumRX implemented the VAWD requirement? In my opinion, there are several reasons why OptumRX has established such a policy:
1. OptumRX wants to drive independent pharmacies out of business to win market share for its mail-order pharmacy business and its preferred pharmacy partners, CVS and Walgreens.
This isn’t the first time a PBM has been the center of controversy. Over the last few years, numerous lawsuits across the country have popped up from pharmacies, claiming unfair practices that cause irreparable harm to pharmacies. Three such lawsuits in the past two years include Trone Health Services Inc., Linden Care Pharmacy and Irmat Pharmacy suing a PBM. They were initiated by the pharmacies on the grounds that the PBM was going to terminate their network contract with the pharmacy or that the PBM was using sensitive data to try to steal pharmacy patients.
On the retail pharmacy side, OptumRX struck deals with Walgreens and CVS during 2016 for each of the retail pharmacies to be “preferred” pharmacies. These deals stand to provide a cut of profits to OptumRX, to the detriment of the retail pharmacies as prescription volume is pulled away from them.
With this requirement, in addition to the ever-controversial MAC pricing and declining reimbursements, PBMs are collectively putting the viability of the independent pharmacy business model at risk.
2. OptumRX is aligned with major manufacturers, wholesalers and other PBMs to destroy the secondary distribution market.
AIPW, a non-profit trade association representing the interests of pharmaceutical distributors across the country, filed a legal complaint against OptumRx in late 2016. The lawsuit argues that because OptumRX manages prescription drug benefit plans not only for private insurance companies and large insurers, but also the state and federal government through the Medicare and Medicaid program, it is acting as an agent of the government.  Given the power and reach of OptumRX (66 million covered lives or about 25% of insured Americans), its VAWD requirement effectively creates an industry regulation.
Specifically, AIPW is concerned about one specific requirement of VAWD accreditation: Pharmacies are not allowed to sell prescription drugs. Much of the secondary market relies on pricing inconsistencies for their business model where pharmacies sell prescription drugs to wholesalers because they have access to special pricing. VAWD Accreditation specifically outlines that products cannot be “previously distributed to pharmacies, healthcare entities or under special restricted pricing contracts.”  However, repurchasing is a fully legal (federal and state) business activity performed by fully licensed entities.
Further, in private correspondence with a wholesaler applying to the VAWD program, a NABP investigator claimed that the practice of repurchasing “violates VAWD criteria and allows purchasing of suspect product.” This disingenuously adds an additional classification to the definition of suspect product that is not contained within the DSCSA. The DSCSA defines suspect product as product that is potentially counterfeit, diverted, stolen, adulterated or will potentially result in serious adverse health consequences to the patient.
We trust pharmacies to dispense drugs to patients every day as fully trained, licensed and educated healthcare providers. However, with this additional requirement, VAWD is alleging that these same healthcare providers cannot be trusted to distribute drugs, even if they are fully licensed by state and federal authorities.
In my opinion, for a third-party organization like a PBM to disallow such an activity represents a conflict of interest with the payers and consumers who ultimately bear the cost of purchasing drugs. PBMs are increasing their profit at the expense of small businesses and the American public.
3. OptumRX is using VAWD to give the appearance of protecting consumer health.
VAWD accreditation is beneficial to the supply chain because it contains 250 requirements that encompass the operational activities of a pharmaceutical distributor. However, most of these requirements have been superseded by the Drug Supply Chain Security Act (DSCSA), which was passed in 2013 and is currently being implemented. DSCSA has increased the transparency, integrity and safety of the supply chain. Regulation is backed by the power of the federal government with full cooperation from the State Boards of Pharmacy. Counterfeiting and drug diversion will be a thing of the past as the DSCSA aims to track every drug product on a unit level, starting from the manufacturer until it reaches a patient.
Currently, there is considerable debate over how much of the cost of drugs (which are high and getting higher) is attributable to manufacturers, and how much is attributable to PBMs and other intermediaries in the supply chain who tack their own fees or obtain their own rebates from manufacturers for the drugs that they provide. The OptumRx action seems to lead in a direction of PBMs protecting their revenue streams by excluding other sources of drugs, which might be obtainable at lower prices. Ultimately, it should be the decision of those purchasers as to how their drugs are obtained, and not the arbitrary imposition of out-of-date industry standards.
- Case 1:16-cv-02214-KBJ, Complaint (goo.gl/t4qpRQ)
- VAWD Policy and Procedures Assessment (http://nabp.pharmacy/wp-content/uploads/2016/07/P-and-PAssessment-Apply-page-9.20.16.docx)
ABOUT THE AUTHOR
Sumeet Singh is the president and founder of Five Rivers RX, a compliance firm focused on the pharmaceutical distribution industry. Five Rivers RX’s clientele ranges from Fortune 500 manufacturers to family-run independent pharmacies. Our team specializes in achieving VAWD accreditation and maintaining federal and state compliance.