A bipartisan bill in the state House aims to restrict the power of the shadowy middlemen that dominate the contract process between pharmacies and drug companies.

There are three Pharmacy Benefit Managers, or PBMs, that dominate the national market – Caremark, Express Scripts and Optum. According to the National Association of Insurance Commissioners, PBMs work with drug manufacturers, wholesalers, pharmacies and health insurers but only handle negotiations and payments in the supply chain.

And they’re killing independently-owned-and-operated pharmacies.

The last independent pharmacy in Warren, Gaughn’s Drug Store, is feeling that pinch.

“What we want our patients to know, they may not be getting the same services they were before from us,” Scott Newton, who owns and operates Gaughn’s with his wife, Kelly, explained. “It’s not because we don’t want to give that service. We don’t have the ability. … We are forced to make some very tough decisions to (make sure) we can remain the community.”

Ideally, a pharmacy like Gaughn’s, part of a buy-in group that negotiates with pharmaceutical wholesalers on their behalf, would be able to dispense medication above the structural costs that they have to dispense them.

But that reimbursement, especially for brand-name drugs, is lagging behind because of deals PBMs cut, which are often “take it or leave it” arrangements for local pharmacies.

“We don’t dictate the price that we’re paid,” Newton said. “We have no say.”

He explained that Gaughn’s filled 25,000 prescriptions in the last quarter. 10 percent of those were reimbursed by PBMs at below their cost.

“We made negative dollars,” Newton said. “That’s just buying it and getting paid for it” and doesn’t include the staff cost to dispense.

During that same quarter, Gaughn’s spent approximately $1.1 million on brand name medications. Their total gross profit? $1,338.

Newton used a common brand name medication, Eliquis, to prove the point. He said they filled a 90 day supply for a patient and spent $1,700 to do so.

“We got reimbursed from this particular insurance company $1,570 for that medication,” he said. “I can pretty much run that with any brand name medication.”

Those reimbursement rates have declined in recent years while drug prices continue to rise.

“We’re forced to sign contracts that are so ridiculous,” Newton said, “because we don’t have a choice. We can’t negotiate the contracts…. Pharmacy contracts are take it or leave it.

“Every year it just gets a little bit worse,” he said. “We’re spending more and more money to acquire medications and getting a smaller percentage every time we dispense it.”

Fortunately, these challenges don’t extend to generic medications.

Newton said that’s “why we’re able to at least survive right now.”

But only accepting contracts to dispense generic medications isn’t an option.

“We are a little bit more fortunate here,” he said. “We are able to make it up to some degree. Here we have a little more volume so we are able to make up some of those losses with sheer volume.”

These challenges prompted Newton to close his pharmacy in Port Allegany.

“We had to make that tough choice last year,” he said. “The reason behind that was what we’re talking about here. We could not make financial sense of continuing to operate a business that was not making any money.”

For Gaughn’s, the situation presents a paradox.

“Our business has doubled over the last four or five years,” Newton said, citing closures of other pharmacies and their role in the distribution of COVID-19 vaccines. “We have more volume than we can handle.”

That growth is amid some “pretty drastic measures” that, he said, have been undertaken in relation to these broader issues – negotiating wholesaler contracts, expanding the scope of the business, cutting hours, amending the delivery program and declining contracts, which will shut out potential patients in the coming year.

Friends have brought their prescriptions thinking that their business will benefit Gaughn’s.

But if they’re prescribed the wrong medications, that sentiment – wanting to support Gaughn’s – can actually do more harm than good.

Newton said he wouldn’t deny someone a prescription if they have the medication in the building.

“I may ask them, for the good of our store,” he said, if a patient would mind getting the prescription filled elsewhere.

The issue has gained considerable state and national attention and there are bills in the state House that would address some of the ways that the industry has changed in recent years.

If those legislative efforts can’t alleviate the burden, Newton said, Gaughn’s future is likely bleak..

“Then we may not be here,” Newton said. “I’m confident we can survive for a while… It’s just a shame a pharmacy is forced to choose between patients and trying to keep our doors open.”

But Newton aims to keep those doors open.

“I’m going to continue to do this as long as I can financially manage it,” he said, and “fight tooth and nail to attempt to do that. We want to be here in the community.”