JAMESTOWN, R.I. (WPRI) – Tim Baker had hoped that when he retired, his son would take over the family’s independent pharmacy in Jamestown.

Instead, Baker shut the drugstore’s doors forever — and blames what he describes as America’s unfair system of pricing medicine.

Baker’s Pharmacy, which was the island’s only drugstore, closed in 2019 and became one of a growing number of Rhode Island pharmacies to shutter over the past five years. State licensing data showed there were 176 retail pharmacies in Rhode Island in June, a 11% decline from before the coronavirus pandemic.

When Baker shut down, he said it wasn’t because Baker’s Pharmacy had lost customers, or that he’d suddenly forgotten how to operate a profitable business after 44 years in the trade.

Rather, he said, it was no longer financially viable to operate in an industry where a few well-heeled middlemen — known as pharmacy benefit managers, or PBMs — have a stronghold over how much he and other independent pharmacists can make filling prescriptions.

“No matter how many prescriptions we filled, we were actually losing money,” Baker told Target 12 during an interview outside his now-shuttered pharmacy off North Road in Jamestown.

“They set the reimbursement rate,” he added. “Whether it cost us that much, or less, or more – we had no choice but accept.”

Employers and government insurance programs, such as Medicare, hire PBMs to negotiate drug prices with drugmakers, and the middlemen argue their role has helped save employers – and thus customers – billions of dollars over the years.

Mike Bladyga, public affairs director for the PBM industry’s Pharmaceutical Care Management Association, also rejected the idea that they’re responsible for pharmacies closing down.

“It makes no sense that PBMs are putting pharmacies out of business,” Baldyga told Target 12 in a statement. “There are many factors for pharmacy closures, however pharmacy benefit managers are supporting community pharmacies in rural areas through programs that increase reimbursements. Blaming PBMs for pharmacy closures is not based on the facts.”

Federal regulators disagree.

PBMs have come under increased scrutiny in recent years since the U.S. Federal Trade Commission started investigating them in 2022. The scrutiny intensified in recent weeks, as FTC officials issued an interim report and threatened to sue the three largest PBMs: Rhode Island-based CVS Health’s Caremark, UnitedHealth’s Optum Rx and Cigna’s Express Scripts.

In addition to laying out how PBMs can “hike the cost of drugs – including overcharging patients for cancer drugs,” FTC chair Lina Khan said, “PBMs can squeeze independent pharmacies that many Americans – especially those in rural communities – depend on for essential care.”

Regulators said the consequences can be “dire,” with 30% of Americans surveyed reporting “rationing or even skipping doses of their prescribed medicines due to high costs.”

CVS spokesperson Phillip Blando pushed back, saying the company is proud of its record of “protecting American businesses, unions and patients from rising prescription drug prices.”

“The FTC was created to protect consumers,” he said in a statement. “Any suggestions from the FTC about policies that limit the use of PBM negotiating tools would instead reward the pharmaceutical industry, leaving American businesses and patients at the mercy of the prices drugmakers set.”

‘Not for the better’

PBMs play an outsized role in drug pricing in America, as the three largest companies process about 80% of prescriptions in the United States.

The FTC reports the six largest PBMs handled nearly 95% of U.S. prescriptions, and a New York Times investigation last month spelled out how the companies leverage that control to pad their bottom lines.

“The job of the PBMs is to reduce drug costs. Instead, they frequently do the opposite,” Times reporters Rebecca Robbins and Reed Abelson wrote. “They steer patients toward pricier drugs, charge steep markups on what would otherwise be inexpensive medicines and extract billions of dollars in hidden fees.”

The Times investigation also found PBMs “are driving independent drugstores out of business by not paying them enough to cover their costs” — which is what Baker said happened to him.

A group of Rhode Island pharmacists expressed similar concerns in testimony to state lawmakers earlier this year as they advocated for legislation that would have tied drug pricing to a nationwide metric known as NADAC, short for National Average Drug Acquisition Cost.

“In the 20 years I have practiced pharmacy the landscape has changed and not for the better,” wrote Courtney McQuade, director of pharmacy services at McQuade’s Pharmacy in Westerly.

McQuade said she's constantly evaluating insurance plans to see if her business can even afford to keep the customers, and constantly needs to explain to her father, who owns the grocery stores where she operates, why her department is the only one "that cannot control costs."

"This inability is 100% due to Pharmacy Benefit Managers underpaying myself and other independent pharmacies for the products that we dispense to patients in the community," she told lawmakers. "Imagine buying a medication for $575 and only getting reimbursed from the insurance company $525. This happens all day long. This is tragic. This is why independent pharmacies are closing all over America."

Prime Therapeutics, a PBM owned by 19 Blue Cross Blue Shield insurers, opposed the legislation. A company official, Michelle Crimmins, said tying Rhode Island drug prices to a national average could result in higher costs for both state Medicaid recipients and commercial health insurance customers.

Crimmins said the legislation would "have the unintended consequence of increasing the cost of health care for Rhode Island citizens and removing the incentive for pharmacies to purchase drugs at the lowest available cost."

The legislation died in committee at the State House.

Separately, Massachusetts Congressman Jake Auchincloss introduced bipartisan legislation last week targeting PBMs. The Massachusetts Democrat said the legislation would use the NADAC metric, remove PBMs’ ability to restrict patient choice and help protect local pharmacists.

"The corporate greed of PBMs and their health-insurance overlords has taken money directly out of the pockets of seniors, taxpayers, and pharmacists by inflating the price of medications for their own benefit," Auchincloss said in a statement announcing the legislation that he's sponsoring with U.S. Rep. Diana Harshbarger, a Tennessee Republican.

"This bill protects community pharmacists and patients from price-gouging in federal health care programs,” he added.

'Opportunity to make it better'

Since Baker’s Pharmacy closed, Jamestown no longer has any licensed drugstores on the island, forcing residents to travel off-island to pick up prescriptions or to get them delivered to their homes.

A Target 12 review of state data shows retailers are also scant across large swathes of the western, more rural part of the state. There are no licensed pharmacies in Exeter, Foster and Jamestown, according to state data.

Overall, the Associated Press earlier this year reported Rhode Island had the 12th fewest pharmacies per capita in the country. In New England, only Massachusetts had fewer.

Yet some pharmacists are finding success opening new ventures. Among them is Dr. Eugenio Fernandez, who launched Asthenis Pharmacy in the West End neighborhood of Providence around the same time Baker was closing in Jamestown.

"I opened because I felt like there was a need in the community,” Fernandez said, citing a lack of independent, dependable health professionals in the neighborhood where he grew up.

Fernandez said he learned quickly after opening he needed to do far more than just fill prescriptions to succeed as an independent, and he quickly found a niche administering vaccinations in some of the communities hit hardest by the pandemic.

Today, he continues to provide COVID-19 vaccinations and other preventative services, saying his goal is to serve his community with care needs that don't necessarily need to come from hospitals and doctors' offices.

"The United States of America is the best country in the world, but our health system isn't," he added. "I think that there is opportunity to make it better."

There's also an opportunity for independent pharmacies to fill gaps where some of the largest corporate-owned chains appear to be shrinking in the retail space. CVS in 2021 announced it would close 900 retail stores across the country, and earlier this year said it would close some shops inside Target stores.

A CVS spokesperson provided Target 12 with data compiled by its trade group showing a slight increase in independent pharmacies over the past five years, even as overall licenses have declined.

Meanwhile, state data shows only a couple new retail licenses have been issued to CVS retailers over the past five years. The most recent Walgreens retail license was issued in January 2018.

Still, the AP data showed Rhode Island had one of the highest rates of corporate-owned retail pharmacies in the United States, ranking second only to New Hampshire. Less than 20% of the state's more than 170 retail pharmacies identified as independently owned, according to the AP.

Baker, whose son now works for CVS, said he expects corporate ownership of retail pharmacies only to continue to grow in the future unless there's some major overhaul to how drugs are priced and pharmacists are reimbursed. He said any independent pharmacy closure represents a loss to the community.

"More than once I got phone calls at 12 o'clock at night from somebody that just got out of an emergency room and were our loyal customers and they didn't want to go to the 24-hour CVS, they wanted me to fill the prescription," he said. "Now, Walmart has pharmacies and I think they're going to pick up a lot of the business. It's unfortunate."

Eli Sherman ( esherman@wpri.com ) is a Target 12 investigative reporter for 12 News. Connect with him on Twitter and on Facebook .

Tim White ( twhite@wpri.com ) is Target 12 managing editor and chief investigative reporter and host of Newsmakers for 12 News. Connect with him on Twitter and Facebook .

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