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GAO Pulls Back the Curtain on Pharmacy Services Administrative Organizations (PSAOs)

One of the least understood issues in the pharmacy benefit arena is how the $93 billion independent pharmacy industry relies on third-party pharmacy services administrative organizations, or PSAOs, to negotiate payer contracts and provide other administrative services.  Fortunately, Representative Henry Waxman (D-Calif.) requested the Government Accountability Office (GAO) to pull back the curtain on PSAOs.  GAO recently released its report, “Prescription Drugs: the Number, Role, and Ownership of Pharmacy Services Administrative Organizations (PSAOs).”  

In reviewing the GAO report’s summary findings, we could not help but recognize the disconnect – yet again – between the marketplace reality and the National Community Pharmacists Association’s (NCPA) lobbying rhetoric.   For years, NCPA has asserted publicly that independent pharmacies lack the scale and clout to negotiate with Medicare, Medicaid, pharmacy benefit managers (PBMs), and health insurance plans.  Never mind that the industry’s annual sales equate – year after year – to the entire economic output of Slovakia.   NCPA has used this alleged imbalance to lobby for a costly antitrust exemption and other special-interest provisions that will increase consumers’ and payers’ prescription drug costs.  The GAO’s findings show that PSAOs are a significant force in the marketplace and should be recognized as such. 

We are going to summarize the GAO report’s key findings here because it is worth repeating basic facts about PSAOs that often get lost in pharmacy debates.  Much of this language is pulled directly from the GAO report.

What are PSAOs?

  • With limited time and resources, independent pharmacies may need assistance in interacting with [drug wholesalers and third-party payers], particularly with third-party payers that include large private and public health plans. Most use a PSAO to interact on their behalf.
  • PSAOs develop networks of pharmacies by signing contractual agreements with each pharmacy that authorizes them to interact with third-party payers on the pharmacy’s behalf by, for example, negotiating contracts.

What services do PSAOs provide to their independent pharmacy clients?

  • While PSAOs provide a broad range of services to independent pharmacies and vary in how they offer these services, PSAOs consistently provide contract negotiation, communication and help-desk services.
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  • ll of the model agreements between PSAOs and independent pharmacies that GAO reviewed stated that the PSAO will negotiate and enter contracts with third-party payers on behalf of member pharmacies.
  • In addition to contracting, PSAOs also communicate information to their [pharmacy] members regarding contractual and regulatory requirements, and provide general and claim-specific assistance to members by means of a help-desk or a dedicated staff person.

How many competing PSAOs are offering services in the marketplace?

  • GAO found that at least 22 PSAOs offered services in 2011 or 2012.  Depending on the data source, GAO found that these PSAOs represented or provided other services to between 20,275 and 28,343 pharmacies in 2011 or 2012, most of which were independent pharmacies.    Some PSAOs are regional in scope, while others offer national services.  GAO found that the PSAOs surveyed represent a range of 24 to 5,000 pharmacies.  Most PSAOs provide services to fewer than 1,000 pharmacies.

Who owns PSAOs?

  • GAO found the majority of PSAOs in operation in 2011 or 2012 were owned by either drug wholesalers or independent pharmacies.