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His drugstore, one of a few in his county of more than 9,000 people, exemplifies the struggle many independent pharmacies face. The store is a lifeline for customers, most of whom are either on Medicaid or the state’s health-insurance program. Yet profitability is now near-impossible because of the preposterous way the United States distributes pharmaceutical drugs.
Without serious reforms, businesses such as Whittier’s could disappear.
The tectonic plates beneath retail pharmaceuticals are shifting, and drugstores are falling. The total number of drugstores has been falling since 2015, but the trend has been particularly pronounced in rural areas, which have lost about 10 percent of their pharmacies in two decades.
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There are plenty of reasons for this: As for many other businesses, revenue for pharmacies cratered during the pandemic. Labor shortages, especially among pharmacists seeking better pay and working conditions, further strained operations. Meanwhile, online retailers have provided new competition and large opioid settlements have battered many chains.
But U.S. drug distribution has also greatly consolidated, granting enormous power to a few big players that have mangled the industry in the pursuit of profit. A small number of pharmacy benefit managers (PBMs) — Express Scripts, CVS Caremark and Optum Rx — act as intermediaries between pharmacies and the insurance companies that pay for prescription drugs. But each PBM also runs a network of pharmacies and goes to great lengths to direct customers to its preferred retail stores.
That’s right — the same corporations that are deciding where Americans should buy their drugs are often running those drugstores.
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This market dominance has driven business away from independent stores. Worse, PBMs are notorious for setting low-reimbursement fees, making it difficult for pharmacies to break even. Many PBMs also impose contracts on independent pharmacies with unrealistic demands on how they dispense drugs and how their customers follow the regimens. When pharmacies fall short, they are hit with enormous fees.
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Together, these forces have expanded America’s “pharmacy deserts” — swaths of the country without easy access to stores — and this situation is bound to worsen. CVS and Walgreens plan to continue shedding retail locations in the coming years. Rite Aid’s bankruptcy last month will pile on another 150-plus closures.
This could have serious effects on Americans’ health, especially among minorities. Long drives and onerous trips on public transportation make it hard for patients to stay on track with their medications. People shouldn’t have to spend an hour in a car or bus just to pick up insulin to treat diabetes.
Advertisement
Mail-order services can help address the problem, but not solve it. Retail shops are essential for immunizations, for example. And drugs coming through the mail come without face-to-face guidance from pharmacists on how to take them. Plus, not all drugs can be shipped; some must be refrigerated or not shaken.
An elegant solution to these problems is to make it more profitable for pharmacies to serve low-income patients. This would require a heavy hand from the government.
One way to do it: Raise reimbursement rates for drugs covered by Medicaid or Medicare. Government programs typically pay less than private insurers do. This saves taxpayers money, but it means poor communities — which already suffer from higher rates of health issues — are less profitable for drugstores. This makes low-income areas less attractive places to open pharmacies, regardless of demand.
Advertisement
States could change the incentive structure and pay more for drug purchases through their assistance programs. This would cost governments more, but it would help stabilize independent pharmacies and give chains reason to remain where they’re most needed.
States should also confront PBMs. These middlemen have concocted a devious way to profit from the byzantine drug system at the expense of pharmacies. PBMs negotiate discounts with drug manufacturers on behalf of payers — either insurance companies or state Medicaid programs. But the amounts they charge payers are often much higher than what they reimburse pharmacies. PBMs then pocket the difference, or at least a portion of it.
There is no justification for this practice, especially in Medicaid. Banning it from all taxpayer-funded programs would direct some of the savings from drug discounts to pharmacies. Ohio, for example, discovered in 2018 that PBMs working with the state’s Medicaid program were upcharging taxpayers more than $200 million in a single year, so lawmakers banned the practice. The next year, pharmacy reimbursements from PBMs jumped $38 million.
Whittier says such reforms are about “fairness” for pharmacies. That’s true, but they’re also about fairness for Americans. A country in which access to medication is determined by Zip codes is economically — and morally — deficient.
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Canby Drug & Gifts, a pharmacy in rural Minnesota, is a paradox. It does good business, yet it is always on the verge of shutting down.
“I’m one bad contract from closing,” says owner Mark Whittier.
His drugstore, one of a few in his county of more than 9,000 people, exemplifies the struggle many independent pharmacies face. The store is a lifeline for customers, most of whom are either on Medicaid or the state’s health-insurance program. Yet profitability is now near-impossible because of the preposterous way the United States distributes pharmaceutical drugs.
Without serious reforms, businesses such as Whittier’s could disappear.
The tectonic plates beneath retail pharmaceuticals are shifting, and drugstores are falling. The total number of drugstores has been falling since 2015, but the trend has been particularly pronounced in rural areas, which have lost about 10 percent of their pharmacies in two decades.
There are plenty of reasons for this: As for many other businesses, revenue for pharmacies cratered during the pandemic. Labor shortages, especially among pharmacists seeking better pay and working conditions, further strained operations. Meanwhile, online retailers have provided new competition and large opioid settlements have battered many chains.
But U.S. drug distribution has also greatly consolidated, granting enormous power to a few big players that have mangled the industry in the pursuit of profit. A small number of pharmacy benefit managers (PBMs) — Express Scripts, CVS Caremark and Optum Rx — act as intermediaries between pharmacies and the insurance companies that pay for prescription drugs. But each PBM also runs a network of pharmacies and goes to great lengths to direct customers to its preferred retail stores.
That’s right — the same corporations that are deciding where Americans should buy their drugs are often running those drugstores.
This market dominance has driven business away from independent stores. Worse, PBMs are notorious for setting low-reimbursement fees, making it difficult for pharmacies to break even. Many PBMs also impose contracts on independent pharmacies with unrealistic demands on how they dispense drugs and how their customers follow the regimens. When pharmacies fall short, they are hit with enormous fees.
Together, these forces have expanded America’s “pharmacy deserts” — swaths of the country without easy access to stores — and this situation is bound to worsen. CVS and Walgreens plan to continue shedding retail locations in the coming years. Rite Aid’s bankruptcy last month will pile on another 150-plus closures.
This could have serious effects on Americans’ health, especially among minorities. Long drives and onerous trips on public transportation make it hard for patients to stay on track with their medications. People shouldn’t have to spend an hour in a car or bus just to pick up insulin to treat diabetes.
Mail-order services can help address the problem, but not solve it. Retail shops are essential for immunizations, for example. And drugs coming through the mail come without face-to-face guidance from pharmacists on how to take them. Plus, not all drugs can be shipped; some must be refrigerated or not shaken.
An elegant solution to these problems is to make it more profitable for pharmacies to serve low-income patients. This would require a heavy hand from the government.
One way to do it: Raise reimbursement rates for drugs covered by Medicaid or Medicare. Government programs typically pay less than private insurers do. This saves taxpayers money, but it means poor communities — which already suffer from higher rates of health issues — are less profitable for drugstores. This makes low-income areas less attractive places to open pharmacies, regardless of demand.
States could change the incentive structure and pay more for drug purchases through their assistance programs. This would cost governments more, but it would help stabilize independent pharmacies and give chains reason to remain where they’re most needed.
States should also confront PBMs. These middlemen have concocted a devious way to profit from the byzantine drug system at the expense of pharmacies. PBMs negotiate discounts with drug manufacturers on behalf of payers — either insurance companies or state Medicaid programs. But the amounts they charge payers are often much higher than what they reimburse pharmacies. PBMs then pocket the difference, or at least a portion of it.
There is no justification for this practice, especially in Medicaid. Banning it from all taxpayer-funded programs would direct some of the savings from drug discounts to pharmacies. Ohio, for example, discovered in 2018 that PBMs working with the state’s Medicaid program were upcharging taxpayers more than $200 million in a single year, so lawmakers banned the practice. The next year, pharmacy reimbursements from PBMs jumped $38 million.
Whittier says such reforms are about “fairness” for pharmacies. That’s true, but they’re also about fairness for Americans. A country in which access to medication is determined by Zip codes is economically — and morally — deficient.
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