In The News | The Middlemen Draining Main Street Pharmacies

Real Clear Health

Reporter: Justin Leventhal

In the past decade, independent drugstores have been vanishing, especially in low-income, minority, and rural communities, in part due to pharmacy benefit managers (PBMs) having rigged the system in favor of their own pharmacies. By steering patients to in-house pharmacies and squeezing independent pharmacies with hidden fees, PBMs are driving local pharmacies out of business. This loss of competition hits vulnerable communities hardest—places already facing healthcare deserts—and patients deserve a solution.

PBMs sit between insurers, drug manufacturers, and pharmacies. Many PBMs are even owned by or partnered with major pharmacy chains. This vertical integration offers an opportunity for greater efficiency, but that can only take place in a competitive market.

In practice, PBMs steer patients away from independent pharmacies by using “preferred networks”—pharmacies where patients pay lower copays—to direct customers to those stores. According to a recent study, only 0.8 percent of independent pharmacies were preferred by PBMs for Medicare Part D in 2023, compared to 70 percent of chain pharmacies. Pharmacies left off preferred networks are more likely to close than those that are included. This undercuts independent pharmacies’ volume and profits.

While PBMs claim to reimburse independent pharmacies more than their own pharmacies, multiple Federal Trade Commission (FTC) reports show otherwise. PBMs reimburse their own pharmacies at better rates than outsiders. The most recent FTC report found that the “Big 3” PBMs (CVS Caremark, Express Scripts, OptumRx) paid their pharmacies higher reimbursements than unaffiliated pharmacies on nearly every specialty drug. This also included steering patients seeking highly profitable drugs to their own pharmacies with large mark-ups.

PBMs don’t just steer patients away though, the same FTC reports show PBMs also impose unpredictable retroactive fees on independent pharmacies. PBMs often impose opaque, performance-based fees and audits after a drug is dispensed. These can hit small pharmacies with surprise bills, or “clawbacks,” that erase their profit based on opaque metrics, not assessed until weeks after the sale. Because these fees hit well after the fact, pharmacies cannot price or plan around them.

In practice this means independent pharmacies run with constant uncertainty. A local pharmacy may fill a prescription expecting fair reimbursement, only to have a significant portion docked later. Such arbitrary takings make it nearly impossible for a small pharmacy to plan ahead to stay in business.

The result of these practices is fewer pharmacies. Between June 2023 and June 2024 the U.S. lost 448 independent pharmacies—a drop from 19,432 to 18,984 locations nationwide. That’s more than one pharmacy closing every day. Over the past decade-and-a-half independent pharmacies closed at a much higher rate than chains. From 2010 to 2021 about 39 percent of independent pharmacies had shut their doors (versus 22 percent of chain outlets). Crucially, the closures have been concentrated in low-income minority and rural communities—precisely the areas with the greatest healthcare shortages.

This loss of access has real consequences. Patients who live in rural towns or inner-city areas often rely on a single neighborhood pharmacy for medication, advice, and care. When that store closes, patients may be forced to travel long distances, face delays, or simply skip medications... CONTINUE READING