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Chains Feeling the Squeeze

It’s time for the folks in Washington to stop paying lip service to the problem and pass legislation that will rein in the PBMs.

Pharmacy Technology & Management Review

The article stated, “In eight years national pharmacy chains have gone from an invasive species to an endangered one. Today their entire business model is under pressure.” According to the article, they contributed to putting out of business a third of independents from 1990 to 2010.

Put in perspective, the financial picture isn’t pretty. The article stated that adjusted operating income for Walgreens’ U.S. retail pharmacy division fell from $5.4 billion in the 2016 fiscal year to $3.7 billion in 2023, a 31.1% drop. At CVS the company’s retail division had operating profits of $7.3 billion in 2016. In 2023 it was $6 billion.

We have all heard how chains are closing stores, leaving consumers who rely on these locations for their prescriptions in the lurch. These chains are facing the same pricing pressure from PBMs (pharmacy benefit managers) as the independents. To offset the profit decline, these chains have gotten into health services via mini-clinics. However, these will take time to gain traction, if in fact they ever achieve the level needed to offset lost revenue from the prescription business. In the meantime, the chains’ answer is to reduce the number of pharmacy locations to lower their overhead.

Pharmacists make a healthy wage working for these chains. But these pharmacists are being pushed to the limit with management demands on their time. The sidebar article gives examples of this. It’s causing prescription errors. No surprise that the burnout rate among chain pharmacists is high.

With store closings taking place, this appears to be an opportunity for independents to step in. However, as with the chains, the razor-thin margins on prescriptions are a disincentive, and in many cases reimbursement is below their costs. And these pharmacies do not have the front-end business as an offset that a big box chain such as Walmart has with its pharmacies.

The root cause of what we are seeing in pharmacy, whether a chain or independent, are the PBMs and their ruthless reimbursement practices. However, the PBMs need a large network of pharmacies so that those covered by a prescription benefit plan have convenient access to a pharmacy. This is a selling point to employers. Current reimbursement practices by the PBMs could come back to haunt them.

I’ve said this before and I say it again: It’s time for the folks in Washington to stop paying lip service to the problem and pass legislation that will rein in the PBMs before we have a real pharmacy availability crisis.

Author: PTMR


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