Inside a Walgreens, a sign above a shelf of medical devices reads "pharmacyRX" next to its logo. A person walks by the aisle in front of the sign -- First Opinion coverage from STAT
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In May 2024, nearly 90% of pharmacies were closed for a day as thousands of pharmacists protested over “over drug shortages, pharmacy closures and fears medications could be sold online, as well as higher pay.”

More recently in November 2024, pharmacy owners voted in favor of cutting hours and stopping home deliveries in a protest over funding.

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Given multiple recent news articles saying that pharmacies are struggling amid problems caused by pharmacy benefit managers (PBMs) , you might not be surprised by these examples. However, these two news stores are not from the U.S. They are from France and the United Kingdom — two countries that do not have the large PBMs that are frequently criticized in America.

The retail pharmacy environment is changing not just in the U.S. but worldwide.

Community pharmacies here in the U.S. have evolved substantially since the soda fountain days of the mid-20th century. In the 1960s, pharmacists formed the first PBMs in Canada and the U.S. to help customers and businesses pre-pay for pharmacy benefits (namely, prescription drugs). Over the past 60 years, these organizations have grown and evolved through various horizontal and vertical mergers and acquisitions, now finding themselves in the crosshairs of policymakers seeking to break them up in an effort to save traditional retail pharmacies.

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In 2024, multiple news outlets reported an increase in U.S. pharmacy closures in recent years and raised concerns regarding accessibility for some patients. Initially, the focus was on the closing of smaller, independently owned retail pharmacies. However, these retail pressures extended beyond the small businesses as large chain pharmacies announced several locations would be closing including 1,200 Walgreens locations, 300 CVS locations, and 700 Rite Aid locations following bankruptcy. Building on the concept of “food deserts,” the phrase “pharmacy deserts” has gained popularity in research and policy circles as a way of describing neighborhoods without access to drug stores. 

In the bipartisan momentum in Congress to rein in PBMs, one of the most popular arguments is that reform and divestment will save pharmacies. But it’s not that simple. Imagine a world where PBMs are completely removed from the equation. Would everyone (especially large employers paying on behalf of thousands of employees) simply pay retail pharmacies more to fill prescriptions? Would the pressure of online retailers offering similar services with convenient home delivery disappear? Would a patient be willing to pay for a pharmacist’s time and expert medication advice?  

Before pharmacy benefits were commonly provided as part of commercial or government insurance plans, patients simply paid for 100% of the prescription cost out-of-pocket (sometimes referred to as “cash” payment). That worked for many people at a time when drugs were more affordable, and it still works for some generic drugs marketed by the Walmart and Kroger “$4 List” and Amazon Pharmacy’s RxPass. Additionally, new businesses have emerged to champion these 100% out-of-pocket payment strategies such as GoodRx, Mark Cuban’s Cost Plus Drugs, and Blueberry Pharmacy.

But without insurance, most branded pharmaceuticals and all specialty pharmaceuticals would now be unaffordable to the average American consumer. PBMs act as an intermediary on behalf of plan sponsors (e.g., employers) to negotiate lower drug prices from brand manufacturers and lower prices at the pharmacy. The price concessions from pharmaceutical manufacturers are typically in the form of “rebates” that the employer receives after the prescriptions are filled. The price concessions from the pharmacy come from lower contracted rates that pharmacies must accept in order to participate in the PBM’s pharmacy network. Depending on the way an employer contracts with a PBM, the PBM could earn a percentage of the rebates or pharmacy price concessions.

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Today, the largest portion of prescription drug revenue for traditional pharmacies is tied to insurance, and the three largest PBMs pay for nearly 80% of all prescriptions in the U.S. That means any price concessions PBMs try to extract out of their pharmacy networks to deliver savings to employer- or government-sponsored health plans would in the end come out of pharmacies’ bottom lines. Whether the payer is a for-profit PBM in the U.S. or a single-payer government entity in France or the U.K., attempting to secure the best prices for prescription drugs will hurt most retail pharmacies.

Current PBM reform policies solely focus on drug costs or how pharmacies are paid for prescriptions, but prescriptions are not the only source of business for most retail pharmacies. To supplement revenue from prescription drug sales, most retail pharmacy businesses (this includes both chain and independent pharmacies) have relied on selling other types of items from over-the-counter medications to retail items that do not promote health such as junk food, alcohol, and tobacco. In 2023, a study by the Acosta Group found that in addition to prescription and typical pharmacy services, customers still visit “brick and mortar” pharmacy locations to shop for groceries, snacks, and household items. In 2024, Walgreens reported that 23% of its U.S. retail pharmacy sales were in its “retail segment,” which includes all the products in the front of the store — not prescriptions or pharmacy-related services. For “big box” retailers such as Walmart or Costco, sales from prescription drugs make up a significantly smaller portion of total sales.

If the goal is simply to save existing retail pharmacy locations, then we need to address existing revenue sources for these businesses. For example, would customers (and insurers) consider paying more for prescriptions? Are there other goods and services, such as medication therapy management, that pharmacies could provide that customers (and insurers) would be willing to pay for? Additionally, what could influence more customers to choose to shop at “brick and mortar” pharmacies for other retail products instead of ordering the items from a convenient app on their smartphones?

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Several new policies in the U.S. are aimed at protecting retail pharmacies, with an even more narrow focus in many cases on independently owned pharmacies as opposed to chains. For example, the Federal Trade Commission recently published a report focusing on independent pharmacies while ignoring news that Walgreens announced the closing of approximately 1,200 locations and CVS (which owns a PBM) announced cutting 2,900 jobs earlier in October.

In any case, policies to alleviate the financial concerns for retail pharmacy businesses may be ignoring a major area of retail industry research: retail store churn.

A study published in Health Affairs evaluated U.S. pharmacy data from 2010 to 2021 found that the total number of community pharmacies operating in the U.S. increased from 59,902 to 64,530. Additionally, research has demonstrated retail pharmacy churn (many openings and closures). Yet most of the news stories written about retail pharmacies fail to mention that pharmacies are opening as well — including new independent pharmacies. We are currently exploring data on pharmacy openings to better understand what types of businesses are thriving in today’s environment. Additionally, some of the biggest net losses have occurred with pharmacy chains, not independent owners, who seem to open as fast as they close. Why are so many pharmacies opening in the U.S. if the environment is so bad for pharmacy owners?

Retail churn is a natural process and can often be beneficial to consumers as retailers attempt to adapt to changing preferences. Retail stores offering various goods and services seek to open up new locations and close old ones as potential customer traffic patterns shift. Additionally, some retail brands simply lose customer interest as preferences change over time (See: JCPenney, RadioShack, and Sears). Despite the growing concerns of a “retail apocalypse” in 2017, new demand for shopping center real estate has excited property owners with promise of a comeback for “brick and mortar” retail locations.

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Retail store churn may signal changes in customer preferences and offer new opportunities to young pharmacy entrepreneurs. Establishing policies that protect existing pharmacies could create an unfair environment for new businesses trying something different.

What complicates this issue is that while retail pharmacies open and close like other types of retailers, when a pharmacy closes there is evidence that patients may face worse health outcomes. While retail churn can be a positive sign in many businesses, when it comes to prescription services any disruption in care can be catastrophic.

As policymakers consider limiting the function of PBMs or reforming their practices altogether under the guise of saving retail pharmacies, we need to examine all of the current market pressures on retail pharmacies to better predict whether the PBM reforms proposed will actually achieve the stated goals. Enacting policy to subsidize and/or protect existing retail pharmacy locations could stabilize prescription and pharmacy services for millions of patients. But it would require careful evaluation of this market to determine when opening new locations and closing old locations are truly good for the business owners, the community, and the patients served. We need a way to formally evaluate the quality of pharmacy services — and reward the highest-performing pharmacies. Finally, we need to consider new revenue streams to help insulate pharmacies from the erratic price swings in brand and generic pharmaceuticals.

T. Joseph Mattingly, PharmD, M.B.A., Ph.D., is an associate professor and vice chair of research in the Department of Pharmacotherapy at The University of Utah College of Pharmacy. Kelly E. Anderson, Ph.D., M.P.P., is an assistant professor in the Department of Clinical Pharmacy at the University of Colorado Skaggs School of Pharmacy and Pharmaceutical Sciences.