Are we seeing the end of the ‘mom and pop’ drugstore?

Are we seeing the end of the ‘mom and pop’ drugstore?
February 13
00:00 2020

It’s a fact that in an ever-changing economy, industries come and go, a bi-product of a free market capitalist system. Remember Kodak? As technology changed, so did consumer habits and the once powerful film giant went the way of the dinosaurs. Progress! The same holds true for competition. If one business can do it better, or at less cost, that can shut down an industry. 

What is NOT normal economics, however, is when one competitor can control another competitor’s prices, and even that competitor’s access to their customers. This is what’s happening in retail pharmacy right now. Given Congress’s unwillingness to address the issue, we are likely witnessing the end of the independent “mom and pop” drugstores. 

In Forsyth County alone, three pharmacies have closed: Medicap on Robinhood Road, Medicap on Liberty Street, and Gateway Pharmacy in Kernersville. Why are independent pharmacies being forced to close? 

It’s complicated, but here goes: Let’s start with prescription insurance companies, who many years ago needed help processing electronic claims from community pharmacies. Electronic claims were a big deal back then, and making sure they were dealt with quickly and accurately was important. They began using “middle-men” known as pharmacy benefit managers (PBMs) to process the claims. 

But over the years, PBMs have morphed into huge businesses. PBMs now decide which drugs are covered by insurance companies and to what extent they’re covered. They’ve developed a rebate mechanism from drug manufacturers so that the costs of drugs are decreased. But instead of savings going back to the patients, many times it goes into the PBM’s bottom line. At the same time, PBMs force community pharmacies into accepting contracts that, more often than not, result in the pharmacy taking a loss on prescriptions filled. In 2019, Marley Drug, a local independent pharmacy, dispensed 4,500 prescriptions at a loss of $19,182. 

Then there are the “direct and indirect remuneration” (DIR) fees that are assessed to pharmacies. DIR fees encompass many different types of fees, but many of them are almost impossible to predict ahead of time. Imagine you rent an apartment and sign a contract for a monthly rental fee. The small print says something about “other incidental fees,” but in order to live there you sign the contract anyway. For six months you’re renting this apartment, staying within budget, thinking all is well, then suddenly your landlord hands you a bill for $1,000 for carpet wear or window cleaning. How do you budget for that when the fees you’re being charged aren’t detailed up front? That’s the kind of thing pharmacies face with DIR fees. They aren’t assessed at the time the sale is made, so pharmacies can’t know whether they’re ultimately going to break even, make a small profit, or lose money. It all happens months later, making business planning difficult or impossible. 

Maybe you’re wondering why independent pharmacies are more impacted by this than large, chain pharmacies. It’s happening because many of the larger chain pharmacies own their own PBM; for example, CVS/Caremark. So when the PBM makes a big profit, the whole company benefits. It makes it really easy to squeeze out the competition (independents and small chains) when your own pharmacy benefits from the profits made by the PBM you own. 

The United States Senate held a hearing in April 2019 to investigate tactics used by PBMs. Recommendations were made to make pricing more transparent to the consumer. But new rules have not yet taken effect, so PBMs still use rebates and fees without clearly improving consumer cost. Here’s a quote from the hearing: 

“PBMs were originally created to control the cost of prescription drugs. If that ever was happening, it’s not happening anymore,” Hoey said. “We have no doubt that these large corporations and the outrageous fees they charge are driving higher prescription drug costs and killing small-business pharmacies.” 

So right now we continue down the path of gradually losing one independent pharmacy after another. Will it end before all we have left are large chain pharmacies that own their own PBM? Maybe, maybe not. The more independent pharmacies we lose, the fewer choices we have. 

Your choice of pharmacy is an important part of your medical care. If you’re lucky enough to still have a local, independent pharmacy in your community, do business with them. Develop a relationship with a pharmacist who you can trust to provide personal attention to your overall healthcare.

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