Who Moved My Prescription? Part V: The Many Layers of Pharmacy Crisis Point

Bill Roth

On June 27, 2024, Walgreens announced that it was reviewing 2,100 of its 8,600 pharmacies in the US for performance and likely closing of 700 to 800 pharmacies. CVS—which reported that it had 9,939 stores in 2021—has closed almost 700 since then. The company now has 9,273 stores, and plans to close another 300 in 2024. Rite Aid, in 2021, had 2,447 stores and now has 1,704, according to the organization's latest reports.

While independents are holding on at 19,400 stores, according to the National Community Pharmacy Association, as many as a third of them are either planning to close their pharmacies or converting to non-insurance cash-pay pharmacies and focusing on generics.

Drivers of pharmacy store closings

Several factors have contributed to the wave of pharmacy store closings across the US.

• Economic pressures. Reduced reimbursement rates from insurance companies—mixed with rising labor costs, store theft, rising cost of goods, and the high cost of maintaining a brick-and-mortar presence—have made it difficult for many pharmacies to stay afloat.
• Rise of cash pay and eCommerce. What’s bad for one may be good for another. Companies such as Amazon Pharmacy; Mark Cuban Cost Plus Drugs; Alto Pharmacy; Capsule; lifestyle pharmacies such as Hims, Hers, Roman, and Lemonaid; cash pharmacies including Blueberry and Eagle; and multi-model pharmacies such as OneroRx and others have come forward to disrupt the world of high-volume, low-cost generic brick-and-mortar pharmacy.
• Changes in consumer behavior. The rise of these new forms of pharmacies and prescription services have changed consumer behavior and reduced foot traffic to physical pharmacy stores. This shift has been accelerated by the COVID-19 pandemic, as more people turned to online options for their medication needs.
• Stuck between two bundles. Retail pharmacies have become very lazy over the last 20 years as they have outsourced their interactions with payers to pharmacy services administrative organizations and outsourced their sourcing of product to wholesalers. They are told not to pay attention to the losses on individual products and instead, focus on the all-in number. But that’s not working anymore. Otherwise, we wouldn’t be seeing these store closures.

Pharmacy deserts

In recent years, the phenomenon of “pharmacy deserts” has gained increasing attention. A pharmacy desert is an area where residents have limited access to pharmaceutical services and medications due to the absence of nearby pharmacies. This issue has been exacerbated by the closure of numerous pharmacy stores, particularly in rural and low-income urban areas.

The closure of pharmacy stores and the resulting pharmacy deserts have profound implications for public health and community well-being.

• Limited access to medications. Residents in pharmacy deserts often struggle to obtain necessary medications. This lack of access can lead to poor health outcomes, particularly for individuals with chronic conditions such as diabetes, hypertension, and asthma.
• Increased health disparities. Pharmacy deserts disproportionately affect low-income and minority communities, exacerbating existing health disparities. These populations are already at higher risk for certain health conditions and may have fewer resources to seek alternative sources of medication.
• Impact on healthcare costs. Limited access to pharmacies can lead to increased healthcare costs. When people cannot access their medications, they are more likely to experience complications that require emergency department visits or hospitalizations, placing additional strain on the healthcare system.
• Community health services. Pharmacies often provide essential health services beyond medication dispensing, such as immunizations, health screenings, and consultations. The loss of these services can leave significant gaps in community healthcare, particularly in areas with limited access to other healthcare providers.

Addressing the issue

While the problem of pharmacy deserts is already receiving attention in several states, it doesn’t appear that states can prop up a business model in decline, no matter how savvy it is or how involved policymakers, healthcare providers, and community organizations may get.

• Community-based solutions. Community organizations and local governments can play a crucial role in identifying and addressing pharmacy deserts. Initiatives such as mobile pharmacies, community health clinics, and partnerships with local businesses can help provide alternative sources of medication and healthcare services.
• Policy interventions. It may not be enough to shore up new forms of pharmacy for these geographies. Therefore, battle lines are drawing between brick-and-mortar and mail order/home delivery models. And recall that rural and low-income patients who are likely to be disproportionately affected may not practically be able to access these.
• Payers will solve this. Sorry, this isn’t real. It’s just the No. 1 response we hear from pharmaceutical manufacturers. It seems logical, but recall that these are the entities that have swelled national drug code blocks from 30 to more than 750 in the last 10 years, the ones that added direct and indirect remunerations to non-Medicare volume and even lowered rates for 2025. With that said, pharmacies believe they won something when National Average Drug Acquisition Cost (NADAC) was implemented for Medicaid, but it hasn’t been the silver bullet they were hoping for. It stemmed some losses but didn’t save pharmacy. From research that Blue Fin Group has conducted in the market in 2023 and 2024, payers are promoting to retailers that unprofitable prescriptions can be sent to the payers’ mail order businesses. So why would the payers solve it? Why not let retail implode and vertically stack the business back to mail order, which is exactly what the payers have been doing in specialty pharmacy with their business, especially in the areas of immunology, neurology, dermatology, and respiratory.

Polypharmacy

If you look up polypharmacy, the actual definition is a patient who’s on five or more medications. The way I’ve used the word throughout my career is a patient who has access to multiple pharmacies for their medications. It wouldn’t be hard to argue that our industry did this to itself with the rise of specialty pharmacy over the last 20 or so years. In the late 1990s, specialty products didn’t fit retail pharmacy. The products were too expensive, unit demand too little, and they came with costly education, prior authorization support, step edits, reauthorization, and very challenging patient economics. It took a new model of pharmacy to support this. I wonder if that’s what we’re seeing here now in the retail space.

The retail pharmacy market is essentially generics and top-100 brands, but everything else is splintering into direct-to-patient models or one-offs thinking that non-specialty products can be forced to work like specialty.

In a custom analysis, our firm Blue Fin Group has done of all the drug launches since the beginning of 2023, and the verdict at the moment is that despite all the attempts at digital pharmacy or any model that is an end-around to the pharmacy benefits manager model, none prove to be successful. But it is clear that we’re going the wrong direction. We are splintering care. We are creating an environment of mixed insurance and cash business. We are risking contra-indications and drug interactions, let alone adherence to therapies.

In summary, I wish I had better news to share. The reality is that retail pharmacy doesn’t know a way out of this situation. My personal assumption is that pharmacies will seek to improve their cost of goods sold by going direct when and where it makes sense. My firm sees the pharmacies trading data and inventory guarantees and becoming part of limited brick-and-mortar and home delivery networks that operate in concert with tech-enabled hubs. The hope is that these pharmacies would then return to profitability, solve for pharmacy deserts with their own mail order or home delivery models, and strike a balance of working with cash pay pharmacy models to find that new model.

Stay tuned for the next and final column in this six-part series where I wrap it all up for 2024 and set our sights on the hottest topic of 2025.

About the Author

Bill Roth is the SVP of IntegriChain’s consulting business, which includes Blue Fin Group, a strategy consulting company he started in 2001, and the IntegriChain advisory services business.