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Here’s How Rural Communities Are Losing Their Pharmacies

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Jayanth Deshmukh, medtigo Medical News December 5, 2021

Batson’s Drug Store appears to be a relic from a bygone era. In Howard, Kansas, an independently owned drugstore still has an old-fashioned soda counter and hand-dips ice cream. However, the drugstore, the only one in the entire county, teeters on the brink of extinction.

With the pandemic intensifying competition pressures from major retail chains that may operate at lower costs and pharmaceutical intermediaries that can apply high fees retroactively, Julia Perkins, the owner, worries how long her firm will be viable.

She is concerned about what would happen to her patients if she cannot keep the pharmacy open. Because Elk County, with a population of 2,500 people, lacks a hospital and only a few doctors, residents must travel more than an hour to Wichita for anything beyond primary care.

Corner pharmacies, which were previously common in large cities and small towns, rapidly disappear from many parts of the country, leaving an estimated 41 million Americans without direct access to pharmacies. According to an analysis by GoodRx, an online prescription price comparison service, 13% of Americans must drive more than 15 minutes to reach the nearest drugstore, or there aren’t enough pharmacies nearby to meet demand. Majorities of persons in more than 40% of counties fall into this category.

According to the University of Iowa’s Rural Policy Research Institute, 1,231 of the nation’s 7,624 independent rural pharmacies shuttered between 2003 and 2018, leaving 630 areas without an independent or chain retail drugstore.

Independent pharmacies are struggling because of the vertical integration of drugstore chains, insurance companies, and pharmaceutical benefit managers, which provides those firms market leverage that community drugstores lack.

According to pharmacists, insurers have also reduced the amount they would pay for prescription drugs, pushing profit margins to unsustainable levels. Independent pharmacies watched their clients leave as patients were directed to linked drugstores by insurers’ medication plans. They are at the mercy of pharmaceutical intermediaries, who use retroactive fines and aggressive audits to grab back pharmacy revenue, leaving local pharmacists unclear if they will end the year in the black.

Customers, particularly the elderly, are affected directly, with increased copays for prescription prescriptions if they have a drug plan and higher list costs if they don’t. If their neighborhood pharmacy fails, customers may be compelled to travel considerable distances to the nearest drugstore or wait for their prescriptions at understaffed pharmacies that are serving an increasing number of patients.

When Medicare’s Part D program, which uses private insurance plans, was implemented two decades ago, financial pressures on independent drugstores began to mount: frequent customers switched from paying cash for list prices to utilizing insurance coverage that paid lower negotiated rates. The profit margins of independent pharmacies have shrunk. The average cost of distributing a single prescription at a pharmacy ranges from $9 to $15, including labor, rent, utilities, and other overhead. However, the refund is frequently much less.

A pharmacy can endure that tiny slice of highly overpriced pharmaceuticals, notably generics. A drug plan might reimburse you for $4,000 for a $4 generic drug. Some pharmacies raise their list pricing to ensure that they receive the largest reimbursements from prescription plans. However, this raises prices for cash-paying patients.

Customers are also steered away from independent pharmacies and into an associated chain, mail-order, or specialty pharmacies with lower out-of-pocket prices by pharmacy benefit managers or PBMs. Some PBMs make it impossible for local pharmacies to sell the most expensive drugs at all.

Benefit administrators argue that today there are more independent pharmacies than there were ten years ago. From 2010 to 2019, the number of independently owned pharmacies increased by 13%, according to research performed on behalf of the Pharmaceutical Care Management Association, a trade body that represents pharmacy benefit managers. However, many of the new pharmacies opened in areas where there were previously pharmacies.

Those middle-manager companies are frequently cited by independent pharmacists as the root of their problems. Even if a pharmacy makes money on a prescription, there’s no assurance that they’ll be able to keep a large portion of the proceeds. Every time a pharmacy needs to interface with the PBM’s claims database, the PBM charges a fee. While transaction fees are typically 10 to 15 cents, a busy pharmacy may need to query the database hundreds of times per day.

PBMs have also established retroactive fees based on their own performance measures. Pharmacies may lose money on a prescription that was filled months ago. PBMs refer to them as quality measures, while pharmacists argue that they are more concerned with sales volume. Many indicators track how well patients take their prescriptions, which is difficult for pharmacies to monitor.

Only 1% of pharmacies are able to dodge retroactive payments, according to a PBM contract obtained by Axios. According to the Centers for Medicare and Medicaid Services, retroactive payments were 915 times more in 2019 than they were in 2010. As a result of the higher prices, Medicare recipients will burn through their first coverage term faster and will enter the “doughnut hole” sooner.

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