MARTY SCHLADEN, Ohio Capital Journal — This far-flung town in southern Nebraska has an advantage its neighbors must envy.
Its favorite daughter, Willa Cather, was a literary giant of the early 20th century. Her legacy brings a steady stream of writers, artists and biology-and-birder types who split time between this small town (population 962) and the spring stopover of endangered sandhill cranes in the Platte River Valley to the north.
But step into Village Pharmacy just two doors down from the National Willa Cather Center on the main drag and you’ll learn that it’s struggling to stay in business just like small pharmacies in even more isolated towns scattered across the rolling green prairie. Those struggles threaten to make a pharmacy — and even a healthcare — desert of a huge portion of rural Nebraska, said the owner, Heather Ockinga, who is also a member of the Nebraska Rural Health Board.
Nebraska is hardly alone.
The number of small-chain and independent pharmacies had already been declining precipitously when Rite Aid announced late last month that it was closing hundreds of pharmacies in Ohio and Michigan — with more sure to come in the 14 other states where the bankrupt chain operates. Just after that announcement, retail giant Walgreens said it was planning to close 25% — or more than 2,000 — stores nationally.
As the companies look to close “underperforming” stores, there’s little doubt that many or most of them will be in poor or isolated communities.
The closures are the consequence of the squeeze put on pharmacies by middlemen that are part of massive and rapidly growing health conglomerates, Ockinga said. And community pharmacies like hers have been feeling that squeeze for years.
“I don’t think people paid attention to it,” Ockinga said. “A lot of pharmacies around the states have closed. But when people heard about Rite Aid and Walgreens, they realized that pharmacy is in trouble. Well we’ve been in trouble. Independent pharmacies have been closing for years because of insurance companies” that own the middlemen.
The dire news of closures comes against the backdrop of last week’s scathing interim report from the Federal Trade Commission. It found evidence suggesting that anticompetitive practices by pharmacy middlemen owned by giant healthcare conglomerates are driving pharmacies — especially in small towns — out of business.
The FTC report noted the harm that’s already been wrought.
“Between 2013 and 2022, about 10% of independent retail pharmacies in rural America closed,” it said. “Closures of local pharmacies affect not only small business owners and their employees, but also their patients. In some rural and medically underserved areas, local community pharmacies are the main healthcare option for Americans, who depend on them to get a flu shot, an EpiPen, or other lifesaving medicines.”
Serious harm
To those lucky enough to be healthy, it might not seem obvious. But especially in underserved areas, pharmacy plays a vital role in the healthcare system.
It’s the place where the frail and even the uninsured can go and easily talk to a healthcare professional. And it’s nearly pointless to have a health clinic in a place that doesn’t also have a place where people can get their medicine. The big health conglomerates tout their mail-order operations, but many patients and healthcare professionals say they’re a poor substitute.
In Red Cloud, Ockinga said that an independent pharmacy in the northern part of Webster County is owned by an aging pharmacist and is likely to close in the next few years. Many others are struggling with still lower reimbursements after Medicare this year tried to stop clawbacks by huge pharmacy middlemen and might also close, she said.
Ockinga added that if she’s forced to close her pharmacy in Red Cloud and another she owns 23 miles to the west in Franklin, patients in the area will have to drive at least an hour to get to a pharmacy. In the more-sparsely populated area to the west, the situation is even more precarious, Ockinga said.
“The whole western panhandle of Nebraska, pharmacies are few and far between, just because the towns are few and far between,” she said. “So if you close one, they rely on mail order, because there’s no other way they can get their meds.”
The threat isn’t merely academic. According to a survey released in February by the National Community Pharmacists Association, a third of community pharmacies said that the cash crunch Ockinga described might force them to close their doors this year.
Measuring the loss of pharmacies varies according to methodology. But Anne Cassity, senior vice president of the National Community Pharmacy Association, said the losses are dire.
“The numbers we have say that last year, 375 independents went out of business nationwide and close to 1,000 chain pharmacies,” Cassity said last week. “That was just last year. We’re losing an (independent) pharmacy a day and three chain pharmacies are closing. This year, based on what we’re seeing, we’re trending to see the exact same numbers.”
Those numbers are in the context of roughly 62,000 retail pharmacies in the United States as of 2022. And that number took a big hit in rapid-fire announcements late last month of the mass closures by Rite Aid and Walgreens.
“Every single day, from multiple pharmacies, I hear about reimbursements” from conglomerate-owned middlemen, Cassity said. Pharmacists say “‘I’m using my 401k, my personal savings just to keep this pharmacy afloat. Just to pay my staff.’”
Market forces
Independent pharmacies and small chains have been bleeding out over the last decade, and the announcements by Rite Aid and Walgreens showed the losses weren’t just because small players lacked the size to compete, said David Burke, a pharmacist and former state senator who is now executive director of the Ohio Pharmacists Association. He said the large chains’ mass closures show greater forces are at work.
“When you have a very mature operator like Walgreens openly saying ‘we have to close 25% of our stores because they are underperforming — i.e., not profitable — that is more than troubling,” Burke said last week. “Any conspiracy theory you had up to this point has got to shift to market dynamics. Rite Aid has been in decline for a period of time, maybe they had operational issues… You can’t say that about Walgreens and they’re not talking about closing a few stores. Twenty five percent of their operation. If Delta Airlines decided to cancel 25% of their flights, people would freak. If Kroger was going to close 25% of its grocery stores, people would freak. Choices go down, costs go up. We’ve seen that for a decade or two now.”
The Federal Trade Commission report offered some new glimpses of how consolidated the healthcare marketplace has become — with shadowy middlemen known as “pharmacy benefit managers” playing an increasingly central role in their operations.
The companies act as insurers’ representatives in pharmacy transactions. They decide which drugs are covered and to what extent. In exchange for putting medicines on lists known as “formularies,” they collect huge rebates and other fees from drugmakers.
Pharmacy benefit managers, or PBMs, also create pharmacy networks and determine — through a system that’s almost impossible to penetrate — how much to reimburse pharmacies for the drugs they dispense, the FTC report said.
At the same time, each of the biggest PBMs in some capacity competes with the pharmacies they’re deciding how much to pay. The biggest — CVS Caremark — is part of the company that operates the largest retail chain in the U.S. It and all of the others also operate mail-order pharmacies for “specialty” drugs, the most expensive class.
The conglomerates that own the biggest PBMs are increasingly “vertically integrated” in the healthcare space, meaning they each own major health insurers, while one — UnitedHealth’s Optum — owns the most doctors’ offices in the U.S., and they all have been expanding rapidly into new aspects of drug supply and other healthcare services.
Rapid expansion
The FTC and many others suspect the conglomerates of using their size and anticompetitive practices to crowd out competition, drive up prices and, ultimately, make Americans sicker by making it more difficult to access the medicines they need.
The three biggest PBMs — CVS Caremark, OptumRx and ExpressScripts — control nearly 80% of the insured prescriptions in the United States, and the six biggest PBMs control 94% of that marketplace, the FTC report said.
They are at the core of conglomerates that are gobbling up a rapidly increasing share of the nation’s vast annual healthcare spending.
The four biggest — CVS Health, UnitedHealth, Cigna/Express Scripts and Humana — received 14% of the healthcare dollars spent in the United States in 2016. That jumped to 22%, or more than a fifth of all healthcare spending, in 2023, the FTC report said.
In monetary terms, it was an increase from $456 billion a year to more than $1 trillion.
“It’s surprising, but it’s not surprising,” said Cassity of the National Community Pharmacists Association. “They control the ability to put other pharmacies out of business. Their pockets are growing fatter every year and on top of all that, drug costs are continuing to go up.”
The FTC reported another statistic strongly indicating that the big money on Wall Street favors this consolidation: Entities that were invested in at least three of the four conglomerates owned more than a third of the companies’ combined value. That’s a huge stake, given that three of the corporations are among the 15 biggest in the United States and Humana comes in at 38th.
Tough practices
At least since 2018, the big PBMs have responded to criticism by saying they used their heft in the marketplace to bring drugmakers to heel and save plan sponsors and patients money. Last week, a spokesman for an industry group, the Pharmaceutical Care Management Association, denied that PBMs were driving community pharmacies out of business.
“PBMs recognize the vital role pharmacies play in creating access to prescription drugs for patients,” PCMA Vice President Greg Lopes said in an email. “There are many factors for pharmacy closures, however pharmacy benefit managers are supporting community pharmacies in rural areas through programs that increase reimbursements. Blaming PBMs for pharmacy closures is not based on the facts.”
However, the FTC found several practices that might stifle competitors. Among them:
- Forcing pharmacies to sign gun-to-the-head contracts that give the pharmacies no idea how much they’ll be reimbursed — or if they’ll be able to cover their costs. “In effect, the PBMs often fail to commit in their contracts to any identifiable or readily ascertainable rate for generic reimbursements,” the report said.
- Setting seemingly arbitrary quality standards and charging fees for not meeting them. One PBM’s internal document said the fees “‘are primarily intended to provide competitive financial benefit to [PBM] clients,’” the FTC report said.
- Classifying ever more drugs as “specialty” and pressuring or requiring that patients get them from mail-order pharmacies affiliated with the PBM if they are to be covered by insurance.
- Negotiating rebates from manufacturers of branded drugs that discourage or deny coverage of cheaper generic alternatives.
“They just dominate the marketplace and control everything from top to bottom: what goes on the formularies, what patients can go to which pharmacies, and — and I think this does more than anything to explain these closures — they determine what their competitors get paid,” Cassity said.
The Federal Trade Commission’s investigation has turned up documents indicating that PBM executives are aware of their practices and that they worry how they might appear to the public.
The agency looked at two generic cancer drugs and determined that the PBMs reimburse their affiliated pharmacies far more than their competitors and often 20 to 40 times the prices on lists published by the U.S. Centers for Medicare and Medicaid Services.
The report quoted an executive of one of the PBM’s parent companies talking about the pricing of one of the drugs. The PBM was blatantly violating its preferred-network pricing promises, and the executive was concerned how it would look — especially since it was all but forcing patients into those networks.
“[Y]ou can get the drug [imatinib mesylate] at a non-preferred pharmacy (Costco) for $97, at Walgreens (preferred) for $9000, and at preferred home delivery for $19,200,” the executive said. The Centers for Medicare and Medicaid Services “expects that plans that offer preferred pharmacy constructs have lower pricing in the preferred channel. Compounding the challenge/optics is the fact that we’ve created plan designs to aggressively steer customers to home delivery where the drug cost is ~200 times higher. The optics are not good and must be addressed.”
Foot dragging
The FTC report is an interim update after the agency undertook a sweeping “6(b)” investigation of the pharmacy middlemen in 2022. As it has in the past, the antitrust watchdog again complained in the interim report that at least some of the PBMs aren’t forking over the information they’ve been ordered to.
“Although the FTC issued its Orders to the PBMs over two years ago, some of the PBM respondents have not yet fully complied; they have not yet completed their required submissions,” the report says. “The failure of certain respondents to timely produce data and documents has hindered the ability of the Commission to perform its statutory mission. FTC staff has demanded that the companies finalize their productions required by the Orders promptly and eagerly awaits promised productions. If, however, any of the companies fail to fully comply with the Orders or engage in further delay tactics, the FTC can take them to court to compel compliance.”
Even though the investigation hasn’t been completed, the agency seems determined to act. Last week, news broke that the FTC was planning to sue the big-three PBMs over practices concerning certain lifesaving drugs, such as insulin.
Burke, of the Ohio Pharmacists Association, said it’s nearing midnight for the nation’s network of retail pharmacies, and government at all levels needs to do more to protect it.
“Is this going to go the way of the Sears Auto Center?” he asked. “That’s what I’m concerned about because then we have an access issue… Can people get the medications they need? We’re not talking about people like you and me. I’m concerned about diabetics. People with breathing disorders who end up at the emergency room or in urgent care — very high-cost settings. You know as well as I do, they’re not closing the store in (affluent) Dublin, Ohio, they’re closing the store in (rural) Vinton County.”