Pharmacy Desert: Walgreens’ Closures Expose Crisis in American Healthcare
The iconic Walgreens pharmacy chain, once a symbol of American retail, is facing a stark reality: mass closures and a dwindling future. The company announced plans to shutter nearly 2,150 stores by 2027, a move driven by declining profits and a rapidly shifting healthcare landscape. This dramatic downsizing is not an isolated event; it’s a symptom of a broader crisis within the American pharmacy industry, one that raises serious concerns about access to healthcare and the future of community pharmacies.
Walgreens’ struggles are rooted in a two-pronged crisis. The first: its retail business is failing to keep up with rapidly changing consumer habits. "Walgreens of today looks very much the same as the Walgreens of yesterday," observes one analyst, noting the chain’s lack of innovation and competitive pricing in the face of giants like Amazon and Walmart, coupled with rising inflation and shoplifting concerns. The second: the pharmacy business is facing a squeeze from Pharmacy Benefit Managers (PBMs), powerful middlemen who control drug pricing and reimbursements. They "typically benefit when drug prices increase," creating a conflict of interest that leaves pharmacies struggling to stay afloat.
"The issue for pharmacies is PBMs have been shrinking the reimbursement rates and pushing patients towards generic brands over name brand," says one expert. This trend, coupled with the rise of telehealth services, has significantly reduced pharmacy profitability. Moreover, the three largest PBMs, CVS Caremark, Cigna’s Express Scripts, and Unitedhealth’s Optum RX, control almost 80% of US prescription drug spending, giving them immense power to dictate pricing.
The consequences of these trends go far beyond the bottom line. Pharmacy closures are creating "pharmacy deserts," areas with limited access to essential healthcare services, particularly impacting low-income and urban communities. "There are neighborhoods in the South Side of Chicago that do not have any pharmacies," says one researcher, highlighting the disproportionate impact of these closures on vulnerable populations.
While Walgreens and CVS both claim to be addressing the issue, their actions have yet to reflect this commitment. This has sparked action on the state and federal levels, with the Federal Trade Commission launching an antitrust suit against the three largest PBMs and states seeking to regulate their behavior. This move could alleviate pressure on pharmacies, but the long-term impact remains unclear.
The crisis in the pharmacy industry underscores the urgent need to address healthcare access and the role of PBMs in the market. The closing of familiar corner stores has far-reaching consequences, not only for patients struggling to access vital medications but also for pharmacists and the communities they serve. As this landscape shifts, the future of healthcare in America hangs in the balance, and the decisions made now will shape its future for years to come.
The American Pharmacy Crisis: Are Chain Stores Leaving Communities Behind?
In June 2024, pharmacy chain Walgreens made a shocking announcement: they plan to close a significant number of stores, with approximately 2150 locations on the chopping block by 2027. This comes as the company struggles with stagnant profits, a declining share price, and a rotating door of CEOs. This is just the latest sign of trouble for the entire American pharmacy industry, with CVS closing stores and Rite Aid filing for bankruptcy. This raises a critical question: what is the future of American pharmacies?
Key Takeaways
- Walgreens’ struggles are just the latest example of a declining industry. The American pharmacy landscape is shifting, with major chains struggling to compete against online retailers, falling reimbursement rates, and changing consumer habits.
- Competition from online retailers like Amazon and Walmart is squeezing pharmacies’ profits. These companies offer cheaper prices, faster delivery, and wider selections, leaving traditional pharmacies struggling to keep up.
- The growth of pharmacy benefit managers (PBMs) is putting pressure on pharmacies. PBMs negotiate drug prices, determine which medications are covered, and decide which pharmacies patients can use. This power has allowed them to reduce reimbursement rates to pharmacies, further hurting their bottom line.
- Pharmacy closures are creating "pharmacy deserts," areas with limited access to medication. This issue disproportionately affects low-income and minority communities, further exacerbating health disparities.
- Independent pharmacies could be the solution to the crisis. These businesses are better equipped to serve underserved communities and offer more personalized attention to patients.
The Front of the Store: Retail’s Decline
Walgreens’ retail segment, the part where you buy cough medicine, toiletries, and other items, is experiencing a significant downward slide. They face several challenges:
- Weak offerings: Walgreens’ front-of-store merchandise is often uninspired, lacking in variety and frequently priced higher than competitors like dollar stores and big box retailers.
- Shifting consumer habits: The rise of online shopping and delivery services like Amazon and Walmart has further eroded Walgreens’ retail position.
- Inflationary pressures: As the cost of living increases, consumers are forced to make difficult choices, often opting for less expensive alternatives.
- Increased theft: Shrinkage and theft have become major issues, leading to a decline in the customer experience as stores adopt security measures that can alienate paying customers.
"Locking things away behind cabinets is the biggest advertisement for Amazon that you could possibly make, because it just says to the customer, ‘This is a really hard place to shop,’" said an industry expert.
The Back of the Store: Pharmacy’s Uncertain Future
While Walgreens’ retail offerings struggle, the pharmacy, with its health services, remains the company’s largest income source.
Here’s what’s causing the pharmacy business to suffer:
- Telehealth services: The growth of telehealth services is leading patients to seek medical advice and prescriptions from their homes, reducing reliance on physical pharmacies.
- Lower reimbursement rates: The rise of pharmacy benefit managers (PBMs) has resulted in lower reimbursement rates for pharmacies, making it harder to stay profitable.
- Generic drug dominance: With 91% of prescriptions now for generic drugs, pharmacies are making less money on each prescription due to the lower profit margins.
Increased brand medication volume: The recent surge in demand for brand name medications like those used for diabetes has put increased pressure on pharmacies due to lower reimbursements for these medications.
"I think where the traditional PBM pricing model fell apart, and where there’s so much concern is that the entity is being paid to manage drug costs, but typically benefit when drug prices increase and it creates a misaligned incentive," an industry expert explained.
Pharmacy Deserts: A Growing Problem
Pharmacy closures disproportionately affect low-income and minority communities where access to medication is already limited, leading to the creation of "pharmacy deserts." This lack of access to essential medication can have devastating consequences for individuals and communities.
- The National Institutes of Health estimates that 15.8 million Americans live in pharmacy deserts.
- These areas lack adequate access to pharmacies due to geographical limitations, income disparities, and a lack of transportation options.
"If that is really a rightsizing, they would be closing in the neighborhoods that have the most pharmacies, not the neighborhoods, the counties, including rural areas that have fewer pharmacies on average," noted a critic of the closure plans.
The Rise of Independent Pharmacies: A Potential Solution
As chain pharmacies shrink their footprint, independent pharmacies are emerging as a potential solution to the crisis.
- Independent pharmacies are more nimble and adaptable to local needs.
- They often offer more personalized service and build stronger relationships with their communities.
- They are more likely to open in underserved areas where chain pharmacies are less likely to be present.
"It definitely creates a business opportunity for an entrepreneur to come in and start their independent pharmacy and service, that area that needs it," one expert stated.
The Future of American Pharmacy
The American pharmacy industry faces significant challenges as chain pharmacies struggle to adapt to changing consumer habits and financial pressures. However, the potential for independent pharmacies to fill the void and serve underserved communities offers a glimmer of hope.
"We share a deep commitment to offering equitable access to healthcare in the communities we serve," said Walgreens in a statement to CNBC. But for many communities, the question remains: will these changes benefit or burden the places they serve? Only time will tell if the industry will find a sustainable path forward and ensure equitable access to healthcare for all Americans.
