Even before Tuesday’s (10/27/2015) announcement of Walgreen’s $17.2 billion acquisition of Rite Aid creating the largest of pharmacies in America, independent pharmacies were already one of the most endangered small business segments in the United States.
Background
Small independent pharmacies will face even more challenges from the clout the newly merged Walgreens and Rite Aid (13,000 stores) will have. (CVS, currently the largest chain with 7,800 units, will become No. 2). The independents are already being squeezed by pharmaceutical and insurance companies and the “pharmacy benefit managers” (PBMs).
PBMs negotiate deals with employers to run the part of their insurance plans that covers prescription drugs. The managers extract discounts from drugmakers on medications and also contract with independent pharmacies to fill prescriptions for the people served by PBMs. If an independent wants to be included in a PBM’s network, it has to agree to its terms.
In the past, PBMs reimbursed drugstores in line with market prices. However, in the last two years, generic drug prices have increased on average 40 percent. PBM reimbursements often don’t keep up.
According to this recent NPR story, independent pharmacies are being forced to lose money on certain drugs in order to hang onto their customers. Chain pharmacies like CVS and Walgreens also sometimes lose money filling generic prescriptions. However, they have more revenue and profit than the independents, as well as other business lines to cushion the blow.
Walgreen’s acquisition of Rite Aid, which will have to pass antitrust review, is another sign of increased consolidation in healthcare as the industry changes due to the Affordable Care Act and an aging population.