Latest research has found that in the eight months leading up to 2024, over 2,000 pharmacies have closed across the United States, with suburban areas being particularly hard-hit. Experts suggest that with industry adjustments and pharmacy optimizations, there may be even more closures in the future.
In recent years, major pharmacy chains like CVS, Rite Aid, and Walgreens have been shutting down outlets nationwide. This trend is attributed to industry headwinds, as well as shifts in pharmacy benefit management companies, changes in consumer retail habits, and the consequences of massive expansion by large pharmacy chains themselves.
George Hill, Managing Director at Deutsche Bank, told FOX Business, “We have been watching this car crash happen in slow motion for years.”
In 2021, CVS announced plans to close 900 stores over three years due to factors such as demographic shifts, changes in consumer purchasing patterns, community pharmacy density, pharmacy service convenience, and future health needs.
In 2023, Rite Aid filed for bankruptcy and swiftly initiated a store optimization plan, including the immediate closure of 154 locations.
In October 2024, Walgreens became the latest company to announce the closure of approximately 1,200 stores over the next three years.
Nick Fabrizio, a senior lecturer in health policy at Cornell University, stated in an interview with NBC that the reduction in pharmacy numbers could have serious consequences for patients, especially in rural or lower-income areas.
“For residents in relatively remote areas, the impending closure of your local Rite Aid can be a major inconvenience when thinking about driving at least 20 minutes to find a Walgreens or another pharmacy,” he said.
Dima Qato, a pharmacy expert at the University of Southern California (USC), remarked that the successive closures of pharmacies pose significant challenges to communities that rely heavily on these establishments. This situation has led to around a quarter of communities in the United States becoming “pharmacy deserts,” with the most affected groups potentially being African American, Hispanic, and other low-income neighborhoods.
Traditionally, pharmacies earned money primarily through dispensing medications. The continued growth and consolidation of pharmacy benefit management companies have fundamentally altered the business model of pharmacies.
In the United States, PBMs act as third-party administrators responsible for managing prescription drug insurance plans for commercial health insurance, employer-sponsored insurance plans, Medicare Part D plans, Federal Employee Health Benefits Program, and state government employee health benefit plans.
In 2023, the top three PBMs in the US processed nearly 80% of prescriptions, and they have also directed their business towards favored pharmacies (including those they own) and mail-order services.
The original intention of PBMs was to negotiate drug discounts with manufacturers to save funds for patients and insurance companies.
A researcher at the American Economic Liberties Project, Ben Jolley, noted in a report that now “PBMs control the entire industry, whether it be Walgreens or independent pharmacies.” For example, CVS owns the largest PBM, Caremark, in the US, while Walgreens collaborates with the third largest PBM company, Express Scripts.
Senior editor Helaine Olen of the American Economic Liberties Project highlighted on MSNBC that corporate mergers have somewhat alleviated the impact on large pharmacy chains, but the rising drug prices (often driven by PBMs) have prompted customers to shift towards lower-cost mail-order services. Simultaneously, PBMs have squeezed reimbursement rates to the extent that many independent pharmacies frequently operate at a loss when dispensing drugs, a fact well-recognized by the Federal Trade Commission.
Hill mentioned that over the past decade, the industry has observed PBMs continuously consolidating, ultimately giving them greater purchasing power in the prescription drug market.
He remarked that there exists a power differential between the party purchasing prescription drugs and the pharmacies selling them.
In order to operate in a fiercely competitive market and save on drug expenditure funds, PBM’s strategy involves pressuring drug manufacturers for discounts while bargaining on prices with retail pharmacies.
Hill stated that this practice has persisted for a decade, and CVS, Rite Aid, and Walgreens have also been “forced to accept the prices offered by payers… leading to over a decade of negative pricing cycles.”
He added that coupled with “certain mistakes in spending, cash flow, development, and construction, it spells trouble for CVS, Rite Aid, and Walgreens.”
Additionally, changing consumer habits have reduced other traditional revenue sources for pharmacies, such as sales of snacks, over-the-counter medications (like cough syrups), and personal hygiene essentials (such as shampoo and sanitary pads).
Previously, when consumers had a prescription from their doctor, they might have purchased other health and beauty products from the pharmacy simultaneously. Nowadays, Hill noted, an increasing number of customers are buying these products from Amazon and other retailers.
The model where customers picking up prescription medications could conveniently do their grocery shopping under insurance coverage used to work effectively in the past. However, many PBM companies now require patients to use mail-order services for subsequent medications or special prescriptions, meaning customers no longer visit pharmacies solely for prescriptions, let alone for shopping.
Hill estimated that there are approximately 60,000 retail pharmacies in the US, but he anticipates that the future might see that number reduced to around 35,000 to 40,000.
“I think stores need to take a hard look at what’s in their inventory… what’s profitable, and what’s meaningful,” he said.
Walgreens informed FOX Business that retail pharmacy operations remain central to their future business strategy, but increasing regulatory and reimbursement pressures are impacting their ability to cover costs related to rent, staff wages, and supply chain demand.
The company stated that they will strive to enhance store performance, and when closures occur, they will “work with community stakeholders to minimize disruption to customers” and reassign most team members to other locations.
Rite Aid has now emerged from bankruptcy proceedings. The company stated that the Chapter 11 filing was part of a restructuring effort aimed at “significantly reducing the company’s debt, improving financial flexibility, and enabling it to implement key initiatives.” The process will involve ongoing optimization of store layouts.
In response to FOX Business, CVS stated that they have been strategically closing stores – as announced three years ago – not as a reaction to industry pressures. While closing 900 stores, they have also opened 100 new ones.