Reforming Markets to Strengthen Independent Pharmacies

Independent pharmacies in rural and urban areas serving lower-income, uninsured, or publicly insured populations are significantly more likely to close than their chain pharmacy counterparts.1 They are also more likely than chain pharmacies to serve Black and Hispanic neighborhoods and to be the only pharmacy serving a neighborhood.1 Therefore, closures of independent pharmacies exacerbate the problem of “pharmacy deserts” across the country and threaten access to medications and preventive services, including vaccinations, leading to worsening nonadherence and disparities in many vulnerable communities.1,2
On July 9, 2024, the Federal Trade Commission released an interim report of their investigation into increasing consolidation of pharmacy benefit managers (PBMs) and insurers, describing business practices that disadvantage independent pharmacies.3 Although pharmacy contracts associated with low prescription reimbursements are often cited as contributing to closures, few policy efforts have addressed underlying market-level factors. In this Viewpoint, we highlight key challenges and offer policy recommendations to strengthen independent pharmacies.

Challenges of Independent Pharmacies
Effective Market Positioning
Relative to chain pharmacies, independent pharmacies encounter not only structural disadvantages, including greater per-unit business costs (eg, higher administrative costs from less automation) and reliance on prescription revenue leading to narrow profit margins, but also disadvantages related to effectively positioning themselves in an evolving market landscape. Consider that when the Medicare Part D program was implemented by the Centers for Medicare & Medicaid Services (CMS) in 2006, many independent pharmacies had difficulty adapting to the program’s operational requirements and lower reimbursements, contributing to closures in the years immediately following4 and underscoring their sensitivity to market shifts. More recently, online pharmacies with direct-to-consumer models and mail-order services represent newer competition that chain pharmacies can more effectively compete with through their own comparable offerings. Ultimately, these competitors draw patients away from the more personalized and community-based services that distinguish independent pharmacies.

READ MORE