Why neighborhood pharmacies are closing in droves

CVS, Rite Aid, and Walgreens closures across the U.S.in recent years haven’t surprised industry experts, who anticipate more shutdowns as the industry adjusts and rightsizes itself.“We have been watching this car crash in slow motion for years,” George Hill, managing director and senior equity research analyst at Deutsche Bank, told FOX Business. CVS in 2021 announced plans to close 900 locations over three years, citing factors such as population shifts, consumer buying patterns, store density in communities, access to pharmacy services and future health needs.

Two years later, Rite Aid filed for bankruptcy and quickly initiated a store optimization plan that involved immediately closing 154 locations. This week, Walgreens became the latest to announce that it will shut down approximately 1,200 unprofitable stores over the next three years.For over a decade, Hill said the industry has noticed companies that manage prescription benefits – also known as pharmacy benefit managers, or PBMs – merge, ultimately giving them more buying power in the prescription drug market.Hill explained that there is a difference in power between those buying prescription drugs, like PBMs, and the pharmacies selling them. PBMs operate in a competitive market and need to save money for their clients, including insurers and employers, but to achieve these savings, “they to try squeeze branded drug manufacturers on price and they try to squeeze retail pharmacies on price,” Hill said, adding that this practice has been going on for a decade and “brought us to an uncomfortable place.” Given the lack of differentiation between CVS, Rite Aid and Walgreens, these companies are also “forced to take the price that is being offered by the payer… which has just led to a continued negative pricing cycle that has gone on again for well over a decade,” Hill continued. At the same time, the industry watched the continued growth and capacity building in the pharmacy space, ...