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lite.cnn.com - on gopher - inofficial
ARTICLE VIEW:
Why your drug store is closing
By Nathaniel Meyersohn, CNN
Updated:
5:00 AM EDT, Wed October 16, 2024
Source: CNN
CVS is closing 900 stores. Rite-Aid is closing 500. Walgreens announced
Tuesday it plans to close 1,200 stores, meaning 1 in 7 will disappear.
What is going on with America’s drug stores?
Walgreens and other chains overexpanded during the 1990s and 2000s to
drive out competitors and draw more customers. They are now shutting
down because of shifting consumer habits, competition and changes in
the pharmacy industry.
Around 25% of Walgreens’ stores aren’t profitable, CEO Tim
Wentworth said in an with the Wall Street Journal in June, and the
chain will look to close stores that are right by one another or
struggling to hold down theft.
Walgreens and other retailers say they have been hit by shoplifting
since the pandemic, and resorted to locking up items or closing
high-theft stores. But shoplifting alone doesn’t explain Walgreens’
problems, and the company subsequently admitted last year it “cried
too much” over the impact of the would-be scourge. Meanwhile,
increased competition and failed growth strategies, like acquiring
primary care providers, continue to have reverberating impacts on
drug stores.
“We are at a point where the current pharmacy model is not
sustainable,” Wentworth said in June.
CVS, the largest US chain, closed 244 stores between 2018 and 2020. In
2021, it announced plans to close an additional 900 stores. Earlier
this month, CVS said it planned to cut about corporate jobs.
And Rite Aid filed for bankruptcy last year, closing up to 500 stores.
Shifting trends
Drug store chains are struggling because of lower reimbursement rates
for prescription drugs, according to analysts who cover the industry.
The majority of drugstores’ sales comes from filling prescriptions.
But their profits from that business have dropped in recent years as
reimbursement rates for prescription drugs fall while fees rise.
The prices customers pay for drugs and the payments pharmacies receive
are largely determined by companies known as pharmacy benefit
managers, or PBMs, which negotiate rebates from drug manufacturers to
insurers. PBMs have been cutting reimbursement rates to boost their own
profits, Elizabeth Anderson, an analyst at Evercore IRI, previously
told CNN.
The pharmacy industry has that PBMs have too much control and can
squeeze pharmacies. PBMs that they help keep drug prices down by
negotiating with drug makers.
“If reimbursement rates start to come down and drug stores can’t
offset it with other growth, then it has a negative impact on their
profitability,” Anderson said.
At the same time, the rest of the store is struggling.
The front end of drug stores, which sells snacks and household staples,
have become less profitable as shoppers buy more of these items online
from Amazon and at big-box chains such as Walmart and Costco. Both have
grown in recent years. Dollar General’s in rural areas.
“The front end is suffering like other retailers,” Anderson said.
To try to draw customers, Walgreens, CVS and other drug stores have
moved into primary care, adding doctors’ offices to hundreds of
stores. For example, Walgreens took a $5.2 billion stake in VillageMD,
a primary care network, in 2021.
But VIllageMD has not been profitable for Walgreens, and Walgreens has
tried to cut costs. The chain has been closing VillageMD locations and
said over the summer it will divest from the company.
Helping the company, hurting the consumer
Walgreens’ coming closures might help the company’s bottom line,
but are likely to hurt access to health care.
When pharmacies close, some patients have to travel farther to get the
medications they need. Researchers find pharmacy closures lead to
health risks such as .
The loss of a retail pharmacy can leave a void, especially for
lower-income households.
Roughly one out of every eight pharmacies closed between 2009 and 2015,
which disproportionately affected independent pharmacies and low-income
neighborhoods, according to a published in the Journal of the
American Medical Association.
The study found that pharmacies at greatest risk for closures are those
with a large customer base on public insurance, which have lower
reimbursement rates than private plans, as well as independent
pharmacies.
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