In Frank Capra's heartwarming movie It's a Wonderful Life, Mr. Gower stands as the quintessential local pharmacist: The film portrays him as a kind-hearted man who is integral to the community and provides a personal service to his customers that is rare these days. He represents an era when independent pharmacies were not just businesses but cornerstones of small-town life, places where the pharmacist knew your name, your ailments, and your family.
It’s tempting for independent pharmacists to glance longingly through sepia-toned glasses at such a halcyon time; these days they complain that their businesses are being squeezed by competition from chain pharmacies and--most of all, in their telling--pressure from pharmacy benefit managers, which manage the drug formularies for unions, various governments, large employers, and healthcare plans to reduce their costs. They have lobbied Congress for laws that would constrain the ability of PBMs to negotiate lower prices or to encourage the direct delivery of drugs, which threatens to cut them out of the market entirely.
However, their perspective fails to account for the broader shifts that have transformed the pharmacy industry, greatly benefiting the vast majority of Americans--over 60 percent of all adults take a prescribed medication.
The real challenge for independent pharmacies is their need to rapidly adapt to a world where consumer expectations, technological advancements, and the very nature of competition have evolved dramatically from the days of Mr. Gower.
The rise of chain pharmacies occurred due to technological advancements, regulatory changes, and shifts in consumer behavior. Technological improvements enabled by the IT revolution allowed chains to manage inventory more efficiently and automate many aspects of the prescription filling process, thereby allowing them to serve more customers at lower costs. At the same time, a variety of regulatory changes came about that invariably favored larger entities capable of navigating complex healthcare laws and negotiating better terms with insurers and pharmaceutical companies.
Chain pharmacies capitalized on economies of scale, offering lower prices on both prescriptions and over-the-counter products, which helped them to develop a larger customer base. They also introduced conveniences such as extended hours, online refills, and--in many cases--nationwide networks that allowed customers to pick up prescriptions at any location, further cementing their appeal.
More recently, drugstore chains have expanded their role in healthcare by offering in-pharmacy clinics for vaccinations and minor health issues, leveraging their prime locations and operational efficiency to meet consumer demands for quick and accessible health services. This evolution mirrored broader trends across retail and consumer services that increasingly emphasized convenience, efficiency, and one-stop shopping experiences.
These developments gradually shifted consumer preferences away from the smaller, localized pharmacies towards the chains that could offer a wider range of services and products at competitive prices. As a result, from the 1980s through the year 2000, over 17,000 independent pharmacies closed.
However, the number of independent pharmacies has stabilized since 2000, and has actually risen in the last decade. These modern survivors are far from passive players in the healthcare sector. By banding together in the form of Pharmacy Services Administrative Organizations (PSAOs), they have strategically positioned themselves as potent entities aimed at standing up to both chain pharmacies and PBMs.
PBMs began as intermediaries tasked with managing prescription drug benefits to ensure that patients receive the best possible care at the most affordable prices. Through their negotiations with drug manufacturers and pharmacies, PBMs help keep medication costs down. They use their scale to secure discounts and rebates from drug manufacturers, which accrue to payers and patients.
In managing drug formularies PBMs also promote the use of generic and cost-effective medications, and they also facilitate mail-order delivery of life-saving medications, which vastly improves adherence to drug regimens and saves both time and money for patients.
However, the strategies employed by PBMs to reduce costs combined with intense competition from chain pharmacies have led to desperate measures for independent pharmacies. These smaller entities argue that the reimbursement rates set by PBMs often do not cover their costs of acquiring and dispensing medications, threatening their financial viability. While they long for a time of high (and unnecessary) guaranteed dispensing fees for Medicaid patients, effectively subsidized by taxpayers, states have largely handed off responsibility for Medicaid to private managed-care organizations that are under pressure to save money. A similar squeeze has taken place for Medicare Part D drug plans.
Instead of adopting their business model to this new market reality, independent pharmacies have largely resorted to lobbying local and national politicians to neutralize or eliminate PBMs. If they succeed in their efforts, it will primarily benefit themselves, not patients or taxpayers.
The legacy of such changes will not be a return to some halcyon era, as embodied by Gower’s Pharmacy. Rather, it will expose the inefficiencies of independent pharmacies that have failed to modernize and compete effectively in an industry that demands continual innovation and operational efficiency.
