Between 2010 and 2019, the number of independent pharmacies increased. For independents, the net loss in the number of stores from 2016 to 2019 was -83 (-0.3%).
These four PBMs control nearly 80% of all prescription claims. The reimbursements for independent pharmacies are structured so that we lose money on nearly 70% of all prescriptions filled using these insurance plans. This is the main reason independent pharmacies are under threat of extinction. It is by design.
After decades of expansion, Rite Aid, CVS, and Walgreens have signaled plans to collectively shutter more than 1,500 stores. Public health experts have already seen the fallout, noting that the first neighborhoods to lose their pharmacies are often predominantly Black, Latinx, and low-income.
Independent pharmacies are being squeezed out of business by big chain pharmacies and pharmacy benefit managers (PBMs). A family-owned pharmacy closed after 40 years and transferred all patient records to Walgreens. This was a headline in the business section recently.
Now independent pharmacies see margins of 3% to 5%, if they survive the pandemic at all. Much of that decline comes from PBMs. Despite challenges, independent pharmacies can increase revenue by using technology and customer analytics to optimize relationships.
Originally designed as rebates for Medicare Part D patients, fees charged by PBMs to pharmacies have become a huge profit center for PBMs, and a major additional expense for independent pharmacies. In many cases, pharmacies will lose money dispensing a drug to a patient and not even know it until much later as the fees aren’t assessed at the point of service.
Why Independent Pharmacies Fail
Insurers also have ratcheted down what they will pay for prescription drugs. CVS, Walgreens, and Rite Aid all recently announced the closure of hundreds of pharmacies as they face slumping revenues. For pharmacies (particularly independent pharmacies), lockdowns sped up existing economic and financial pressures. The pandemic created opportunities for independent pharmacies to reach new markets. Get in touch to learn how we can transform your business today.
Profitability of Independent Pharmacies
Overall, independent pharmacy profit margins remain stable. In 2019, independent pharmacies’ overall gross margin from prescription and non-prescription products was 22.0%.
The independent pharmacy market is stable. The NCPA published that the number of independent pharmacies increased in the last year by 0.4 percent, stating that the “independent pharmacy category was essentially flat.”
Buying groups and wholesalers will help you get open and get your business. As the average established independent pharmacy generates about $4 million in gross revenues, there is ample cash flow after expenses to compensate the owner.
According to Drug Channels, the 2017 profit margin for independent pharmacies was 21.8 percent.
What can raise profits? Reduce overhead costs. Use smart pricing solutions driven by AI to keep customers happy and boost the bottom line. Data-driven insights provide accurate, profitable pricing that positions a pharmacy well against competition.