Healthy Skepticism of Pharmacy Giants is Spreading

Stacy Mitchell:

Allowing CVS and the other PBMs to kill off independent pharmacies was in fact killing off the most effective part of the pharmacy industry.

Reggie Rucker:

Hello, and welcome back to another episode of Building Local Power. I am your co-host Reggie Rucker here with my fabulous co-host Luke Gannon. What’s up, Luke?

Luke Gannon:

Hey, Reggie. Thanks. I’m doing well. Right before I hopped on this call, my cat dragged in a live bird. I’m like, oh, he’s doing more frequently. It’s terrible, but I’m getting over that now. How are you?

Reggie Rucker:

I’m doing well. My cat, on the other hand, is just a sneezer, constant sneezing, and so that’s what I have to deal with. Snot all over the walls. And actually this is going to be the worst segue, but kind of, can you get drugs for a cat at a pharmacy? Is that a thing? Whether you can or not, we’re finishing up this final episode of the summer season of Building Local Power where we dust off some old episodes from the archives and freshen it up with the latest insights from our team here at ILSR.

Luke Gannon:

In 2020, we aired an episode called Independent Pharmacies Are On The Frontlines of COVID-19 Care, where we looked at the level of care between independent pharmacies and chain pharmacies, and found that independent pharmacies far outperformed chains. However, the federal response to the pandemic pushed people towards chains instead of these independent pharmacies.

Reggie Rucker:

Right. So here we are four years later and we’re now seeing these very same chain pharmacies shutter their doors, leaving communities with no pharmacy at all. Now today we are blessed as always to have our co-director, Stacy Mitchell, and have her talk about what’s the latest with pharmacies and how things have changed in this space over the last four years and why it matters. So welcome to the show, Stacy.

Stacy Mitchell:

Always nice to be here chatting with you two. Thank you.

Reggie Rucker:

Awesome. Do you have a cat by any chance?

Stacy Mitchell:

No, but I long for a cat and I’m ante to a bunch of cats, so I think it’s official that we might all be cat ladies. I’ll let you into that designation, Reggie. Honorary cat lady for this…

Reggie Rucker:

I may send you ours.

Stacy Mitchell:

If the sneezing continues.

Reggie Rucker:

So Stacy, at a high level, can you paint a picture of just what the pharmaceutical industry looks like in the U.S. today?

Stacy Mitchell:

We’ve had a lot of growth of chain pharmacies over the last couple of decades, and independent pharmacies have lost ground. We’ve seen quite a number of closures, and in that shift we have also seen the rise of pharmacy deserts. Many people have heard of food deserts, places that lack grocery stores. We now have pharmacy deserts, places where you have to drive a long distance or travel a long distance in order to reach a pharmacy, basic everyday service that people often need quite urgently that is just unavailable in communities.

The other thing we’ve seen is the rise of mail order. So some of the big companies in the space operate their own mail order operations and have been trying to steer more and more people to use mail order, but there are a lot of problems with mail order and it doesn’t really address the needs of many communities. And so in general, where we are with pharmacy is it’s becoming an increasingly bleak landscape in terms of actually serving the needs of people and places.

Luke Gannon:

So speaking of this bleak landscape, I want to understand what’s been happening with all of these chain pharmacies shuttering. So I’ve been seeing headline after headline documenting these chain pharmacies, including Walgreens closing a huge… I think it was almost 25% of its 8,600 locations. And then in 2021, CVS planned to close 900 stores. So Stacy, can you walk us through the rise and the impact of these chain pharmacies, their toll on independent pharmacies, and now the sudden decline?

Stacy Mitchell:

Yeah, so the chains, I mean, what we’re seeing is classic predatory or monopoly behavior. So we’ve got a handful of chains who employed a number of tactics to corner the market. We’ve got CVS. We’ve got Walgreens. And what they did is that in some cases they acquired other pharmacy chains, but they also grew enormously. They opened lots of locations, and it was not uncommon to see a Walgreens open on one corner and a CVS open on the other.

And then two blocks later, there’s another Walgreens. I mean, we’ve all noticed this in our communities and that saturation strategy, it’s like a sort of land grab. You are trying to grab market share by just using the brunt force of your financial arm and your ability to take over real estate. And so it’s something that we see as a predatory strategy from a lot of big chains.

At the same time, what we also saw is that these companies that are called pharmacy benefit managers and the acronym is PBMs, CVS, in addition to being a retail pharmacy, in addition to owning one of the largest health insurers in the country, in addition to operating clinics in some places also owns one of the largest PBMs. And what a PBM is, is it’s an entity that on behalf of your insurance company, they contract with insurers to then decide which drugs are available to you under your insurance plan.

And when you go to get one of those drugs, how much that pharmacy gets reimbursed. So that’s what they do. And they arose many decades ago for a useful market purpose, but over time they have evolved and then been acquired into these big vertically integrated companies like CVS, and they have become these very bad actors. So CVS uses its PBM the way to knock competing independent pharmacies out of the market.

So what CVS and other PBMs have been doing is giving very low reimbursement rates to independent pharmacies, often below what they actually pay for the drug. And they’ve been imposing all of these different terms. They have certain fees that they claw back after the fact. So you’re an independent pharmacy. You go through the month. You dispense your drugs.

You get reimbursed. And then two months later, you get a thing from the PBM that says, “Oh, by the way, you owe us these fees,” and now you’re losing money. All of these underhanded tactics. And they in various ways then not only try to elbow aside their competitors, but then to steer people to using their pharmacies. So in the case of CVS, it’s retail pharmacies.

But all of the big PBMs, and there are three that dominate the market, they all own mail order. So one of the reasons that mail order has been growing is that the PBMs have been like, “Oh, if you want a 90 day supply, you got to go to mail order. If you want this particular drug, you got to go to mail order.

And here’s our mail order that we want you to use,” even though consumer surveys show that people don’t like mail order, they have problems with refrigerated drugs not being kept at temperature, they have late deliveries, and suddenly this needed medication isn’t there when you need it. I mean, it just doesn’t work very well. So to get back to your question about why are we now seeing all of these closures, it’s because these tactics have worked.

And we now have CVS and Walgreens and others dominating the market and having knocked out the independents, having created sparse access for a lot of people, and now they’re just like, okay, we’re going to close up those stores because we don’t actually have to be here anymore because competitor is gone. And we can just make people go to mail order or use the one location that’s left miles away from their house. All of this is a result of policy choices.

Luke Gannon:

In this 2020 episode, we talked about the federal government’s response to the COVID-19 pandemic, specifically pushing people towards these chain pharmacies. But now we’re seeing a sea change in the federal government’s response. Can you talk a little bit about that? What has it looked like?

Stacy Mitchell:

Yeah, so for a long time, the federal government, especially the Federal Trade Commission, which is in charge of enforcing our antitrust laws, had looked at PBMs and said, “Oh no, these guys are fine. They’re saving people money. It’s no problem.” We now know they’re not saving people money. They’re actually a key factor in driving up the price of drugs in addition to all of the other nefarious things that we’ve been talking about. So the FTC finally recognizes that.

But to just go back to the moment of the pandemic, because you’re right, this played a very crucial role in opening people’s eyes to why this stuff matters and what’s really going on. As people will remember when the vaccine came out, there was this big question of how do we get this out to people? We got to get this in millions of arms. How do we do that? And so state governments turned to pharmacies. You’re going to vaccinate people.

And most states and the federal government entered into agreements with the chain pharmacies to vaccinate people, but there were two states that didn’t, North Dakota and West Virginia. North Dakota actually doesn’t really have any chain pharmacies because they have a law outlawing them, which is an interesting thing, and we’ve studied extensively. So they have a lot of independent pharmacies.

And then West Virginia by a product of history and geography also has a lot of independent pharmacies left and not many chains. And so both of those states knew about independence and had a relationship and said, “We’re going to work with independents to do the vaccine rollout.” And what was really striking is that those two states were miles ahead of everybody else.

The independent pharmacies got the vaccines out. You may recall the first round was with people in assisted living and other care facilities, and they got their vaccines for those populations done very quickly. And meanwhile, in states that were relying on CVS or the other chains, there were delays. There were problems. It never really happened. And this was a wake-up call.

This was a moment when this was being reported on a lot because everyone’s just eager to get this vaccine out there and people are watching this going, well, what’s going on? We thought CVS was… We thought they were great. They were really competitive because they’re winning the competition. And in fact, here it is, these little drug stores in West Virginia that are actually doing a better job at this.

The vaccine rollout was a big wake-up call and people started really looking at what was going on in this industry and realizing that allowing CVS and the other PBMs to kill off independent pharmacies was in fact killing off the most effective part of the pharmacy industry. As it turns out, independent pharmacies, according to consumer reports and other studies, have lower prices than the chains.

They do much faster dispensing. They’re more likely to have a drug in stock. They spend more time talking with people about their healthcare issues. They do more free testing of various conditions. They are just demonstrably better healthcare providers. And so the idea that we’re allowing these monopolistic corporations to illegally and unfairly knock them out of the market just makes no good sense.

And the vaccine rollout was a moment when we started to see more policy makers waking up to that. Biden administration came in and we had new enforcers at the Federal Trade Commission who understood that we needed to dust off our antitrust laws and really look at the problem of monopoly. One of the things we saw was the FTC zeroing in on PBMs.

And so just a few weeks ago, they released a major study when they looked at PBMs, and it documents a lot of the kinds of abuses that we’ve been talking about and adds even more evidence showing both that PBMs are ripping off consumers and raising drug prices, that they’re profiting in illegal ways from abusive tactics, and that they’re deliberately undermining independent pharmacies and competition and steering customers to their own pharmacies.

In addition to that, we know from reporting that the FTC is likely to bring an antitrust lawsuit against one or more hopefully in the coming weeks.

Luke Gannon:

I’m just interested in contextualizing the report and the possible lawsuit that the FTC might bring. Just at the start of this conversation, we talked about all these stores closing down. With this lawsuit, how might this change the landscape?

Stacy Mitchell:

I think it’s important to say we don’t know what the lawsuit exactly is going to be about. And PBMs, they’ve got a lot of bad behavior going on. And so we don’t know if the FTC is going to have a narrow suit that goes after one type of bad behavior. For example, we know that they get kickbacks from drug makers. So drug makers will be like, “Hey, I want you to feature on your list of drugs my expensive treatment for X. We want you to not have the inexpensive generic. We want you to just feature our drug.”

And PBMs are like, “Yeah, sure. Give me some cash for that.” And so they’ve been these kickbacks that are just really bad. And so it’s possible the FTC… That’s illegal. It’s what’s known as commercial bribery. And so we may see a lawsuit that just goes after that and it’s a bad practice that should be stopped. It could be a broader lawsuit that goes after some of these kinds of tactics that are really hurting the independent. Hoping that they’ll be able to take on a lot of different things in this case and that they do bring it.

If that happens and the FTC really goes after that and wins that case and they succeed in proving it, there are a number of things. I mean, we could potentially see a breakup of these big vertically integrated healthcare companies, which I think would be great. We now have these companies that are like… As I said, CVS is a major insurer. They’re a PBM. They’re a retail pharmacy and a bunch of other things. It doesn’t make any sense to have all that rolled up.

According to the FTC’s figures, the four largest PBMs are all part of vertically integrated health companies that together have revenue of over a trillion dollars, just four companies, and they account for nearly a quarter of all healthcare spending in the US. So just enormously powerful. So we could see a breakup. If this lawsuit is able to stop some of these bad practices through a breakup or through another outcome of the case, what would be really great and I think we would begin to see is a rebirth of independent pharmacies.

Pharmacists coming out of pharmacy school, they don’t want to go work for CVS or Walgreens. They’re terrible places to work. We’ve all seen that reporting about how bad it is. Many of them would love to start their own pharmacy. And so if we level the playing field, these are people who are going to go out and say, “I’d love to open a pharmacy in my old neighborhood on the South Side of Chicago where there are no pharmacies or in Down East Maine where there are very few pharmacies because that’s where I’m from. I love that community and I want to be a pharmacist there.”

It would be an amazing thing to allow people to succeed because we know that these independent pharmacies are very competitive. They’re actually better at what they do than the chains. And it’s just a matter of getting policy right and not allowing monopolies to own the market.

Reggie Rucker:

The last question we want to ask here is just have you reflect back on 2020 when COVID happened. We’re pushing everybody to go to CVS or Walgreens to get their test or whatever the case may be. And now four years later, we have some lessons learned from the states without the big chain pharmacies. We have some examples of how antitrust policy and enforcement can really be vibrant and make a difference.

So as you think about what’s happened and what’s transpired over the last four years, what does that say to you about how we go about making change, building local power, and fighting corporate control? What does this tell you about that, how we make change happen in this space and in the economies and the communities we care about?

Stacy Mitchell:

There are two big things that I think were so crucial to making the shift on this issue. One is the work of and the speaking out by independent pharmacies. Small business owners don’t necessary… They’re busy. They don’t necessarily want to try to put their neck out there on a policy issue. But independent pharmacies across the country have really organized and spoken out and written op eds and invited lawmakers to come talk with them. And they have been working on this issue for years and years and years to really raise awareness.

There’s also been a lot of organizing and outspoken work by patient advocacy groups who’ve really been screwed. And then I think the other thing that’s been important is the research work and the reporting that’s been done. Because obviously, I mean PBMs, who’s ever heard of PBMs? We’re really obviously in the weeds of how reimbursement, health insurance, all this stuff works. They’re kind of the worst monopolies that you’ve never heard of.

And so what we’ve seen over the last number of years is a lot of reporting to really bring these things to light. I think overall, the lesson here is that takes work to turn the ship around on policy, especially when you’re going up against corporations that… CVS has got a lot of money and they’re a lot lobbying like crazy. But when people speak out and keep going and keep organizing and get those stories out there, it really makes a difference.

Reggie Rucker:

Well, thank you so much for this Stacy. This was a fantastic way to end the summer season and always appreciate hearing from you on… We get you on the Robinson-Patman Act. We get you on the PBMs. You do the really the dirty work of helping people understand. So yeah, thank you, Stacy.

Stacy Mitchell:

I don’t know, PBMs are fascinating. I’m going to…

Reggie Rucker:

They are.

Luke Gannon:

For the second half of this show, we are taking you to an episode from our archive called Independent Pharmacies Are On The Frontlines of COVID-19 Care. We hope you enjoy.

Zach Freed:

This is Zach Fried from the Institute for Local Self-Reliance. And on the podcast today, I have guest Jim Hrncir of Las Colinas Pharmacy in Texas. Jim, thank you for joining us today.

Jim Hrncir:

Glad to help. How are you today?

Zach Freed:

Doing well. We’re just working from home and only leaving to go to the grocery store and take walks and stuff like that. How about yourself?

Jim Hrncir:

Doing the same. We’ve gotten more and more responsible as we’ve gotten farther into this. And with 30 employees, that’s even a greater challenge than it might normally seem. Because as an essential service, we’re on the front lines every day here.

Zach Freed:

So tell me about your pharmacy. What led you to get into this business?

Jim Hrncir:

Way back and when I was a kid in West Texas growing up, there were a couple of pharmacists that I really admired. I thought that they really seemed to be somebody that I could emulate. And so I went to college, got into pharmacy school and had the idea that I wanted to have my own pharmacy. And within a few years, I had the opportunity and did so. So in 1984, we opened Las Colinas Pharmacy, brand new business from scratch.

Zach Freed:

How are independents like yours better able to serve communities in a pandemic situation like this?

Jim Hrncir:

This is an unseen territory. We’ve never experienced this before. I’m 64 years old and I’ve never come across anything like this before. And so it’s been quite a challenge for us. Luckily, we started doing hand sanitizer the very first day because hand sanitizer was immediately unavailable. Gosh, I bet I’ve made 20 or 30 gallons of hand sanitizer. If I had more alcohol, I would make a lot more. Kind of cool in that as a small pharmacy, we’re able to be nimble.

We’ve been able to use innovation to try to help our community and our patients, because our patients depend on us. So we have really a tight relationship with our patients. Being an independent pharmacy, all our patients know our names. It’s like going into the bar at Cheers. Everybody knows your name. So it’s a great way to practice. It’s a great way to impact lives and health.

Zach Freed:

Some of the federal response that we’ve seen so far has involved steering patients to chain pharmacies like CVS. How do you think the federal and also the state response to COVID-19 has taken into account independents like your pharmacy?

Jim Hrncir:

I think they’ve been overlooking us. I mean, we’re an incredible resource. Matter of fact, pharmacists are the most accessible healthcare professional out there, and that’s proven in study after study. So we’re on the front lines. We’re ready to talk to people. And independent pharmacies have always had a reputation for taking the time to do that.

We have 30 employees here are ready to help. And I don’t have to have 30 employees, but I can’t stand not taking good care of my patients. And most of the independents that I know have a greater employee base than do our chain counterparts. I mean, they’re trying to satisfy stockholders.

That doesn’t mean the pharmacists and the technicians at chains aren’t good folks, but they’ve got higher ups that are looking to maximize the dollars, which means minimize care to patients. We don’t do that. We talk the talk and then we walk the walk with our patients taking care of them.

Zach Freed:

So one of the things that we study at the Institute for Local Self-Reliance is the power of pharmacy benefit managers and how these middlemen have taken advantage of policy changes and antitrust and their position in the supply chain to squeeze independent pharmacies. Has your pharmacy encountered any issues like that? And can you speak to PBM power as a specialty pharmacy in a compounding pharmacy?

Jim Hrncir:

Interesting. There were a few bad actors back in… There were some compounds that had a high degree of remuneration. I mean, gosh, there were 12 to $15,000 a compound. And most ethical compounders did not get into that business, but there were some unethical businessmen who bought pharmacies and got into that business. And basically the PBMs finally caught on, the insurance companies finally caught on that these guys were unethical.

And instead of just we’re not going to pay for those unethical compounds, they said, “We’re not going to pay for any compounds.” And that then, matter of fact, they went to pharmacies like mine that do half compounds, half traditional prescriptions, so we have a foot in both areas of care. And they said, “We’re not going to even let you have a contract with our PBM.”

They canceled our contract in spite of the fact that we weren’t one of those unethical guys. And I had doctors in this area who are the heads of the largest groups in North Texas write them letters and say, “We actually have to have this pharmacy in the network because they provide much better care. They save patients’ lives every day, and we have to have them.”

And they wouldn’t even return their calls. I mean, wouldn’t even return their letters. And so yes, the PBMs have, unfortunately, they’re all about the dollar. They’re making tremendous profits. And what are they providing for the patient? I mean, nothing. There’s no value to what they’re doing. Their original intent was a good idea. It was to provide some co-pays and assistance.

It was to provide looking at maybe the best choices in formulary for patients, the most productive for the healthcare system. But what they got into was maximizing profits. When you maximize profits, I don’t know about you, but I’ve never seen a business where greed made a business make better decisions. Have you?

Zach Freed:

Yeah, exactly. No. So final question. We’ve seen tremendous amount of losses in the number of independent pharmacies in the United States over the last decade or so. What do you think the landscape looks like for independents like yours after this crisis?

Jim Hrncir:

My biggest fear, and I’ve talked to some of the top economists in the country, because I was really concerned early on in this thing. I thought, you know what? If they start doing all this distancing and people staying home and all that, then small business, which makes up over 90% of businesses in America, I think it’s, what, 95% as I understand, just think about all these small businesses.

45% of the GDP in the country. So if all these small businesses have one to two weeks reserves, cash stores, if they run out of those, what’s going to happen? They’re going to close. This COVID-19 act may help a little bit, but I’m worried about the landscape as being look at all these small businesses who employ a lot of people in this country. What if they close? Even if the bailout money doesn’t save them, what’s going to happen?

Then that means the disposable income, which drives its entire economy, is going to be in the toilet. And that means that the economy’s going to be in the toilet. And that means that people coming to a Los Colinas pharmacy and other independent pharmacies, they’re going to be making choices about what they have to have versus what they would like to have for good quality of life. That concerns me because they may decide, you know what?

Even though those hormones make me feel better and I know that probably reduces my risk of breast cancer and heart disease and stroke and dementia, you know what? I could get by without them. And they start making choices like that, which have huge consequences on their long-term health. And that also has huge consequences on guys like me who depend on those patients for our livelihood and to be able to take care of other patients. So yeah, it scares me.

Zach Freed:

Thank you for your time, Jim. I really appreciate you taking some time out of your what I’m sure is an extremely busy time for you and your business, and hope to have you on again sometime.

Jim Hrncir:

Okay, Zach. Thanks for doing the good work you’re doing.

Zach Freed:

Thank you.

Jess Del Fiacco:

Thank you for tuning into this episode of the Building Local Power Podcast from the Institute for Local Self-Reliance. You can find links to what we discussed today by going to ILSR.org and clicking on the show page for this episode. That’s ILSR.rog. While you’re there, you can sign up for one of our many newsletters and connect with us on social media. Finally, you can help us out with a gift that helps produce this very podcast as well as our other research and resources.

Once again, you can help us out by rating this podcast and sharing it with your friends on Apple Podcasts or wherever you find your podcasts. The show is produced by Zach Fried, Jasmina Shesta, and me, Jess Del Fiacco. Our theme music is Funk Interlude by Dysfunctional. For the Institute for Local Self-Reliance, Jess Del Fiacco, and I hope you join us again next week for the next episode of Building Local Power.

• Independent Pharmacies are on the Front Lines of COVID-19 Care: In this 2020 episode, host Zach Freed speaks with Jim Hrncir, owner of Las Colinas Pharmacy in Irving, Texas. Zach and Jim discuss:
  • The high level of care independent pharmacies are able to provide to their patients, especially when compared to chain pharmacies like CVS.
  • Why the growing power of Pharmacy Benefit Managers is negatively impacting independent pharmacies.
  • How Jim’s pharmacy has responded to the COVID-19 pandemic and adapted to meet the changing needs of patients and their community.
• FTC Releases Interim Staff Report on Prescription Drug Middlemen: Report details how prescription drug middleman profit at the expense of patients by inflating drug costs and squeezing Main Street pharmacies.
• The PBM-Insurer Mafia Comes for Community Pharmacies: UnitedHealth, CVS, and Cigna’s PBMs are using their market share and pull in Washington to drive one of the key levers to manage health care costs—independent pharmacies—out of business.
• Walgreens to close up to a quarter of its roughly 8,600 U.S. stores. Here’s what to know.
• CVS to Close 900 Stores Over Three Years
• Why Walgreens, CVS and Rite Aid are closing thousands of drug stores across America