More than a month into the coronavirus vaccine rollout, only about 60 percent of the doses distributed across the country have actually made it into people’s arms, according to federal data — a discouraging display of inefficiency. But a handful of states are far ahead of the pack. At the top of the list are West Virginia, which had given out 84 percent of its doses as of Friday, and North Dakota, at 81 percent.
Many factors are slowing distribution, including some Americans’ hesitance to take the vaccine and policies that hold back some doses for the second round of shots. But one key element appears to be the type of pharmacy states choose to work with. While the federal government partnered with CVS and Walgreens to handle vaccinations at long-term care facilities in the first phase of the rollout, North Dakota and West Virginia have instead turned to independent, locally owned pharmacies. Small drugstores are prevalent in West Virginia, and in North Dakota they’re just about the only game around: A 1963 law mandates that only pharmacies owned by pharmacists may operate in the state (save for a few grandfathered CVS locations).
These small providers have proved remarkably nimble. Meanwhile, CVS and Walgreens have stumbled. In late January, Oklahoma officials expressed fury that the two chains were sitting on more than 62,000 of the state’s allotted doses — and the state suspended allocations of more doses to them. In Maine, officials eager to hurry things along have begun transferring doses meant for the chains to local pharmacies instead.
The vaccination results in West Virginia and North Dakota have prompted a wave of national news stories, noting how startling it is that two rural states relying on local drugstores — the epitome of the old-timey “mom and pop” stereotype — have rocketed far ahead of states like Massachusetts and Virginia, with their networks of supposedly sophisticated chain pharmacies that have largely replaced the independents.
For decades, Americans have been steeped in the idea that big businesses naturally outperform small ones. Indeed, much public policy is predicated on this belief. Our antitrust rules bless most corporate mergers on the grounds that larger companies are more efficient. Our financial regulations grease the flow of capital to the biggest firms. And in unstable times, the federal government almost invariably steps in to ensure their survival, while treating small businesses, local banks and family farms as expendable.
So ingrained is this ideology of bigness that we routinely overlook evidence to the contrary. The fact is, independent pharmacies have been outperforming their larger rivals all along. According to research by Consumer Reports, for instance, local pharmacies generally offer lower prices than the chains. The two cheapest sources for prescription drugs, the nonprofit magazine found, were the online firm HealthWarehouse.com and Costco, but independents came in third — with average prices that beat Walgreens, Rite Aid and CVS/Target by a wide margin. (Of course, independents varied in price, and there were some expensive outliers.) Independents also have shorter wait times and provide better care, including more one-on-one consultations with patients, Consumer Reports found. And while the major chains only recently began offering one- or two-day home delivery, most independents have been providing same-day delivery for more than a decade (and most do it free).
Independent pharmacies achieve superior results not despite being small, but because they are small. It’s their local ownership that makes the difference. Their decisions are guided not by the prerogatives of Wall Street but by the health-care needs of their neighbors. Lacking top-heavy bureaucracy and rich with local knowledge and relationships, independent pharmacies possess what you might call economies of small scale. That helps explain why, in the places where they’ve been tapped to provide vaccinations at nursing homes, they’ve been able to quickly map out a plan and efficiently execute it.
Long before the pandemic hit, CVS and Walgreens, which together operate more than 18,000 outlets and account for roughly 40 percent of the prescription market, were chronically understaffing their pharmacies and ruthlessly squeezing their employees. In letters to regulators, pharmacists working at the two chains have described “chaotic workplaces where they said it had become difficult to perform their jobs safely,” as the New York Times observed last year. “I am a danger to the public working for CVS,” one pharmacist wrote to the Texas State Board of Pharmacy in April 2019 — given how many tasks this person had to juggle while filling prescriptions and meeting corporate quotas. Such descriptions do not suggest organizations capable of efficiently administering vaccines.
And it’s not just pharmacies. The pandemic has provided many eye-opening examples of how the core functions of our society have been hobbled by excessive market concentration — and by the attendant disappearance of locally controlled businesses. In 2020, many Americans awakened to their precarious dependence on a relatively few meat-processing plants whose vulnerability to coronavirus outbreaks at times disrupted supplies — and whose owners seemed insensitive to workers’ risk. And as many families found their ability to work and attend school from home impeded by the often slow Internet speeds of the dominant cable companies, PC Magazine reported that eight of the ten fastest Internet service providers in the nation are small. (Three are city-run networks and five are small for-profit businesses.)
Community banks have also proved their mettle. As the federal government rushed to get relief loans to small businesses last year, these local financial institutions delivered a disproportionate share of the aid. Research by my organization, the Institute for Local Self-Reliance, found a close correlation between the number of small businesses helped in a state and the market share of community banks.
Like pharmacies, small banks derive advantages by virtue of being locally run that big banks simply cannot match: The owners know their communities and their borrowers, giving them access to a rich trove of “soft” information that enables the institutions to extend loans to new and growing businesses on the basis of factors that aren’t easily quantified and don’t fit the rigid paramaters of big-bank lending. This is true not only during crises like the pandemic: Community banks account for less than one-fifth of the industry’s assets, but they supply nearly half of all lending to small businesses.
So if local pharmacies, banks and other businesses are outcompeting their biggest rivals, why are they losing ground? The number of independent pharmacies, for instance, has dropped by nearly 1,400 over the last decade, to 21,700 — and their market share has fallen from 28 percent to less than 20 percent.
The answer is that policymakers, convinced of the inherent superiority of bigness, have allowed a few corporations to amass outsize power and wield it with impunity. Rather than compete head-to-head with their smaller rivals on price or service, these huge companies can simply crush them.
Consider CVS Health. It’s not only the nation’s largest pharmacy retailer, it’s also the largest pharmacy benefit management company. In that role, CVS contracts with health insurers to set rules for prescription benefits — allowing CVS to decide how much independent pharmacies (as well as its own) are paid for filling prescriptions. Not surprisingly, CVS has been slashing reimbursement rates to these rival providers. In some states, the company restricts people with certain insurance plans from choosing a pharmacy other than CVS.
The Federal Trade Commission has so far declined to go after these monopolistic practices and has even discouraged states from regulating how pharmacy benefit management companies operate. What’s more, in 2018, the Justice Department allowed CVS to buy Aetna, a large health insurer, furthering its grip on the industry.
These kinds of market-power abuses are rampant across the economy, but we’ve been conditioned not to see them. Confronted with yet another shuttered storefront, we take it as simply more evidence that small businesses can’t compete.
It’s not just some hazy nostalgic feeling that we’re losing when independent businesses close. The stakes are much more consequential. We’re trading away some of the most productive and effective parts of our economy. The strong performance by local pharmacies in distributing lifesaving vaccines makes that clear.
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ILSR co-director Stacy Mitchell urges further regulatory enforcement and new federal and state legislation to address PBMs’ anticompetitive tactics while eliminating inherent conflicts of interest.
ILSR’s Stacy Mitchell illustrates how independent pharmacies are the unsung heroes of healthcare, providing critical services that chain pharmacies simply can't match.
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