David C. Bridges, Ph.D., Georgia Center for Rural Prosperity and Innovation
For immediate release on Nov. 18, 2024
Executive Summary
The purpose of this paper is to focus attention on the widespread and potentially damaging impact that the closure of independently owned pharmacies could have on access to prescription drugs and healthcare in rural Georgia. The practices of pharmacy benefit managers (PBMs) are being scrutinized nationwide. The Federal Trade Commission recently reported that PBM practices are financially damaging to independently owned pharmacies. PBM practices that favor chain and other corporate pharmacies and financially squeeze independent pharmacies will disproportionately impact rural counties where the pharmacy market is dominated by independent pharmacies. Rural Georgians are at risk of losing one of their most valued and important sources of healthcare services – pharmacies. Six Georgia counties already do not have a pharmacy. Forty-two (42) counties (25%) do not have a corporate pharmacy. These counties are completely dependent on independent pharmacies. As many as 40 counties have no corporate pharmacies and no more than two independent pharmacies. Independent pharmacies do much more than fill prescriptions. They provide counseling, education, monitoring, immunizations, vaccines, and provide medical devices. They also are a vital part of the fabric and economy of the communities they serve. Loss of independent pharmacies to PBM practices will have a devastating impact on Georgia’s rural communities that are already chronically and persistently underserved.
Background and Relevant Literature
Independent, privately-owned community pharmacies are an integral part of healthcare in the state of Georgia. They are an especially critical part of healthcare in rural communities. Many independent pharmacies are under financial distress, in part due to the actions of pharmacy middlemen, often referred to as Pharmacy Benefit Managers (PBMs).
PBMs are third-party companies that act as intermediaries between health insurance companies or managed care providers and dispensing pharmacies. In essence, they “manage” prescription drug benefits.
The Federal Trade Commission (1) recently reported, “increasing vertical integration and concentration has enabled the six largest PBMs to manage nearly 95 percent of all prescriptions filled in the United States.
This vertically integrated and concentrated market structure has allowed PBMs to profit at the expense of patients and independent pharmacies, the report details. The report describes a range of actions that PBMs take that put independently owned pharmacies at risk compared to corporate-owned chain pharmacies, especially when those corporate-owned pharmacies are business affiliates of the PBMs.
Of particular concern is how PBMs are impacting independently owned pharmacies, especially those located in rural Georgia. Making that point, an FTC official stated, “The report also details how PBMs can squeeze independent pharmacies that many Americans—especially those in rural communities—depend on for essential care.”
Noted by the FTC and numerous stakeholder organizations, including pharmacy associations across the country, PBM actions that work against independently owned pharmacies include:
Directly quoted from the FTC report:
“Concentration and vertical integration: The market for pharmacy benefit management services has become highly concentrated, and the largest PBMs are now also vertically integrated with the nation’s largest health insurers and specialty and retail pharmacies.
Significant power and influence: As a result of this high degree of consolidation and vertical integration, the leading PBMs now exercise significant power over Americans’ ability to access and afford their prescription drugs.
Self-preferencing: Vertically integrated PBMs appear to have the ability and incentive to prefer their own affiliated businesses, creating conflicts of interest that can disadvantage unaffiliated pharmacies and increase prescription drug costs.
Unfair contract terms: Evidence suggests that increased concentration gives the leading PBMs leverage to enter contractual relationships that disadvantage smaller, unaffiliated pharmacies.”
Possibly the FTC’s most significant finding was, “The interim report also finds that PBMs hold substantial influence over independent pharmacies by imposing unfair, arbitrary, and harmful contractual terms that can impact independent pharmacies’ ability to stay in business and serve their communities.”
A March 2024 article by Nowosielski (2) reported several business practices used by PBMs pose real threats to the survival of independently owned pharmacies. He warned, “Between spread pricing and other PBM tactics that have yet to be prohibited by law, local pharmacies face their toughest challenge in the year ahead.”
The National Community Pharmacists Association (NCPA) recently conducted a survey of independent pharmacies.(3) Conclusions from their survey, which included 815 respondents nationwide were, “93% are less willing to participate in Part D (Medicare) networks because of decreasing reimbursements; 32% are considering closing their doors in 2024; 99% experienced reimbursement reductions; and 92% are taking necessary steps to avoid permanent closures, such as opening personal lines of credit, decreasing inventory of higher-priced drugs, and tapping into personal savings.”
NCPA CEO B. Douglas Hoey said, “If a third of all community pharmacies close, and if more than 90 percent stop accepting Medicare Part D, it will be catastrophe for seniors, a hardship for most other patients, and a devastating blow to the overall health care system.” He added, “This demands immediate action by Congress and the administration.”
Bringing it home - how does this affect Georgia? What is the potential impact in Georgia? Are rural communities at particular risk? While all Georgians are impacted by the current situation, the risks that Georgians face depend on where you live and how your prescriptions are filled. Once again, your zip code matters.
Data – sources and analysis
Based on three different sources of data, many Georgians have ample access to retail pharmacies (Table 1).
NCPDP data. According to the National Council for Prescription Drug Programs (NCPDP - dataQ®) there are 1,184 independently owned and 1,283 corporately owned pharmacies in Georgia for a total retail pharmacy count of 2,467 (4). However, among the 1,184 pharmacies reported as independents there may be as many as 350 to 400 pharmacies that are associated with hospitals, clinics, or other institutions like Federally Qualified Health Centers (FQHCs). While these may be independently owned, they don’t necessarily qualify as “retail” pharmacies. (Note we have attempted to reconcile the number of actual locally-owned independent pharmacies reported by NCPDP.)
Clover Health data. Clover Health, a Tennessee-based Medicare/Medicare Advantage provider, reported 730 independent retail pharmacies, 1,236 corporate pharmacies, and 188 other pharmacies in Georgia in their 2024 Directory of Georgia Pharmacies (5).
NCPA data. The National Community Pharmacy Association (NCPA) 2023 Digest reported 654 independent pharmacies and 1,268 corporate, chain, mass market, and supermarket pharmacies in Georgia (6).
Analysis and summary of data. According to NCPDP five Georgia counties are without a pharmacy (Figure 1). Clover reports there are six counties without a pharmacy. Depending on data source, there are 42 of Georgia’s 159 counties that have no corporate pharmacies and as many as 28 of these counties having only one independent pharmacy. About 40 (38 to 45 depending on the data source) have two, or fewer, independent pharmacies.
It is these 40-plus Georgia counties (about 25% of Georgia’s 159 counties) that are at the greatest risk of losing their independent pharmacies and having no local access to prescription drugs or medical information because many of these counties have limited, or no, access to primary healthcare within the county. If a significant number of independent pharmacies fail because of PBM practices, the number of Georgia counties without pharmacy services could rise significantly beyond the five or six counties that currently have no pharmacy, the consequences of which will be catastrophic.
Table 1. Summary of pharmacy data for Georgia.
Impact
When attempting to ascertain risk, it appears that independent pharmacies fall into two separate risk pools.
Communities where corporate and independent pharmacies compete. In communities where corporate and independent pharmacies coexist, self-preferencing and unfair contract terms affect consumer choice, market share, and ultimately the competitiveness of independent pharmacies with corporate pharmacies. One hundred seventeen (117) to one hundred nineteen (119) of Georgia’s 159 counties have both corporate and independent pharmacies. In these counties, independent pharmacies face unfair competition from corporate pharmacies, per the FTC. Self-preferencing marketing that can lead consumers to thinking they have no choice but to fill prescriptions at corporate pharmacies and differential pricing and copay amounts often drives business away from independent pharmacies. So, this is a statewide issue with Georgians in nearly 75% of Georgia counties facing this situation when accessing prescription drugs. They experience “apparent choice,” but because of lack of transparency and potential market manipulations by PBMs, they may be making decisions that imperil their independent pharmacies.
Communities having only independently owned pharmacies. As many as 42 Georgia counties have only independently owned pharmacies (Figure 2). In some respects, citizens of these counties face the same risk as consumers in counties with corporate pharmacies, as their insurers likely use PBMs that use self-preferencing tactics that encourage consumers to obtain their prescription drugs via internet and/or mail order services. In other words, even though these patients don’t have a brick-and-mortar chain pharmacy located in the county, they may face pressures to use chain pharmacies in another community or to use fulfillment centers that will fill and ship prescriptions.
However, communities that have only independent pharmacies face another risk, or negative impact. This is where the situation is so challenging. Even when patients exercise choice, the impact on the local community may be harmful. If the patient chooses to fill prescriptions at a remote chain pharmacy, which are often affiliated with the PBMs, their prescription money leaves the community.
However, if they choose to fill the prescription locally (sometimes they don’t have this choice), the local independent pharmacy is very likely to lose money when filling the prescription. Yes, the pharmacy is often reimbursed less than the cost of filling the prescription. Either way, current PBM practices often leave the local pharmacy and the local economy in the lurch.
The bigger picture. Ostensibly insurance companies and managed care organizations use PBMs because they claim to save money, but the question is who benefits from the savings? It is rarely, if ever, the patient or the local pharmacy. In fact, most studies on the practices of PBMs indicate that savings accrue to the PBM or the vertically integrated organization with whom they are affiliated. What is most insidious is that in many cases patients are insured, at least partially, with the use of public (state or federal) funds, and the public funds that support these insurance programs are being used in a way that favors large, often out-of-state PBMs and pharmacy corporations at the expense of local independent pharmacies. The resulting loss of these pharmacies in rural communities that have no corporate pharmacies is devastating to the local economy and to patient access to medicine and the other benefits associated with their local pharmacy (discussed later in this paper). The current use of PBMs in the State of Georgia does not appear to be in the best interest of patients or rural economies and may be ultimately costing the taxpayers of the state.
Another significant finding of this study is that PBM practices that negatively impact independently owned pharmacies will have a disproportionate impact in Georgia’s rural communities because rural communities are predominantly served by independent pharmacies (Table 2). Based on NCPDP data, the ratio of independently owned pharmacies to corporate/chain pharmacies to is 0.92:1, statewide. However, for the smallest tier of counties, those having a population of less than 15,000 people, the ratio is 6.00:1. Using Clover data, the independent to corporate ration, is more than 6:1. For the two largest county population categories the ratio is 0.69:1 and 0.57:1. The fact is, rural communities are highly dependent on independent pharmacies. The fact that independently owned pharmacies dominate in rural communities has also been reported in a 2022 nationwide study by Berenbrock et al. published in the Journal of the American Pharmacists Association (7). It was also reported by Kono and Deller in 2023 (8).
Table 2. Pharmacy numbers by ownership and county population category.
Independently owned pharmacies provide several other tangible benefits to communities compared to corporate/chain pharmacies.
Delivery services – many independent pharmacies provide options for delivery of prescription pharmaceuticals and other medical supplies and devices. This service is especially important in communities where the population is significantly aged, may not own an automobile, do not have access to public transportation, and/or are homebound. Most corporate/chain owned pharmacies do not offer delivery services.
Credit and/or accounts receivable – many independent pharmacies allow regular customers to have open credit accounts. When coupled with automated refill options and delivery services, the ability to charge medicine to an account that is paid periodically by the patient is a real benefit for patients who are limited in their ability to leave their homes.
Access to vaccines, immunizations, and injection services – in many rural communities where access to clinics or physicians is limited, the local independent pharmacy is the only source for residents to access vaccines, flu shots, allergy shots, or have other routine injections made by trained personnel. This was particularly important during the recent COVID pandemic and has been documented by Kono and Deller (8).
Counseling and education – local pharmacists are often the only source of reliable information for people seeking medical advice. This is true if the patient has seen a physician or not. In many rural communities, the local pharmacist is the only trained medical professional in the community. Currently, as many as 18 Georgia counties are without a physician. Remember, residents in 42 of Georgia’s 159 counties (that is about 25% of counties) only have access to independent pharmacies. These pharmacies are critical in providing education and ongoing counseling and monitoring for the benefit of patients with chronic diseases such as hypertension, asthma, diabetes, etc.
Specialty services – many independent pharmacies provide one or more of the following services: compounding, infusion therapy, or medical device rental or sales. Currently, many patients on chemotherapy or biologic pharmaceuticals cannot obtain these treatments from their local pharmacies because of PBM contracts and policies related to the distribution of these medications. This is a real inconvenience for patients.
Economic impact – locally-owned, independent pharmacies provide significant economic impact to the local economy. Direct impact includes employment and resulting payroll and property and sales tax generation. The secondary, and further multiplier effects, are significant, but have not been documented in Georgia. Assuming the data can be acquired, an Impact Analysis for Planning (IMPLAN) will be conducted to provide estimates of the broader economic impact of independent pharmacies.
Conclusions
While this report focuses on the impact of PBM practices on independent pharmacies in rural Georgia and communities and patients that they serve, the reality is that current PBM practices are affecting every community and prescription drug user in the state. Policymakers and those who advocate for increasing access to quality healthcare for all Georgians should educate themselves about how PBM practices may result in the loss of independent pharmacies statewide, which will have an unpalatable negative impact on healthcare statewide. The impact on many already underserved areas of rural Georgia could be devastating.
Figure 1. Georgia counties having no pharmacy, corporate or independent - Six Georgia Counties with No Pharmacy
Figure 2. Georgia counties having no corporate (chain) pharmacy - 42 Georgia Counties without a Corporate (Chain) Pharmacy
References
Federal Trade Commission, July 9, 2024. Interim report on the prescription drug middleman industry that underscores the impact pharmacy benefit managers (PBMs) have on the accessibility and affordability of prescription drugs. https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen. Washington, DC.
Nowosielski, Brian, March 2024. Independent Pharmacies Continue to Face Financial Hardships as the Clock Ticks on PBM Reform. Total Pharmacy Journal, Vol. 2, Issue 2.
The National Community Pharmacists Association (NCPA), February 27, 2024. Local pharmacies on the brink, new survey reveals. https://www.ncpa.org/newsroom/news-releases/2024/02/27/local-pharmacies-brink-new-survey-reveals. Alexandria, VA.
National Council for Prescription Drug Programs, (NCPDP), August 2024. DataQ – Pharmacy Data. https://dataq.ncpdp.org/. Scottsdale, AZ.
Clover Health – 2024 Georgia Pharmacy Directory, September 2023. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://cdn.cloverhealth.com/filer_public/8b/ad/8bad0028-11fd-4999-80ee-b874192efb63/2024_pharmacy_directory_ga_20230908_eng.pdf. Franklin, TN.
The National Community Pharmacists Association (NCPA) 2023 Digest, October 2023. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.cardinalhealth.com/content/dam/corp/web/documents/Report/cardinal-health-2023-ncpa-digest.pdf. Alexandria, VA.
Berenbrok, L. and et al. 2022. Access to community pharmacies: A nationwide geographic information systems cross-sectional analysis. Journal of the American Assoc. of Pharmacists 62 (2202)1816-1822. La Jolla, CA.
Melissa Kono and Steven Deller. 2023. Rural Pharmacies an Overlooked Piece of the Rural Health Care Milieu. Choices Magazine, Vol 38 Quarter 2. The Agricultural & Applied Economics Association. Milwaukee, WI.