In the past decade, independent drugstores have been vanishing, especially in low-income, minority, and rural communities, in part due to pharmacy benefit managers (PBMs) having rigged the system in favor of their own pharmacies. By steering patients to in-house pharmacies and squeezing independent pharmacies with hidden fees, PBMs are driving local pharmacies out of business. This loss of competition hits vulnerable communities hardest—places already facing healthcare deserts—and patients deserve a solution.
PBMs sit between insurers, drug manufacturers, and pharmacies. Many PBMs are even owned by or partnered with major pharmacy chains. This vertical integration offers an opportunity for greater efficiency, but that can only take place in a competitive market.
In practice, PBMs steer patients away from independent pharmacies by using “preferred networks”—pharmacies where patients pay lower copays—to direct customers to those stores. According to a recent study, only 0.8 percent of independent pharmacies were preferred by PBMs for Medicare Part D in 2023, compared to 70 percent of chain pharmacies. Pharmacies left off preferred networks are more likely to close than those that are included. This undercuts independent pharmacies’ volume and profits.
While PBMs claim to reimburse independent pharmacies more than their own pharmacies, multiple Federal Trade Commission (FTC) reports show otherwise. PBMs reimburse their own pharmacies at better rates than outsiders. The most recent FTC report found that the “Big 3” PBMs (CVS Caremark, Express Scripts, OptumRx) paid their pharmacies higher reimbursements than unaffiliated pharmacies on nearly every specialty drug. This also included steering patients seeking highly profitable drugs to their own pharmacies with large mark-ups.
PBMs don’t just steer patients away though, the same FTC reports show PBMs also impose unpredictable retroactive fees on independent pharmacies. PBMs often impose opaque, performance-based fees and audits after a drug is dispensed. These can hit small pharmacies with surprise bills, or “clawbacks,” that erase their profit based on opaque metrics, not assessed until weeks after the sale. Because these fees hit well after the fact, pharmacies cannot price or plan around them.
In practice this means independent pharmacies run with constant uncertainty. A local pharmacy may fill a prescription expecting fair reimbursement, only to have a significant portion docked later. Such arbitrary takings make it nearly impossible for a small pharmacy to plan ahead to stay in business.
The result of these practices is fewer pharmacies. Between June 2023 and June 2024 the U.S. lost 448 independent pharmacies—a drop from 19,432 to 18,984 locations nationwide. That’s more than one pharmacy closing every day. Over the past decade-and-a-half independent pharmacies closed at a much higher rate than chains. From 2010 to 2021 about 39 percent of independent pharmacies had shut their doors (versus 22 percent of chain outlets). Crucially, the closures have been concentrated in low-income minority and rural communities—precisely the areas with the greatest healthcare shortages.
This loss of access has real consequences. Patients who live in rural towns or inner-city areas often rely on a single neighborhood pharmacy for medication, advice, and care. When that store closes, patients may be forced to travel long distances, face delays, or simply skip medications.
The problem is not abstract: in 2022 Express Scripts (a PBM owned by Cigna) removed nearly 15,000 pharmacies—27 percent—from its Tricare (military health) network, affecting over 400,000 active and retired service members. Express Scripts justified the decision by citing most of the pharmacies served small populations of Tricare beneficiaries, despite warnings of how it would disproportionately effect rural veterans.
PBM practices have undermined competition in the drug distribution market. As independent pharmacies vanish, patients lose choices and convenience. Vertical integration between PBMs and pharmacies is not an inherently bad thing, bringing with it the potential for increased efficiency and lower prices. But that can only take place in a competitive market in which other firms are not intentionally disadvantaged. Competition would normally discipline prices and service, but PBMs have blocked that by tilting the market in favor of their pharmacies.
With added transparency, independent pharmacies and vertically integrated ones can compete in a market that would require both to put patients’ needs and costs first. If independent pharmacies could shop for better PBM arrangements—or even direct purchases from drug manufacturers—so they can choose contracts PBMs compete to provide. If pharmacies and insurers knew PBMs’ rates and penalties before signing a contract or filling a script, they could choose better deals. An informed market would reward PBMs that deliver value rather than inflated costs.
Some states are already moving this way. Texas’s 2019 law requires PBMs to report aggregate rebates, fees and revenues, and legislators later banned PBM steering tactics and clawbacks on that knowledge.
A second useful reform is to enable direct purchasing of medicines by pharmacies from manufacturers, akin to the growing direct-to-consumer drug sales models. If a pharmacy could buy a drug straight from the maker at a transparent discount, it would be harder for PBMs to swallow rebates. In this model, manufacturers’ discounts would go straight to pharmacies and patients instead of vanishing into PBM coffers. It also means PBMs can’t apply clawback fees to drugs they didn’t help procure.
The bottom line is simple: patients—especially those in underserved areas—need local pharmacies to stay open. Independent pharmacists play a vital role in our communities, offering competition that can play a vital role in keeping drug prices in check. By forcing PBMs to operate in the open and by allowing alternative supply channels, we can restore a competitive market. In that market, PBMs would be rewarded for helping pharmacies thrive and patients save money—and punished for gouging drug costs. Market-based PBM reforms will protect patients’ access to medicine and give them the full benefits of competition.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization that advocates for consumers through evidence-based analysis and data. Visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.
