New Lebanon, Ohio, population 3,756, has three dollar stores, a Groceryland grocery store, a few fast-food restaurants, a public library branch, and a spirit-filled school system. What it doesn’t have is a pharmacy.

As part of Rite Aid’s bankruptcy filing in October 2023, the chain announced it was closing 800 stores, with Ohio especially hard hit, at 180 closings slated largely in struggling small towns or Rust Belt cities. According to Rite Aid’s website, the chain currently has 1,700 locations, down from the 2,111 reported at the time of bankruptcy. The company has stated it will emerge from bankruptcy with about 1,300 stores.

New Lebanon’s Rite Aid closed in September.

“My community needs a pharmacist. It is concerning to me that the residents don’t have one here,” said New Lebanon Mayor David Nickerson.

Some smaller towns near New Lebanon have their own pharmacies, but even those are a 15-minute drive away. New Lebanon’s Rite Aid prescriptions were transferred to a Walgreens 30 minutes away in Dayton.

Nickerson, who was just elected last year and has a military background, recently found himself walking the Walgreens parking lot in Dayton. He even strolled around the back of the building at night, doing a thorough inspection to tell his constituents he had done his due diligence and made sure it was a safe place to go. But even coming away convinced that Walgreens was safe and clean won’t be enough for some of New Lebanon’s residents.

“We have many elderly residents who are uncomfortable going that far with the traffic and unknown area,” Nickerson said.

Getting a prescription filled in New Lebanon, which sits on a busy thoroughfare leading to Dayton, wasn’t always so difficult.

“Before we moved to New Lebanon two years ago, there were three pharmacies,” said Joyce Dingman. “Last year New Lebanon’s CVS closed, and now Rite Aid is closing, leaving us with none.” 

She and her husband will head to a town 30 minutes away to get prescriptions filled at a Kroger pharmacy.

 A spokesman for Rite Aid confirmed the outsized impact the closings are having on Ohio.

“Nearly all our stores in Ohio will be closing by the end of September as part of our recent Chapter 11 process to create a stronger, healthier company,” the spokesman said, adding that there would only be four Rite Aids remaining in Ohio. There were over 140 before the latest round of closures.

New Lebanon, though, is hardly alone in its struggle to hold on to a pharmacy.  Experts say the retail pharmacy model has been squeezed by complicated and sometimes lower reimbursement rates for medication while competition for sales of candy and paper towels, items that used to pad profits, has grown more fierce.   

The pharmacy squeeze

At a time when the federal government is suing the primary drug market’s middlemen, the pharmacy benefit managers — with the Federal Trade Commission alleging inflated prices on drugs like insulin — some are pointing the finger at the PBMs for the pharmacy deserts.

Miranda Rochol, senior vice president of provider solutions at healthcare technology company Prescryptive Health — who worked her way up in the business, starting as a pharmacy technician before moving to Walgreens health technology team — says the PBMs are largely to blame for the current problems in the industry. “PBMs can steer patients into their own pharmacies, drive profit to their pharmacies, and under-pay community pharmacies,” she said.

In June, the FTC issued a scathing report about PBMs and the “squeezing” of Main Street pharmacies caused by decades of mergers and acquisitions. According to the FTC, the three largest PBMs control nearly 80% of all prescriptions filled in the United States, negotiating the terms and conditions for access to prescription drugs for hundreds of millions of Americans. The report blames falling reimbursement rates from PBMs for many of the financial troubles of smaller pharmacies.

“As long as the big three PBMs go unchecked, more pharmacy deserts will appear,” Rochol said.

The three largest PBMs are CVS‘s Caremark, OptumRX (part of UnitedHealth), and Express Scripts, owned by Cigna.

A spokesperson for Express Scripts pointed to its lawsuit filed against the FTC in response to the report, calling it unfair, biased, erroneous, and defamatory, and claims the report ” wrongly concluded that PBMs inflate drug costs and harm independent pharmacies.”

Tim Wentworth, Walgreens Boots Alliance CEO — who was CEO of Express Scripts from 2016–2021 — addressed PBMs in Walgreens’ third quarter earnings call, saying the company was “in active discussions with our PBM and payer partners to align incentives and ensure we are paid fairly.”

Walgreens has announced that it may close as many as 25 percent of its 8,200 stores, which will further squeeze communities that lack pharmacies. A spokesman for Walgreens pointed out that while they may be large in size, they are still “independent” — unaffiliated with a PBM — so they face many of the same price pressures as smaller stores.

CVS has also closed stores, and for its part, a CVS Caremark spokesman disputes claims that it is economically squeezing smaller pharmacies, citing Georgia as an example. Between 2023 and 2024, independent pharmacies in the CVS Caremark pharmacy network were reimbursed 67.5% higher on average than CVS Pharmacy locations, and 51.9% higher than other chain pharmacies in the state. 

“Local, independently owned pharmacies serve as vital partners in CVS Caremark pharmacy networks, representing more than 40% percent of our in-network pharmacies,” the spokesman said. “CVS Caremark reimburses independent pharmacies substantially more, in aggregate, than chain pharmacies.”

The CVS spokesman also said that CVS pharmacies are not all serviced by Caremark, working with over 70 different PBMs. None of CVS’s closings, the spokesman said, were related to PBM issues, but due to changes in consumer buying patterns and population shifts.

“Claiming that PBMs are under-reimbursing independent pharmacies is not based on the fact. Research in fact shows that PBMs are reimbursing independent pharmacies at higher amounts than chain pharmacies,” said Greg Lopes, spokesman for the Pharmaceutical Care Management Association, the national trade group representing PBMs. “There are unfortunately many factors for pharmacy closures in rural areas, including population declines and the growing use of online pharmacies.”

Data from the National Community Pharmacists Association illustrates the concern over PBM pricing.

Almost all pharmacies (99%) have experienced a reduction in the reimbursed dollar amount of prescribed medications at the point of sale. More than half say that insurance plans and their PBMs are reimbursing pharmacies less than the cost to purchase the drug for at least three of every 10 prescriptions they fill.

The National Association of Chain Drug Stores is pressing for PBM reform legislation. “The U.S. Congress has done the hard work to get bipartisan pharmacy benefit manager (PBM) reform ready to go, and that is ‘must-pass legislation’ before the 118th Congress adjourns,” said Steven C. Anderson, president and CEO of NACDS.

CVS pulled out of NACDS in 2022 amid the trade association’s support of PBM reform.

The vital role of the local pharmacist in Amazon era

According to experts, PBMs, are just one of many reasons retail pharmacies are struggling.

With the neighborhood pharmacy’s demise, patients have to get more creative in getting their medicines. Dr. Colin Banas, chief medical officer of health-care solutions company DrFirst, says there are various other ways for patients to get medicine if their neighborhood pharmacy closes.

“For urgent medications, if patients cannot drive to an available pharmacy, they may explore prescription pickup and delivery services offered by ride-share services such as Uber and Lyft,” Banas said.

He added that it’s also worth checking with local hospitals to see if they have in-house pharmacies that can dispense prescriptions. “Even some doctors’ offices and urgent care centers stock certain medications, so it’s worth making a few calls,” Banas said. 

But Banas believes the pharmacy deserts will only grow, and lead to an increase the number of apps and digitization.

“As pharmacy deserts become more common, patients should keep an eye on new apps and digital tools that will increasingly begin to fill some of the gaps,” Banas said.

This week, Amazon announced that its same-day prescription delivery would expand to roughly half the U.S. next year.

Patient advocates say that technology can’t replace humanity.

All the focus on PBMs, reimbursements, and profits misses the human aspects of the profession, says Dr. Tamera Hughes, an assistant professor at High Point University’s School of Pharmacy who spent several years working at a community pharmacy in Georgia during the last decade before entering academia.

Hughes says PBM business models do prefer to shuttle people more towards medication by mail, but what may be gained in short-term savings is lost in the value of the pharmacist-patient relationship.

“Medication delivery takes away the engagement and rapport that pharmacists build within the communities they serve,” Hughes said.

During her time working at a pharmacy, she got to know her regulars, their needs, and their ailments. “I knew all my customers by name; I asked about their holidays and grandchildren. By removing that one-on-one upfront engagement with the communities they serve, you strip away what it means to holistically look at someone else’s health,” Hughes said. “Pharmacists are not just dispensing the medication, but some of the other lifestyle things that produce a healthy individual, and pharmacies have been great historically doing it.”

In fact, Hughes says that a pharmacist often serves as a de facto doctor for someone who can’t afford a visit.

“People would come to the pharmacy counter to pick up a prescription, while another two to three people would come to pharmacy because their child is sick and say to the pharmacist ‘What can you recommend for a sore throat or a cough?’ … At least five times an hour, I walked from behind the counter to assist someone in picking out medication for their children, and we are able to ask questions to get them the best over-the-counter medicine,” Hughes said.

Pharmacies are being squeezed from all directions — by rising PBMS costs, competition from online pharmacies like Amazon, and retail competitors like dollar stores — but Hughes says by serving as a first defense against illness, neighborhood pharmacists can save greater strain on the larger health system. With the drug store chains like Rite-Aid closing hundreds of retail locations, that line of defense is being lost.

A spokesman for Rite Aid said the closings were the result of trying to create a more “efficient company.”   

In New Lebanon, city officials and the mayor just want their pharmacy back. Acting village manager Rob Anderson says it is a real inconvenience for some residents, and the Rite Aid closing served as a blow to the town.

“Having Rite Aid leave makes it seem like your town is on a negative path when, in reality, New Lebanon’s doing is just fine,” Anderson said.  “But it makes you think the big corporations don’t value your town like they once did.”

             

CVS Health and UnitedHealth Group are demanding Federal Trade Commission Chair Lina Khan and two other commissioners recuse themselves from a suit accusing the companies and other drug middlemen of boosting their profits while inflating insulin costs for Americans. 

In separate motions filed Tuesday night with the FTC, CVS and UnitedHealth argued that all three commissioners have an extensive track record of making public statements that indicate “serious bias” against the companies’ so-called pharmacy benefit managers. 

The companies accused Khan, as well as Commissioners Alvaro Bedoya and Rebecca Kelly Slaughter, of incorrectly asserting that PBMs are “price gougers” that hold significant control over the pricing and access to drugs like insulin. CVS said those statements demonstrate that the commissioners have “prejudged this matter,” so their participation in the case “violates due process.” 

“If the opposite of ‘complete fairness’ is ‘blatant bias,’ the Three Commissioners would easily satisfy even that standard,” CVS wrote in a 23-page motion.

Meanwhile, UnitedHealth’s 17-page motion said, “Any judge who made these remarks about a litigant at the outset of a lawsuit would immediately need to recuse for blatant bias.”

The FTC on Wednesday declined CNBC’s request for comment on the motion. 

Other corporate giants, including Amazon and Meta, have unsuccessfully pushed for Khan to be disqualified from previous cases or investigations, citing concerns about her objectivity. Khan has resisted those calls, saying she has never prejudged any case or set of facts. 

The FTC filed the suit last month against the three largest PBMs, CVS Health’s Caremark, UnitedHealth Group‘s Optum Rx and Cigna‘s Express Scripts. All are owned by or connected to health insurers and collectively administer about 80% of the nation’s prescriptions, according to the FTC. 

The FTC filed its complaint through its so-called administrative process, which initiates a proceeding before an administrative judge who would hear the case.

PBMs sit at the center of the drug supply chain in the U.S., negotiating medication rebates with manufacturers on behalf of insurers, creating lists of preferred medications covered by health plans and reimbursing pharmacies for prescriptions. The FTC has been investigating PBMs and their role in insulin prices since 2022.

The agency’s lawsuit argues that the three PBMs have created a “perverse” system that prioritizes high rebates from manufacturers, which leads to “artificially inflated insulin list prices.” The suit also alleges that PBMs favor high-list-price insulins even when insulins with lower list prices become available. 

The lawsuit also includes each PBM’s affiliated group purchasing organization, or GPO, which brokers drug purchases for hospitals and other health-care providers. Zinc Health Services operates as the GPO for Caremark, while Emisar Pharma acts as the GPO for OptumRx. Ascent Health Services is the GPO for Cigna.

The lawsuit is just one of several headwinds CVS is facing. Shares of the company are down more than 20% this year as it grapples with runaway medical costs in its insurance segment and pharmacy reimbursement pressure. 

CVS has engaged advisors in a strategic review of its business, which could potentially involve splitting the company’s insurer from its retail pharmacies. It’s unclear where Caremark would fall in the case of a breakup. 

In the motion Tuesday, CVS alleged that Khan has vilified PBMs during her entire professional career. For example, the company cited a 2022 statement in which Khan said PBMs “practically determine which medicines are prescribed, which pharmacies patients can use, and the amount patients will pay at the pharmacy counter.”

CVS similarly pointed to Slaughter’s previous comments about the allegedly “disturbing,” “unacceptable” and “rotten” rebating practices of PBMs, and how she believes they create “competitive distortions in pharmaceutical markets.” Meanwhile, the company cited Bedoya’s suggestions that “a significant part of the blame” for insulin price increases rests on rebates demanded by PBMs. 

CVS called the prior statements of the three commissioners “incorrect assertions” about Caremark and other PBMs. 

The health-care giant also alleged that during the FTC probe, the three commissioners attended closed events to help fundraise for anti-PBM lobbying groups. Organizers of those events vilified PBMs as “bloodsuckers” and “vampires,” CVS argued in the motion.

The Biden administration and lawmakers on both sides of the aisle have escalated pressure on PBMs, seeking to increase transparency into their business practices as many patients struggle to afford prescription drugs. Americans pay two to three times more than patients in other developed nations for prescription drugs on average, according to a fact sheet from the White House.

It’s time for a wellness check at CVS Health.

Shares of the company are down more than 20% this year as it grapples with higher-than-expected medical costs in its insurance unit and pharmacy reimbursement pressure, among other issues.

As it seeks to claw back faith with Wall Street, the company is considering breaking itself up.

CVS has engaged advisors in a strategic review of its business, CNBC reported Monday. One option being weighed is splitting up its retail pharmacy and insurance units. It would be a stunning reversal for the company, which has spent tens of billions of dollars on acquisitions over the last two decades to turn itself into a one-stop health destination for patients.

Some analysts contend that a breakup of CVS would be challenging and unlikely. 

CVS risks losing customers and revenue if it splits up its vertically integrated business segments, which includes health insurer Aetna and the major pharmacy benefits manager Caremark. That could translate to more lost profits for a health-care giant that has slashed its full-year 2024 earnings guidance for three consecutive quarters. 

“There really is no perfect option for a split,” said eMarketer senior analyst Rajiv Leventhal, who believes a breakup is still a possibility. “If that does happen, one side of the split becomes really successful and prosperous, and the other would significantly struggle.”

Notably, CVS executives on Monday met with major shareholder Glenview Capital to discuss how to fix the flailing business and recover its stock, CNBC previously reported. But Glenview on Tuesday denied rumors that it is pushing to break up the company.

If CVS stays intact, CEO Karen Lynch and the rest of the management team will have to execute major changes to address what industry experts say are glaring issues battering its bottom line and stock price.

The company has already undertaken a $2 billion cost-cutting plan, announced in August, to help shore up profits. CVS on Monday said that plan involves laying off nearly 3,000 employees.

Some analysts said the health-care giant must prioritize recovering the margins in its insurance business, which they believe is the main issue weighing on its stock price and financial guidance for the year. That pressure drove a leadership change earlier this year, with Lynch assuming direct oversight of the company’s insurance unit in August, displacing then-President Brian Kane.

CVS’ management team and board of directors “are continually exploring ways to create shareholder value,” a company spokesperson told CNBC, declining to comment on the rumors of a breakup. 

“We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model,” the spokesperson said in a statement. 

Investors may get more clarity on the path forward for the company during its upcoming earnings call in November.