Moorefield’s CVS location will soon shut down, joining 270 locations nationwide forced to shut their doors permanently by economic and other headwinds afflicting the entire industry.
Most of these closures, according to Daily Mail, will take place in Alabama, New York, Maryland, and Missouri.
CVS is not alone among pharmacy chains closing large numbers of locations. Walgreens plans to shutter 1,200 locations over the next three years. That number does not include hundreds closed in the past three. This included the Franklin Walgreens, which received a temporary reprieve due to the intervention of Senators Joe Manchin and Shelley Moore Capito.
That store closed late last year.
One of the major issues facing pharmacies lies in the shrinking margins of profit allowed them through the sales of their primary product, prescription drugs. Like the natural gas industry, the prescription drug sector has an upstream, a midstream and a downstream element.
Upstream includes the drug manufacturers, such as Mylan Pharmaceuticals in Morgantown. The downstream sector includes pharmacies.
In between at midstream sits pharmacy benefit managers, the power brokers who manage prescription drug benefits for insurers and employers. According to an article in The Conversation and reprinted by The Ohio State University College of Pharmacy, these entities “have aggressively cut reimbursement rates in an effort to lower drug costs in recent years.”
These rates have decreased to the point that many pharmacies have had to “dispense prescription drugs at very low margins or at a loss.”
In the past decade or more, pharmacies have also expanded services as they adopted the “wellness center model” that includes providing vaccinations, hormonal birth control, testing for infectious diseases, and even clinical services.
CVS also over 15 years ago voluntarily retreated from a revenue stream provided by selling alcoholic beverages and cigarettes as part of their non drug offerings.
The chain, however, may be a part of the larger issues facing US pharmacies and the affordability of drugs. These issues affect independently owned pharmacies and regional chains the most.
According to James Rebitzer, a Boston University industry expert, PBMs serve as a major part of the problem. They originally appeared in the late 1960s to shoulder administrative work and claims processing for health insurance companies. Their slow “mission creep” over the decades saw their purviews expand into what Rebitzer refers to as “essential middlemen between drugmakers and many insurers, employers, and government entities (such as the Veterans’ Administration) that purchase drugs on behalf of their members, constituents, and beneficiaries.”
Over time, the number of PBMs has decreased to three, Optimum Rx, Express Scripts, and CVS Caremark. These three handle 80 percent of prescription claims for over 270 million customers. Their main role currently lies in negotiating price, affordability, and access to prescription medications through formularies, or the list of drugs covered by insurance.
CVS Caremark gives CVS advantages over smaller and independent pharmacies through being tied to a major PBM.
Formularies categorize drugs into tiers that determine how much will be paid for different drugs. The lowest tier of cost includes generic drugs, while “patented drugs that insurers prefer are placed in a tier with higher costs, and non preferred drugs are in a tier that requires patients to pay even more.” Some drugs do not receive coverage at all.
Drug companies employ discounts to get their products on the best tiers and compete with each other to secure a spot on the most desirable tiers. PBMs pay a net price for the drugs, “the list price minus the drugmaker’s discount.”
Currently the amount of those discounts is a well-guarded secret within the industry, but that will likely change soon due to executive orders imposed by President Donald Trump. Some of these are related to the other issue in drug prices in the United States – the fact that, according to the White House, the US has five percent of the global population, but “funds roughly 75 percent of global pharmaceutical products.”
Americans pay significantly higher drug prices in the US to subsidize much lower drug prices for nations in both the developing and the industrialized world. One of Trump’s executive orders has established a “most favored nation” system where US drug prices will be set at the lowest price set in any nation globally. He explained that will bring prices up in parts of the world, but also significantly lower the price Americans pay for drugs.
Robert Kennedy Jr, Secretary of Health and Human Services, was also given the task through this set of executive orders, to start to cut out PBMs from the process and also shine transparency on the secret discount system employed. The Federal Trade Commission in an interim report last January accused PBMs of “overcharging for cancer drugs” and “details how PBMs can squeeze independent pharmacies that many Americans – especially those in rural communities – depend on for essential care.”
The FTC, among many other accusations, stated that PBMs may even be colluding to exclude lower-cost drugs from the formularies.
Since CVS is part of the PBM system, likely the Moorefield closure has little to do with alleged PBM abuses that afflict smaller operations. As WCHS in Charleston reported, the company states that its closures are due to changing market patterns and the need to “simplify” the organization.
