Small pharmacies at risk of closing over low insurance reimbursements

Earlier this month, Friendly Pharmacy filled 318 prescriptions. For about 100 of them, insurance companies paid the pharmacy less than $3.

In 22 instances that day, the reimbursement was less than the cost of the medication. And that’s just among the prescriptions that were actually filled. Managing pharmacist Brad Tabaac said he has to turn away some patients because their prescriptions will cause too much of a loss for his business.

One recent patient, for instance, came in hoping to transfer his inhaler prescription to Friendly after his local Rite Aid closed. Filling the medication would have cost Friendly $22 more than the insurance reimbursement.

“I just can’t afford to serve him,” Tabaac said.

And now he can no longer afford to serve anyone.

Tabaac plans to close his doors on May 31 after 26 years in business. As a second-generation pharmacist, he said, he’s been working in drugstores since he was 11 years old.

“Years ago, you would just fill prescriptions, and you would concentrate on patient care,” Tabaac said. “Now you have to look at each and every prescription you fill and say, ‘Am I losing money?’”

Independent pharmacies like Friendly, as well as some chains, have been pinched by pricing and fees set by pharmacy benefit managers — the companies that handle prescription drug plans for health insurance.

The three biggest pharmacy benefit managers are CVS Health, Optum Rx and Express Scripts. They control nearly 90% of the market, according to the National Community Pharmacists Association (NCPA)

This challenge has caused more than 80 community pharmacies in Pennsylvania to close just in 2024, said Rob Frankil, executive director of the Philadelphia Association of Retail Druggists (PARD). Contracts with pharmacy benefit managers are “take it or leave it,” he said, giving individual business owners little to no room for negotiating reimbursement rates .

The Federal Trade Commission is conducting an inquiry into the system. Chair Lina M. Khan said at a White House Roundtable in March that complaints suggest pharmacy benefit managers “hike the price of drugs, deprive patients of access to certain medicines, and drive community pharmacies out of business.”

As pharmacy benefit managers “have consolidated and vertically integrated, we hear of a system where corporate red tape and bureaucracy obstruct patients from getting their medications, sometimes with devastating results,” Khan said.

“We are undertaking this work with enormous urgency and focus. And if we find evidence of illegal practices, we will not hesitate to act,” Khan said.

Tabaac acknowledges that effort but said it’s coming too late for his business.

While Tabaac can’t control the revenue he brings in from prescriptions, despite having plenty of customers, he also can’t control certain costs that have risen in recent years. One of them is business insurance, he said, which has become more expensive in part due to his pharmacy’s location in the Kensington neighborhood. Friendly was dropped by its business insurer in recent years because of incidences of vandalism in the community.

Once Friendly closes, the closest chain pharmacy is a Rite Aid about three-quarters of a mile away.