Kilgore’s Medical Pharmacy off Providence Road in Columbia is busy on a Wednesday afternoon — there’s a dozen or so staff getting people their meds, others running the drive thru, nurses are fitting folks with compression garments and mastectomy bras, while other customers browse the aisles of durable medical equipment, common medications and household goods.
Laura Kingsley, a pharmacist and co-owner of Kilgore’s, said that when she started at the pharmacy years ago, most of their revenue came from the sale of prescription medications.
But in the last few years, she’s realized that “if you don't have some other stuff in your bag of tricks, it's very, very, very hard to keep your doors open.”
“Our industry— especially the community pharmacies — we're not like the Walgreens and the CVSs. We don't have a huge front end that is supporting our business. We're not selling shampoo and makeup and all of that kind of stuff,” Kingsley said. “Our business model heavily relies on the insurance companies, and over the years, those margins just keep getting squeezed lower and lower and lower and lower.”
That’s due, in part, to the rising costs of supplies and utilities — but more impactful, she stressed, has been the rise in prominence of pharmacy benefit managers.
These PBMs are essentially middlemen companies that negotiate contracts between drug manufacturers and insurance companies, work with insurance companies to determine what drugs they’ll cover, determine how much the patient pays and sets the rate at which pharmacies get reimbursed for the cost of the drug.
Rafi Savajan is the executive director of pharmacies for the University of Southern California and an assistant professor of clinical pharmacy — teaching the business of independent pharmacies.
He said it has become common for reimbursement rates to be lower than the price the pharmacy paid for the medication in the first place.
And because of vertical integration, three PBMs — CVS Caremark, Express Scripts, and OptumRX — now control about 80% of the market, which leaves local, independent pharmacies with little ability to negotiate more advantageous contracts.
“And I think that's the one that really makes it difficult to compete for independent pharmacies,” Savajan said. “It makes it damn near impossible.”
He added one of other major issues that independent pharmacists face is the cash flow gap that exists between when wholesalers are expecting payment for medications and when reimbursements arrive from PBMs.
Savajan said many pharmacies are ordering new medications every other week, whereas reimbursement payments come in, on average, every 24 to 27 days.
“Nobody from the wholesaler is saying, ‘Well, you know what, we understand’,” Savajan said. “And so, every pharmacist struggles on those days. ‘Do I have enough money?’”
Michael Murphy is an assistant professor of clinical pharmacy at the Ohio State University College of Pharmacy. He said independent pharmacies are not only having to deal with declining revenue from lower reimbursements, but also lower dispensing fees.
Dispensing fees are essentially the payment to cover a pharmacist’s knowledge and expertise — think how a doctor is paid for their time. These fees are designed to cover some of the pharmacy’s operating costs, but also the time and education it takes to verify medication dosages for patients, as well as check for drug interactions.
Murphy said the average dispensing fee across the county is between $10 and $15 dollars, but these are also negotiated as part of a contract – and it’s not unusual for PBMs to pay community pharmacists $0 to a few cents per prescription.
“So, you take both of those sides of the equation together — oftentimes pharmacies are being paid under the cost to acquire the drug and they're not being paid at a level related to the amount of time and effort that they're going into filling that drug — which means that they're taking a loss on filling that medication,” Murphy said.
“And that puts pharmacists in a really difficult position because when a patient comes in to receive a healthcare service, the pharmacist has to say, ‘I want to offer this service to my patient to make them be to help them be healthy, but in order for me to do that, I am going to undermine my business sustainability.’”
Local Pharmacies Adapt to Survive
Anthony DeSha has worked in pharmacies for more than half his life – starting at just 16.
“I love talking to people, and then it just progressed from there,” DeSha said. “That's why I joke, and I still say, ‘I don't know what I want to do when I grow up, because this is all I've ever done.’”
He now owns three pharmacies — two Flow’s Pharmacy locations in Columbia and Summit Pharmacy in Holts Summit.
DeSha said it has gotten harder for his pharmacies to stay open as profits have diminished over the last 15 - 20 years.
“I'm very transparent when I say the three of my pharmacies did almost $10 million in sales last year, my net take home was $30,000,” DeSha said. “That's crazy, I mean, you're looking at less than 2% and… I run lean.”
He said to make up for the loss, the pharmacies have had to make some changes — now instead of shelves filled with knick-knacks and greeting cards, they’re stocked with just the basics, such as over-the-counter drugs and some durable medical equipment.
But the bigger changes have been behind the counter — DeSha said they have expanded their services to include working with local nursing homes, and they contract with Medicaid to do medication therapy management (MTM) consultations, where they call patients to check in on adherence and answer any questions they may have.
Additionally, they do compliance packaging where patients can receive all of their medications pre-sorted in blister packs by day and time.
“[So,] for some kind of small fee that we're helping patients out, and then it enhances that relationship, like you said, between the patient and the pharmacy that we're calling from, because they know that we care about them as a person, not just them as a sales figure, and it works out for everyone involved,” said Joel Neal, one of the pharmacists at Flow's.
Pharmacist Tim Mitchell owns Mitchell’s Drug Stores in the southwest Missouri city of Neosho. He said they’ve recently consolidated to one pharmacy location to decrease overhead and expanded services to try and make up for some of their losses.
He said they offer many of the same programs as Flow’s, including medication synchronization. This is where a pharmacy works with a patient to identify a single day that works best for them to refill and pick up all of their medications.
While this is a benefit to the patient, Mitchell said it also allows them to know which medications to purchase when — so they can decrease potential cash flow issues.
He said they also decreased the amount of medication they keep in stock and have made the hard decision to stop carrying some expensive specialty medications, which often lead to the largest losses.
“Inventory management has been really key for us to be able to keep our doors open because the reimbursements have not been good. So, we're able to be a little more proactive with keeping our inventory under control,” Mitchell said. “And the quicker we can turn a product, the less cash flow issues we have. We still have cash flow issues, though.”
Mitchell said one of the more novel approaches he has taken to overset losses is he launched Mitchell’s Cost Plus Pharmacy in 2023 — inspired by Mark Cuban’s Cost Plus Drugs.
He said it’s a subscription-based service offered by the pharmacy that works around the traditional insurance-PBM marketplace. Instead of billing insurance and worrying about copays, patients — or their employers — pay a monthly fee and then have access to a number of generic, lower cost medications.
Mitchell said he’s actually partnered with a local direct primary care provider, who also works in an insurance-free, fee-based model, and several local businesses have decided to use his service rather than pay for an employer prescription drug coverage plan.
“I went into it [pharmacy] in the late 90s — much different profitability than what it is today. I was able to do very well. Now, we're just hoping we can break even a lot of years,” Mitchell said. “I've had to put a lot of my own personal money back into this business over the last few years for whatever reasons… and so, that's one of the reasons why we're trying to be innovative and thinking outside the box.”
Mitchell added that clinical services are another option pharmacists are exploring. Many now provide vaccinations in the pharmacy. Mitchell hired a nurse practitioner and opened a small clinic inside Mitchell’s Drug Store, but there are still limitations on what clinical services insurance will cover, if done by a pharmacist.
There were several pieces of legislation introduced in Missouri this past session, which tried to address the problems local pharmacies are facing — but only a fraction of what was proposed got through.
If signed, the new legislation will allow pharmacies to dispense some medical supplies, such as syringes and continuous glucose monitors without a doctor’s prescription.
Mitchell said he’s excited to see some reform happening at the state and federal level, but he worries that if the root cause of the problem — pharmacy benefit managers with their lack of transparency and low reimbursement rates — is not addressed, this will just be another way his pharmacy loses money.
Back in Columbia, Laura Kingsley with Kilgore’s Medical Pharmacy said it's likely PBM reform legislation will be reintroduced next year — both trying to increase clinical services that pharmacists can provide and the amount a PBM must reimburse a pharmacy for medications.
“We're very lucky because the volume [of prescriptions] keeps us afloat, but there are many, many, many pharmacies that will probably close their doors… in the next two years if there's not some kind of relief that comes,” Kingsley said.
