Why Pharmacies Close

Unfortunately, the retail pharmacy environment is no longer suited for independent ownership in our Oak Harbor and La Conner communities. We ARE continuing in Clinton.

UPDATE— Clinton is now closing as well (as of July 2, 2024) (see below for June 2024 Updates to this post).

The combined effects of insurances preventing customers from filling prescriptions locally while reducing reimbursements is not sustainable.

As this impacts our community and staff at multiple levels, we will detail the biggest headwinds.

Insurance Company Squeeze

The only say we have is to accept or reject insurance contracts. We can’t modify or ask for more money. Either accept what they pay or don’t.

But, that’s just the start…

Preventing customers from filling locally while coercing them to mail order pharmacies THEY own

First, who is the ‘they’?

Pharmacy Benefit Managers (PBM’s) get hired by insurance companies to manage prescription spending. The problem is, many own mail order pharmacies. (More details on PBM’s here)

Guess how they set up pharmacy benefits?

Many plans either charge customers more to fill locally while cheap or free at their mail order or just mandate their mail order pharmacy exclusively.

Don’t take our word for it, have a look at Express Scripts SEC filing (emphasis ours):

Certain states have enacted legislation prohibiting certain PBM clients from imposing additional co-payments, deductibles, limitation on benefits, or other conditions (“Conditions”) on covered individuals utilizing a retail pharmacy when the same Conditions are not otherwise imposed on covered individuals utilizing home delivery pharmacies. However, the legislation requires the retail pharmacy to agree to the same reimbursement amounts and terms and conditions as are imposed on the home delivery pharmacies. An increase in the number of prescriptions filled at retail pharmacies may have a negative impact on the number of prescriptions filled through home delivery. We anticipate additional states will consider similar legislation and we cannot predict which states will adopt such legislation or what effect it will have, if any.¹

Express Scripts manages the TRICARE pharmacy benefit, among others. In 2004, when our company first acquired Island Drug in Oak Harbor, the TRICARE structure was simple; $3/month/rx for generic drugs, $9/month/rx for brand name drugs. Now its much more locally and FREE via Express Scripts own mail (plus pervasive marketing/steering). We reached out to Senator Murray as more negative TRICARE changes were occurring while we were constructing our new building in 2013, have a read here.

9,000 customers impacted

We had the privilege of serving tens of thousands of new customers during the COVID-19 vaccine period who don’t fill prescriptions with us.

A follow up survey to all customers vaccinated with 5,000 responses (way more than national Presidential polling receives) asked those near one of our locations who don’t get prescriptions with us why. 35% said due to insurance restrictions such as mail.

Extrapolate that out to the 25,000 people in zip codes local to our stores we vaccinated with no prescriptions filled and around 9,000 people could potentially be regular prescription customers ! 89% of those who received a vaccine with us rated the experience a 4 or 5 out of 5², odds are a respectable percentage would be our Rx customers given the freedom of choice.

How many business would like the opportunity to get 9,000 new customers? How many could survive with 9,000 local customers being kept away from your business, artificially?

Terrible reimbursements

Terrible in the truest sense of the word.

We actually have to PAY insurance companies to fill around a third of the prescriptions we process.

From January 2022 thru July 2023, 31% were filled receiving less money than it cost us to put the drugs in a bottle, let alone pay the light bill. These 31% cost us well over $100k just factoring in the medication cost, not including labor or anything else.

As mentioned above, we have ZERO control over reimbursements.

Further, we have bought drugs with a large group of pharmacies, so our cost of goods has always been better than a true standalone independent shop.

Another TRICARE example

In October of 2022, TRICARE just kicked out a ton of pharmacies from the network inexplicably. Please see the detailed backstory here.

After national outcry, we were eventually offered a new take-it-or-leave-it contract with reduced reimbursement. Since we value the opportunity to serve our military community, we signed it and were able to process claims again in January.

Here is a communication we provided to Congressman Rick Larsen’s office in a June followup to this debacle:

“Just glanced at some stats. We lost at least 10% of the Rx count from before the blackout to now. But the staggering insult is the take it or leave it contract took away 83% of the gross margin (on non-vaccine claims) we had previously. From over $10/rx to now averaging $1.75. barely pays for the bottle and label we put the pills in.”

Kids I know wouldn’t put one fork in the dishwasher for $2. Yet we are supposed to have a tech type/count, a pharmacist screen drug interactions/verify accuracy, and a cashier ring your prescription out for less than $2?

Terrible.

DIR Fees

Somehow the government allowed PBM’s to take additional retroactive fees to ensure we receive the most terrible reimbursement.

Here’s ChatGPT’s summary of DIR fees:

“DIR (Direct and Indirect Remuneration) fees are a type of fees in the pharmacy industry within the United States. They are payments made between pharmaceutical manufacturers, pharmacy benefit managers (PBMs), and pharmacies as part of the complex drug pricing and reimbursement system. DIR fees can have a significant impact on the revenue and financial stability of community pharmacies.

The purpose of DIR fees is to adjust the reimbursement rates that pharmacies receive for prescription medications after the point of sale. These adjustments are typically made retroactively, meaning that pharmacies might not know the final reimbursement amount until some time after the prescription has been filled and dispensed.”

Now even better DIR news for 2024:

“On Wednesday, April 5, the Centers for Medicare and Medicaid (CMS) released the Contract Year 2024 Policy and Technical Changes to Medicare Programs. This serves as the official announcement that the anticipated shift to point-of-sale (POS) collection of DIR fees will begin on January 1, 2024. Starting January 1, pharmacies will begin paying DIR fees at the time a prescription claim is adjudicated.

An important feature of this shift to POS DIR collection is that the amount collected will reflect the lowest possible reimbursement a network pharmacy will receive (e.g., maximum DIR allowable per contract), with the opportunity for funds to be sent back to the pharmacy at a later date based on pharmacy and/or network performance.

While this will represent a lower reimbursement of services upfront, it will end the PBM practice of recouping additional funds from pharmacies in the months following the dispensing transaction.

The shift to POS will end retroactive DIR fee collection beginning in 2024. However, retroactive DIR fee collection is still associated with current 2023 contracts. This will create an overlap where pharmacies will be paying retroactive 2023 DIR fees at the same time they begin paying POS DIR fees for 2024.” ³

Over the last couple years, we have logged around $500k in DIR fee charges. So, in January we are paying double DIR fees for a while.

Terrible.

Can’t Just Work Harder

We have been fortunate to work with hundreds of team members over the years. So many have been extremely hard workers.

If any team could just work harder, we could. Just reference the vaccine effort.

But, with the insurance shenanigans laid out above, the situation is not in our control.

It’s unfortunate as we have put over $25 million into the pockets of our team since 2004, not to mention investing in our Oak Harbor community with a brand new building 10 years ago.

Still a great experience

Despite the end of this road, we will still look back with much pride and accomplishment.

The outpouring support and appreciation over the COVID vaccine period was amazing. Review the video capturing this here.

The customers who have stuck with us for decades, you are inspiring neighbors and our staff appreciates you.

The insurance and customer mix in Clinton is currently the best of our three locations. So, we are continuing operations as usual in South Whidbey.

Oak Harbor Real Estate Available for Sale Or Lease, click here

June 2024 Updates

Our Clinton staff saved examples of under cost adjudications from insurance over the last few months. See for yourself after zooming in a bit. The bottom number in the box is how much money we could expect on a claim.

You can see claims from around -$20 to over $-100. Yes, that means we would have to PAY for the privilege of buying expensive medication, plus paying staff to fill it and sell it . The industry is so broken that it can demand small local companies subsidize PBM’s.

Other recent examples in the media:

• New York Times story, “The Opaque Industry Secretly Inflating Prices for Prescription Drugs“
• Wall Street Journal article https://www.wsj.com/health/pharma/higher-drug-costs-mail-order-prescription-bf37886f
• Washington State 3-Axis Study just released https://cdn.ymaws.com/www.wsparx.org/resource/resmgr/pbm/3aa_washington_report_202406.pdf 
• Walgreens Plans Major U.S. Store Closures https://www.wsj.com/health/walgreens-plans-major-u-s-store-closures-0b04a96e#
• Legislators slam Express Scripts re: Tricare pharmacy program
• House Oversight Committee slams PBMs at hearing (Article | House Report PDF)

Thank you

1. https://www.sec.gov/Archives/edgar/data/1532063/000153206318000004/esrx-12312017x10k.htm ↩
2. https://islanddrug.com/2023/03/06/survey-results-are-in/ ↩
3. Sourced from a contractor ↩