What’s the future look like for independent pharmacies?

The policies of health insurance companies today are making it harder for pharmacies to stay in business, according to Jim Stage, and that affects the people who need prescriptions. 

Stage owns and operates two of the shrinking number of independent pharmacies in Minneapolis and St. Paul, Lloyd’s Pharmacy (720 Snelling Ave., St. Paul) and Setzer’s Pharmacy (1685 Rice St.). He also operated Schneider Drug Store at 3400 University Ave. but closed it in 2019 and consolidated operations.

Stage points to the middlemen - the pharmacy benefit managers (PBMs) – as the reason pharmacies are closing.

A big problem is that pharmacies never know how much they are going to get paid for a drug. “We are a downstream business,” Stage pointed out. “It’s hard for a small pharmacy to stay in business because the reimbursements are low.”

It’s a complicated system. The amount the pharmacy is reimbursed for varies depending on which insurance company is involved and which specific plan a customer has.

There are some drugs that are consistently being reimbursed for less than it costs the pharmacy. 

Stage said he has made the tough decision to stop selling some medications because he can’t afford to take the loss. 

For a popular weight-loss drug, Lloyd’s spends $1,200 and loses $30 on a claim. “People don’t see that. All they see is what they pay,” Stage observed.

He appreciates the loyalty people have and how they are trying to keep independent pharmacies in business by sending their prescriptions to them. His customers are flabbergasted to learn that even if he’s busy and fills prescriptions all day that he can still be losing money. 

“People think that because you come into the store that we’re making money but that’s not true anymore.”

 

Today’s health insurance system using pharmacy benefit managers (PBMs) emerged in the 1990s to manage the prescription side of things for health insurance plans. Prior to that, this area of healthcare was directly managed by the insurance companies. PBMs negotiate drug prices with manufacturers and structure medication benefits within health plans. PBMs provide these services for insurance companies and employers alike. United Healthcare’s PBM is OptumRx, based in Eden Prairie, where pharmacists staged protests the past two years. Prime Therapeutics, headquartered in Eagan, is one of six largest PBMs in the country and is affiliated with Blue Cross and Blue Shield. 

These middlemen manage what is paid or not paid, and how things are paid, pointed out Stage. 

“Now they have become big conglomerates,” Stage observed. “They have become so big and powerful that they control the market.”

Simply put, they are significantly deflating reimbursements for pharmacies, he observed.

They are also operating their own online pharmacies.

PBMs argue that they lower prices. However, it isn’t the local pharmacists that are seeing the results of the savings. Instead, they’re closing locations. 

The number of independently owned pharmacies in Minnesota has dropped from 478 to 156 in the past two decades, according to the Minnesota Board of Pharmacy. Large chain stores have decreased from 552 to 451. Twenty years ago in  the Twin Cities, there were 142 small pharmacies and 307 chain locations. Today, there are 48 independent pharmacies and 252 chain locations.

“It’s staggering,” said Stage. 

The CVS at Snelling and University in St. Paul was shuttered in 2022, part of 600 stores that were shut down nationally, many of them in low-income neighborhoods and those with theft problems. Another 300 were closed in 2024, and the location at Franklin and Nicollet in Minneapolis will be closed on Feb. 11.

In 2024, Walgreens, another large pharmacy company, announced plans to close 1,200 stores over the next three years. Of those, 500 stores will be shuttered in 2025.

“When I hear that, I know I’m not the only one in a tight space,” said Stage. When it’s not only the independents struggling, but also the larger chains, its a larger issue, he said.

“Something has to change. It’s not sustainable.”

While pharmacies are closing down and citizens are traveling longer distances to get prescriptions filled (or waiting for them to come in the mail), healthcare insurance companies are making money.

“They’re doing it on the backs of the consumer and the pharmacies,” Stage said.

 UnitedHealth Group reported $22 billion in profits for 2023, and its chief executive officer Andrew Witty made $23,534,936 in total compensation. Its CEO, Maple Grove resident Brian Thompson, was shot and killed in New York City in December 2024 while attending a company event. Under his leadership UnitedHealth Group made $16 billion in profits last year. The man charged with his killing, Luigi Mangione, criticized health care companies.

PBMs have been embroiled in lawsuits alleging that they are limiting access to some drugs and promoting others. 

In 2017, Mylan, the manufacturer of EpiPen, was accused of illegal schemes to favor the drug over competitors. The lawsuits alleged that Mylan offered PBMs large rebates in exchange for giving EpiPen preferential placement on their formularies. This allowed Mylan to raise the price of EpiPens. 

“They demand we fill a certain brand of Epi and they inflate the price,” said Stage. The insurance company reimburses very little, and the cost to consumer and pharmacy is high. “There is no accountability for them,” stated Stage. “They need more accountability. They need more transparency with the consumer.” The problem is found in many aspects of healthcare, he observed, as people don’t know what services cost before they start receiving multiple bills.

 

Pharmacy is a proximity business, Stage pointed out. People want to get their prescriptions from a pharmacy near where they are, and that is the prime driver of business. But more than that, independent pharmacies believe they are fulfilling a critical role for their communities, said Stage.  

During his time in the industry, he’s watched pharmacies need to increase their volume and employ fewer people to stay in business.

They’ve added more merchandise in the stores, selling over-the-counter medications, gifts and cards. Pharmacies are also doing vaccinations.

 

Minnesota Independent Pharmacies, known as the MNIndys, seeks to bring awareness to the problems local pharmacies and their patients face due to PBM abuse and through educating Minnesotan patients, employers, unions, and legislators on PBM-related issues, according to the website www.mnindys.org/.In addition to education, MNIndys is dedicated to seeing both meaningful legislation and actionable enforcement regarding PBMs take place in Minnesota. 

They seek regularly reforms to address potential loopholes and ensure that PBMs operate in a way that benefits pharmacies, patients and healthcare. They are also working to encourage competition among PBMs to ensure fair negotiations with pharmacies and medication manufacturers. MNIndys support regulations that enhance transparency about PBM practices, including pricing arrangements and rebates. 

“Let us compete on our merits. Let us compete on our service. We’ll never be able to buy drugs as cheap as the Walmarts, the Walgreens, things like that, and that’s fine. That’s the market. That’s how a free market’s supposed to work. But on a level playing field, if I get to compete with the big boxes on service and taking care of my patients, I will beat them every day. And that’s all we’re asking for, is the opportunity,” said Deborah Keaveny, founder of MNIndys and owner of Keaveny Drug in Winsted, Minn.

Nationally, H.R.9096, the Pharmacists Fight Back Act, is winding its way through committees.