In recent years, major pharmacy chains like CVS, Walgreens, and Rite Aid have begun closing stores across the United States. This wave of closures, impacting thousands of locations, is raising questions about the future of community pharmacies and the factors driving these decisions. Here’s a closer look at why these companies are shutting their doors and what it means for consumers, especially in underserved communities.
The Shift Toward Online Shopping
The COVID-19 pandemic has fundamentally changed the way people shop. More consumers are opting for online purchases, curbside pickup, or delivery services such as Instacart. In response to this shift, CVS announced plans to close 900 stores by the end of 2024. The company began this process in 2022, closing approximately 300 stores each year. This decision reflects CVS’s strategy to focus more on digital services while reducing its physical footprint.
With 10,000 retail locations prior to the closures, CVS still maintains a large presence in many communities. However, the company plans to modernize many of its remaining stores, transforming them into HealthHubs, which offer a wider range of health services beyond the traditional pharmacy.
Financial Struggles and Competition
Financial pressures are a major reason for store closures across the pharmacy industry. Walgreens, for example, announced that around 25% of its U.S. stores are not profitable. The company, which operates roughly 8,600 locations, has been struggling with theft, competition, and failed growth strategies. Walgreens recently stated that they plan to close a “significant” number of stores as part of an effort to cut costs and improve profitability.
This trend isn’t limited to Walgreens. CVS, Rite Aid, and other major chains are also grappling with the financial strain caused by falling reimbursement rates for prescription drugs. The pharmacy industry depends heavily on filling prescriptions for revenue, but lower reimbursement rates from pharmacy benefit managers (PBMs) are squeezing profits.
The Role of Pharmacy Benefit Managers (PBMs)
One of the biggest challenges facing pharmacies today is the role of PBMs. These intermediaries negotiate drug prices between pharmacies, insurers, and manufacturers. While PBMs argue that they help keep drug prices down, pharmacies claim that PBMs are reducing their reimbursement rates, making it harder to turn a profit.
Elizabeth Anderson, an analyst at Evercore IRI, explained that “if reimbursement rates start to come down and drug stores can’t offset it with other growth, then it has a negative impact on their profitability”. This economic strain has led many pharmacies to close locations, especially in areas where reimbursement rates are lower, such as communities with a higher percentage of public insurance recipients.
Pharmacy Deserts and Community Impact
One of the most concerning consequences of widespread store closures is the creation of “pharmacy deserts”—areas where residents have limited or no access to a nearby pharmacy. Research shows that these closures disproportionately affect low-income and minority communities. A study conducted in major U.S. cities revealed that pharmacy deserts are predominantly found in Black and Latino neighborhoods, exacerbating existing healthcare disparities.
