Legacy PBMs Are Hurting More Than Just Patients—They’re Hurting Pharmacies, Too

When I became a pharmacist at a local grocery store pharmacy outside Salt Lake City, I saw firsthand the vital role community pharmacies play. For nearly a decade, I got to know the people in my neighborhood—many of whom needed guidance, creativity, and compassion to afford their medications. I learned about their health needs and made sure they left my pharmacy not just with prescriptions, but with clarity on how to use them. I felt needed, and valued.

The data backs this up: patients visit community pharmacists 12 times more than their primary care providers. That frequency gives us deep insight into their health and lives.

Today, though, community pharmacies are under growing pressure. Between 2018 and 2021, more U.S. pharmacies closed than opened. Independent pharmacy margins hit a 10-year low in 2022.

What’s driving the trend? Sure, inflation and market dynamics play a role. But the biggest culprit is legacy pharmacy benefit managers (PBMs) and their reimbursement model. While it’s widely known that PBMs inflate patient drug costs, fewer people realize how much these same business practices—market manipulation, hidden fees, and rebate-driven drug selection—are hurting pharmacies, too. If we don’t shine a light on these practices, we risk losing pharmacies that communities rely on.

The Role of Community Pharmacies—Especially in Underserved Areas

When people think of community pharmacies, they often picture rural towns—and there’s a lot of truth to that. These pharmacies do far more than fill prescriptions: they give vaccinations, offer testing, advise on medication use, and even help with hearing aids.

But they’re just as critical in urban areas, especially for underserved communities. And while 89% of Americans live within five miles of a community pharmacy, closure rates are not equal: in 2024, pharmacies in majority-Black and Latinx neighborhoods closed at rates nearly 10 percentage points higher than those in white neighborhoods. That forces patients to travel farther or rely on mail-order—a serious burden for many.

Here’s the twist: chain pharmacies often charge more for medications. Unlike retail, where bulk buying means lower prices, pharmacy pricing is distorted by PBMs. Big chains negotiate higher reimbursement terms, which leads to inflated drug prices—driving up costs for plans and patients alike.

Community pharmacies are central to public health, local economies, and access to care. But PBMs have built a system that stacks the deck against them—making it harder and harder for these vital institutions to stay afloat.

How PBMs Manipulate the Market

PBM impact goes far beyond low reimbursement rates.

Take remuneration fees. PBMs often charge these under the guise of Medicare Part D performance—but they do so after medications are dispensed, leaving pharmacies with unpredictable costs. Big chains can absorb the hits. Independent pharmacies? Not so much.

Preferred networks are another problem. PBMs strike deals with health plans to drive patients to ‘preferred’ pharmacies by lowering copays. That often excludes community pharmacies, making them less competitive, even when their care is better.

Then there’s the core of it all: reimbursement methodology. For years, PBMs have offered big discounts to clients off a made-up benchmark called Average Wholesale Price (AWP). To hit those discounts, they negotiated lower and lower payments to pharmacies. Big chains could push back. Community pharmacies couldn’t.

Today, those AWP discounts are so steep—sometimes 90% or more—that they’re totally disconnected from real drug acquisition costs. Pharmacies have been forced into a model where their only margin is the spread between the cost at which they buy the drug and what they get reimbursed. That might work in retail, but not when the “buyer” that is reimbursing you is a powerful PBM, and not a retail customer.

At SmithRx, we knew this had to change. That’s why we’re rebuilding from the ground up—creating cost-based pharmacy contracts that remove ingredient cost margins and instead pay pharmacies a clear, fair dispensing fee. This model gives pharmacies predictable, sustainable revenue, while giving plan sponsors pricing that’s transparent and lower in total cost.

The Walgreens Warning

If you think this only affects small community pharmacies, think again.

Even Walgreens—the second-largest U.S. pharmacy chain—is struggling. They’ve announced plans to close 1,200 stores, including 500 in 2025.

Seth Joseph at Forbes recently highlighted what’s happening: While Walgreens’ revenue and prescription volumes are up, gross margins have plummeted. Why? PBMs reduced reimbursement for generics, and even though pharmacies temporarily benefited from newer generics, that advantage faded fast.

To compensate, Walgreens pushed more 90-day prescriptions. But that reduced store visits—and front-end sales. The cycle repeated.

Walgreens’ average store makes about $13 million per year. A typical community pharmacy brings in less than half that. If Walgreens can’t make it in this environment, how can we expect independents to survive?

(And if you’re wondering why CVS isn’t hurting as much—it’s worth noting that CVS owns CVS Caremark, one of the biggest PBMs. Draw your own conclusions.)

A Way Forward

Community pharmacies are essential—but the legacy PBM model is eroding them from the inside out. These middlemen have amassed enormous power across every part of the drug supply chain: patients, plans, providers, and even manufacturers.

But there is a path forward. Cost-based PBMs—like SmithRx—are proving that it’s possible to deliver real savings without relying on shady pricing tactics or backdoor deals. They offer everything a legacy PBM does—without the conflict.

The key is procurement. Employers and plan sponsors hold the power. The choices they make in PBM selection will shape the future of pharmacy access in America.