Dear Colleague,
"Good to Great" by Jim Collins is one of the most popular business books of all time. Collins looked into the traits of what separates good companies from great companies. Walgreens was on his list of great companies. Earlier this month, Walgreens was taken private in a $10 billion deal. Built to last no more.
Collins' book was published 30 years ago, but even as recently as 2015, Walgreens was worth over $100 billion. Its stock has gone down 82% over the last 10 years while the S&P 500 is up over 250%!
Part of Walgreens problem is that it has swung and missed trying to reinvent itself since Italian billionaire, Stefano Pessina, took over the company. Sushi bars appeared in some locations, high end cosmetics like those one might see in European pharmacies were added, and, perhaps as its biggest gamble, it bought controlling interest in Village MD for around $6B.
The Village MD gambit seemed to make sense on paper—combining primary care locations with pharmacies to create synergies between a primary care provider and a pharmacist could lower costs and improve care quality. That was in 2021. Now, Village MD is actively for sale to raise needed cash.
Walgreens also acquired about half of the Rite Aid stores and shortly thereafter closed about 700 of them. Closing stores has been a recent theme for Walgreens too. In 2018, they operated about 9,600 stores but are now down to 8,500 stores and recently announced they will close another 1,200 pharmacies.
While none of these moves panned out for Walgreens, it's a pet peeve of mine to read reports about why community and chain pharmacies are closing and seeing only Amazon as a primary cause. Amazon has had an impact, mostly on chain drugstores and their OTC sales but it's PBMs that have been the undertakers for thousands of pharmacies. Even Walgreens at its peak couldn't overcome the monopolistic one-sided "negotiating" tactics by the PBMs.
In the category of "If you can't beat 'em, join 'em", Walgreens hired former Express Scripts CEO, Tim Wentworth to replace former Starbucks executive Roz Brewer. Perhaps that's another reason why the word "PBMs" or "big health insurance" are rarely identified as a major cause of the problems.
Walgreens was the only pure pharmacy left on the S&P. Its demise is yet another validation of the concerns NCPA and our members have been shouting for over a decade. The problems with the pharmacy payment model can't be blown off as "just the little guys' problem".
Walgreens shrinking store footprint, plus the overall contraction of patient pharmacy choices from over 60,000 to just under 54,000, is going to drive more prescriptions into other pharmacies, including independent pharmacies. In the past, that would have been a reason to celebrate, but not necessarily anymore. PBM contracts have cut so deeply that pharmacies are being forced to assess which patients they can afford to take—much like a doctor has to decide whether to accept a patient into his practice. The PBMs, after first denying that pharmacy store counts are going down, will say the closing of Walgreens is just "right sizing" and there are still plenty of pharmacies in their networks. The reality is that there are fewer pharmacies to fill out the PBMs' pharmacy networks. And, without a pharmacy network, they don't have coverage.
The PBMs need you. They just won't ever act like it. After the smoke clears with Walgreens, they are going to need you more than ever.
Best,
B. Douglas Hoey, Pharmacist, MBA
NCPA CEO
P.S. April 11th is the last day if you want to try to get back some of your CVS DIR fees that were taken from you. It's a hard deadline. Go to www.fightPBMs.com.
