A Philadelphia pharmacy’s closure after 26 years highlights the industry’s growing challenges

Last Monday, Friendly Pharmacy filled 318 prescriptions. For about 100 of them, insurance companies paid the pharmacy less than $3.

In 22 instances that day, the reimbursement was less than the cost of the medication. And that's just among the prescriptions that were actually filled. Managing pharmacist Brad Tabaac said he has to turn away some patients because their prescriptions will cause too much of a loss for his business.

One recent patient, for instance, came in hoping to transfer his inhaler prescription to Friendly after his local Rite Aid closed. Filling the medication would have cost Friendly $22 more than the insurance reimbursement.

"I just can't afford to serve him," Tabaac said.

And now he can no longer afford to serve anyone.

Tabaac plans to close his doors on May 31 after 26 years in business. As a second-generation pharmacist, he said, he's been working in drug stores since he was 11 years old. Making money on medicine wasn't a question back then, but now it's a string of "exhausting" calculations on a daily basis.

"Years ago, you would just fill prescriptions, and you would concentrate on patient care," Tabaac said. "Now you have to look at each and every prescription you fill and say, 'Am I losing money?'"

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Why pharmacy benefit managers are challenging small pharmacies

Independent pharmacies like Friendly, as well as some chains, have been pinched by pricing and fees set by pharmacy benefit managers — the companies that handle prescription drug plans for health insurance.

The three biggest pharmacy benefit managers are CVS Health, Optum Rx and Express Scripts. They control nearly 90% of the market, according to the National Community Pharmacists Association (NCPA), and some of their parent companies also own pharmacies. In other words, NCPA has said, "what community pharmacies charge patients and are reimbursed is often determined by a competitor."

This challenge has caused more than 80 community pharmacies in Pennsylvania to close just in 2024, said Rob Frankil, executive director of the Philadelphia Association of Retail Druggists (PARD). Contracts with pharmacy benefit managers are "take it or leave it," he said, giving individual business owners little to no room for negotiating reimbursement rates that will allow them to stay in business.

PARD has been lobbying lawmakers for changes.

The Federal Trade Commission is conducting an inquiry into the system. Chair Lina M. Khan said at a White House Roundtable in March that complaints to the commission suggest pharmacy benefit managers "hike the price of drugs, deprive patients of access to certain medicines, and drive community pharmacies out of business."

As pharmacy benefit managers "have consolidated and vertically integrated, we hear of a system where corporate red tape and bureaucracy obstruct patients from getting their medications, sometimes with devastating results," Khan said.

Khan noted that the pharmacy benefit managers haven't fully complied with FTC orders seeking documents and data.

"We are undertaking this work with enormous urgency and focus. And if we find evidence of illegal practices, we will not hesitate to act," Khan said.

Tabaac acknowledges that effort but said it's coming too late for his business.

"Pharmacists knew they were going to lose money on branded drugs," he said. "But they were signing these contracts because they were thinking, 'What else am I going to do?'"

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Other costs rising

While Tabaac can't control the revenue he brings in from prescriptions, despite having plenty of customers, he also can't control certain costs that have risen in recent years. One of them is business insurance, he said, which has become more expensive in part due to his pharmacy's location in the Kensington neighborhood. Friendly was dropped by its business insurer in recent years because of incidences of vandalism in the community, he said, and had to find a new policy.

"The insurance companies do not want to insure us," Tabaac said. "We're too much of a risk."

Once Friendly closes, the closest chain pharmacy is a Rite Aid about three-quarters of a mile away. A few other independents remain open closer to Friendly's location, according to city records, but pharmacy density here is lower than in other sections of the city.

Not long ago, Tabaac absorbed the patients from another independent pharmacy nearby that closed because of finances.

Tabaac is concerned about the patients who have accessed prescriptions through Friendly's delivery services or relationships with doctors who do house calls, as well as those who don't drive and will have to take public transit to a new location.

"Will they find an advocate? Some of them will," he said. "I fear that many of them won't."