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Five retail pharmacy trends for 2024

Labor challenges, the expansion of healthcare services, store-count rationalization and PBM reform are among the front-burner issues in the year ahead.
Mark Hamstra

2024 promises to be a tumultuous year for pharmacy retailers, as labor challenges persist and traditional drug store operators continue to shutter store locations and rethink their suite of offerings. On the bright side, some analysts see economic pressures easing, and the industry is also hopeful about legislation that could bring more transparency to prescription drug pricing.

Here are the five biggest trends to watch in the year ahead:

1. Decelerating economic growth could pose challenges

It appears likely that the U.S. economy will avoid a recession again in 2024, although drug store operators will continue to face challenges from competitors and from evolving consumer shopping preferences, according to analysts. “Despite 18 months of listening to experts say we’re going to have a recession, I still don’t believe we’re going have a recession,” said Dave Marcotte, senior vice president, cross-industry/cross-border and technology, Kantar
Consulting. “You can’t have 3.5% unemployment and get a recession. It just doesn’t work that way.”

He also said he believes consumer concerns about inflation and the economy could ease in 2024. As prices on many consumer goods continue to fall, it will have a positive impact on consumer confidence and spending, he said.

“Right now, 2024 is not looking like it’s going to be problematic,” he said. Drug stores, however, are still recovering from the impacts of the pandemic, when consumer visits slowed dramatically and shopping patterns shifted toward e-commerce. In addition, the high inflation rates of the past few years have driven many shoppers to lower-priced alternative retail formats.

“It’s going to take us 10 years to get past the pandemic,” said Marcotte, noting that consumers appear to be making fewer of the convenience shopping trips that retail drug stores depend on. “When drug stores are competing head to head with other channels, their need for a higher margin in the front end doesn’t work well when people start doing comparison shopping,” said Marcotte.

Research firm Morningstar is also not predicting a recession in 2024, but rather a deceleration in growth in both the economy and consumer consumption, said Julie Utterback, senior equity analyst, healthcare, Morningstar Research Services. Utterback agreed that front-of-store categories could be under pressure in 2024. “A decelerating economy would hit front-of-the-store sales the most,” she said. “However, the back-of-store pharmacy operations tend to be more recession-resistant and a bigger part of the pie for the retail operations of CVS and Walgreens, which gives the retail pharmacies a bit of a cushion relative to other more economically-dependent retail stores, typically.”

Avoiding a recession in 2024 could also have a positive impact on retailers’ access to capital and financing. Depending how certain economic indicators—such as unemployment and inflation—trend in the coming months, interest rates could start to decline at some point during the year, according to some observers. This could mean more favorable rates for borrowing, especially for small businesses such as independent retailers.

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2. Pharmacy labor pressures persist

An economic environment in which employment gains slow down could benefit drug stores by helping them add more staff in stores where more labor is needed, analysts said. “Overall, a more favorable labor market could lead to less pressure on wages than we have seen post-pandemic, such as when CVS raised its minimum wage to $15 per hour in 2022-2023,” said Utterback.

However, she noted, the recent pharmacy labor strife at CVS and Walgreens has been less about wage increases and more about reducing the burden on back-of-store workers, she pointed out. This suggests that retail pharmacies may need to hire more employees to keep their workforce happy, she said, noting that doing so could also impede retailers’ profit growth.

Store closures among the big drug chains could be freeing up some labor and helping reduce staffing shortfalls at nearby locations, said Marcotte. However, the healthcare industry overall has been under increasing pressure from labor shortages, and that could continue to impact the retail pharmacy talent pool, he said.

“That massive healthcare worker shortage started originally in hospitals and clinics, but you started seeing this [impacting] chain drug to the point where they started having to close stores or cut back hours because there simply wasn’t enough labor, and that just has not really changed,” he said. Both Walgreens and CVS have invested significantly in labor, not only in terms of wages but also in streamlined processes aimed at minimizing the burden on workers and in automation that seeks to optimize efficiency.

“We’re committed to providing access to consistent, safe, high-quality health care to the patients and communities we serve,” a CVS spokesperson told Drug Store News. “We face unprecedented demand and a clinical workforce shortage in the health care industry and are making targeted investments in our retail pharmacy business in direct response to feedback from our pharmacy teams.”

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These investments include enabling employees to schedule additional support as needed, enhancing pharmacist and technician recruitment, and hiring and strengthening pharmacy technician training. CVS also said it supports higher wages, benefit enhancements, new pathways for career advancement and operational improvements. These changes began in November 2023 and will roll out throughout 2024.

“We continue to expect more acquisitions from retail pharmacies to expand further into healthcare services eventually.”
— Julie Utterback, senior equity analyst, healthcare, Morningstar Research Services.

3. Retailers expand healthcare services

Retail drug store operators will also likely continue to expand their auxiliary healthcare service offerings, analysts said, even as they digest their recent acquisitions in this space. Walgreens, for example, said in January 2023 that it was pausing its merger-and-acquisition activity after buying majority stakes in healthcare providers VillageMD and CareCentrix in 2021, followed by the acquisition of urgent-care provider Summit Health by VillageMD in 2022.

CVS also said it was focused on the growth and integration of its recent acquisitions of Oak Street Health and Signify. “We’re redefining the health care experience to put consumers at the center and connect them to care more locally and more conveniently than ever before,” the CVS spokesperson said, citing the creation of new centers that have an Oak Street Health clinic and a CVS pharmacy side-by-side.

The model seeks to support medication adherence, counseling and support for Oak Street Health patients, the spokesperson said. Utterback said she expects to see drug stores making more acquisitions in the healthcare services space, although they appear to be taking time to digest recent acquisitions before making more moves.

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“We continue to expect more acquisitions from retail pharmacies to expand further into healthcare services eventually,” Utterback said. “Whether that happens in 2024 or not remains anyone’s guess, but we do not think the investment in healthcare service operations is over by any means.”

A tight labor market could further complicate the staffing difficulties that retailers have faced as they expand into other healthcare services, Marcotte pointed out.“I see this as being a real challenge,” he said. In fact, the expansion in existing pharmacies of healthcare offerings such as testing and vaccine administration have contributed to some of the pharmacy labor unrest at both CVS and Walgreens.

The ongoing expansion of pharmacy-based healthcare services also has a legislative component that has gained momentum heading into 2024. The Equitable Community Access to Pharmacist Services Act would ensure Medicare beneficiaries have access to pharmacist-provided vaccination, testing and treatment services.

“It’s a really, really important piece of legislation,” said Chris Krese, senior vice president, congressional relations and communications, at the National Association of Chain Drug Stores. NACDS is part of the Future of Pharmacy Care Coalition, a group of organizations that supports the measure. The bill also enjoys bipartisan support in Congress, said Krese.“We have a really, really good roster of supporters of this bill,” he said. “The sponsors in the House and the Senate are very, very active. They’re very, very committed.”

In addition, NACDS and other associations also support the expansion of pharmacy services to include nutrition counseling, as proposed in the Medical Nutrition Therapy Act, which also could advance in the year ahead, said Krese. This bill would improve Medicare coverage for pharmacists to be able to refer patients to nutrition specialists who could assist with dietary recommendations for managing conditions such as diabetes and heart disease. NACDS polling shows us that Americans look to pharmacists for reliable information about nutrition, he said 

“2024 is going to be problematic as the industry tries to find a new mix of products and services to move forward with.”
— Dave Marcotte, senior vice president, cross-industry/ cross-border and technology, Kantar Consulting

4. The drug store footprint evolves 

Retail drug stores are being forced to rethink their strategies for store placement and design. Walgreens, CVS and Rite Aid are in the midst of store-closure campaigns that are resulting in the divestiture of hundreds of locations, and at the same time they are seeking to optimize the product and service offerings in their remaining locations.

CVS, for example, shuttered 300 locations each in 2022 and 2023, the CVS spokesperson said. Another 300 are slated for closure in 2024 to fulfill its previously stated goal of closing 900 stores.“ The realignment is based on our evaluation of changes in population, consumer buying patterns and future health needs to ensure we have the right kinds of stores in the right locations for consumers,” the spokesperson said, adding that the realignment also supports the evolution of its stores into community health destinations.

Marcotte said the overall expansion strategy that drug stores had been pursuing for decades
“has really run out of steam.” “Now drug stores are considering, ‘Where do we want to be? How do we want to sell? What do we need in that box? And do we have the right box?’” he said. “So, 2024 is going to be problematic as the industry tries to find a new mix of products and services to move forward with.”

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CVS, for example, is enhancing a new store prototype that places its health and wellness offerings at the forefront. Key elements include a centrally located checkout area that enables more frequent engagement between colleagues and consumers, a simplified assortment that enables consumers to more quickly find the health and wellness products they need while also encouraging exploration, a circuit-like layout that places wellness and beauty in the front of the store and endcaps that are focused on health and wellness. The pharmacy, which has a dedicated consultation space and expanded waiting area, is also located at the front of the store.

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In addition to the store closures underway at the big three traditional drug store operators, Kroger and Albertsons are also expected to sell 413 stores to satisfy potential federal antitrust concerns as their planned merger moves forward in 2024. In a statement at the time the proposed spinoff was announced, Albertsons and Kroger said all pharmacies associated with the divested stores will remain with the stores and continue to operate. However, some observers—in particular the United Food & Commercial Workers Union—have questioned whether or not the proposed buyer, C&S Wholesale Grocers, plans to operate the stores for the long term.

5. Opportunities loom for PBM Reform

Federal legislation that would make drug pricing more transparent for both consumers and retailers appears to be on the horizon, according to industry associations. Both parties in Congress appear concerned about drug prices, and they have been increasingly supportive of the industry’s longstanding call for legislation that would change the pricing practices of PBMs.

“We have a really unique opportunity here,” said Krese of NACDS. “There’s bipartisan focus on the issue, which is wonderful.” He said NACDS is hopeful that PBM reform measures could be incorporated into a larger piece of legislation sometime in early 2024. However, he pointed out that it’s still possible that PBM reform gets crowded out by other issues, or that Congress passes legislation that doesn’t address the specific industry concerns around drug pricing.

“We’re concerned about the idea that PBM reform ‘in name only’ could happen, which means it wouldn’t have the necessary positive effects for patients and for the pharmacies that serve them,” said Krese. “What we hope will happen is that there will be very significant reforms related to Medicare and Medicaid,” he said. “We have very important reforms that have made it through congressional committees on both the Senate side and the House side, and we’re going to keep up the push to encourage Congress to cross the finish line on those important PBM issues and deliver the real reform that really is needed.”

With 2024 being a presidential election year, NACDS sees the early months of the year as the best window for legislative action, given the distractions that are bound to arise as the election gets closer and legislators spend more time campaigning. The increased politicization of issues that occurs in election years could muddy the opportunities in 2024, Krese said, although he also pointed out that lowering patient drug costs could provide powerful campaign fodder for legislators seeking re-election.

Ronna Hauser, senior vice president of policy and pharmacy affairs at the National Community Pharmacists Association, agreed that the potential for PBM reform holds promise for 2024. “There are several large legislative packages that definitely have movement, and we are working diligently to hopefully get those to floor votes in both the House and Senate and get them across the finish line,” she said. “There are many provisions in those federal legislative packages that would benefit our members and their patients.”

Among the legislative proposals is S. 2973, the Modernizing and Ensuring PBM Accountability Act, which contains several provisions seeking to enhance drug-price transparency, change PBM practices related to Medicare Part D and Medicaid managed care, and separate PBM compensation from drug costs, according to the NCPA. Other legislative and regulatory issues that NCPA has on its radar for 2024 include the Centers for Medicare & Medicaid Services final rule that eliminates retroactive collection of direct and indirect remuneration fees, but instead assesses them at the point of sale, which took effect Jan. 1, 2024. While this was a sought-after change, it could result in reduced income for pharmacies in the first few months of 2024, during the so-called “DIR hangover” period.

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“It’s a double hit, and we’re concerned about cash flow for our small business members,” said Hauser. Other issues of concern to independent pharmacies include preparing for the aspects of the Inflation Reduction Act that will kick in in 2025 and 2026, including the Medicare Prescription Payment Plan—previously known as the Out of Pocket Smoothing Plan—that allows patient to pay out-of-pocket drug costs over the course of a year, and the Medicare Drug Price Negotiation Program.

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