Blame Government, Not Wal-Mart

Sunday’s Washington Post printed a sympathetic story about an independent pharmacy. The story appears to be about how the rapacious forces of capitalism are causing problems for the independent business. Reporter Dale Russakoff writes:

The forces of competition [are] turning the economy into one giant distribution chain, moving ever more products to ever more people at ever lower costs, mowing down everything in between. did it to bookstores, Home Depot did to hardware stores, and now so many forces are converging on community pharmacies that it feels like a tornado at the door.

For a lot of businesses this is true. But, actually, Russakoff’s own reporting undermines its thesis in the particular case he writes about. Because it provides a high level of service that, Russakoff finds, the Leeseburg, Virginia, pharmacy he writes about attracts people who drive past “a dozen pharmacies” in order to buy something there.

Instead, the real problem appears to be government and, perhaps, private pharmacy benefit managers. The only particular problem the story cites is Medicaid reimbursements which squeeze the pharmacy’s profit margins. Medicaid negotiates and sets drug prices directly with the government. Although the reporting implies that they’re a pure political product, Medicare’s Part D drug coverage works pharmacy benefit managers that preexisted the addition of the drug benefit. With or without Part D, however, they negotiate at least as hard as the government would and have immense purchasing power. Having more people in these plans further squeezes a small pharmacy. And Medicare Part D has massively increased the use of these plans.

In other words, it’s big government, not big boxes, that are hurting the small pharmacy.