‘At rock bottom.’

The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.

Alarms in Ohio and beyond went up Thursday when pharmacy retailer Walgreens announced that it was selling itself to the private equity firm Sycamore Partners.

The nation’s second-largest pharmacy chain was already in the process of closing thousands of underperforming stores, adding to mass closures in Ohio and nationwide.

Private equity firms are known for buying distressed companies, selling off the valuable pieces and walking away from the rest. So what’s to keep Sycamore Partners from selling profitable Walgreens stores in wealthy areas and closing those in poorer, underserved ones, some observers asked.

But an Ohio pharmacy leader who last year warned that Walgreens’ struggles had dire implications for public health on Friday said its sale to a private equity firm might actually be a good sign.

Dave Burke, a pharmacist, former state senator, and executive director of the Ohio Pharmacists Association, said Walgreens’ draconian actions are likely to push through federal reforms for which momentum has been building for months.

“I think the regulatory environment around (pharmacy benefit managers) is going to change completely in the next 12 months, which is as long as it’s going to make this transaction go through,” Burke said. “As a national company, Walgreens became not the canary in the coal mine, but the sentinel moment for Washington, D.C. to actually realize that this is a broken system, not a bad company, not a bad store, not a bad manager, but a broken system. They’re going to fix it. You can’t allow this to continue.”

Declining retail pharmacy numbers is a public health concern because unlike mail-order, they are places where you can quickly get your medicine and vaccines, for instance, when a child has an earache or a bad rash, and waiting for the medicine to show up at the mailbox is impractical.

Also, experts have noted, in medically underserved places, the pharmacy can provide the rare chance to talk to a medical professional about chronic conditions like hypertension and diabetes.

Pharmacy benefit managers, or PBMs, are drug middlemen that represent insurers in drug transactions. For most of the past decade, they’ve been accused of driving pharmacies out of business.

The biggest three PBMs handle nearly 80% of insured transactions and each is part of a Fortune 15 health conglomerate — UnitedHealth Group, CVS Health and Cigna-Express Scripts. Each of those companies owns a top-10 health insurer, and their PBMs represent those insurers as well as others in drug transactions.

The companies also own mail-order pharmacies and CVS owns the nation’s largest retail chain. Critics say that the conglomerates’ dominance in so many different areas is rife with conflicts and anticompetitive practices have forced up the price of drugs — and forced pharmacies out of business.

The big PBMs decide which drugs are covered by insurance and which have the smallest or no copayments. That gives drugmakers great incentive to pay the middlemen ever-growing rebates fees to get their products on lists of covered drugs.

Academic research has shown that drugmakers raise list prices as they raise rebates. And the Federal Trade Commission has accused the PBMs of in some cases refusing to cover cheaper medicines as they chase bigger rebates.

On the pharmacy side, PBMs control access to so many patients that pharmacies not owned by those companies say they have no real choice about signing whatever deals the PBMs put forward. That means agreeing to opaque reimbursement systems under which pharmacies often lose money, they say.

As the middlemen have gained greater control over the marketplace, the number of Ohio pharmacies has dwindled.

The big-three PBMs have gone from controlling just under half of the national marketplace in 2010 to nearly 80% in 2023.

Meanwhile, the number of retail pharmacies in Ohio has dropped from 2,219 in 2015 to 1,869 last year, according to a data tool launched last month by the Ohio Board of Pharmacy. That’s the first time in recent memory that Ohio has had fewer than 2,000 pharmacies, and it comes despite modest population growth.

The news that Walgreens is selling out to private equity in a $10 billion deal could mean even fewer pharmacies in Ohio.

“Most private equity companies don’t do things for the long run,” Burke said. “Is this going to be a hatchet job — a turnaround evaluation where they sell? Or do they want to turn Walgreens around as a long-term investment and then sell it?”

Despite private equity’s reputation, the pharmacy leader said he suspects the latter.

Ohio and other states have been trying for nearly a decade to enact reforms of their own. But because of the PBMs’ national footprint, any effective reforms must come at the federal level, the industry’s critics have said. In recent months, sweeping reforms have been gaining steam.

The U.S. House of Representatives in December nearly passed the most sweeping federal PBM reforms yet as part of a deal to keep the government open. With then-President-elect Trump expressing support, the reforms made it into what seemed like the final funding deal.

But then billionaires Elon Musk and Vivek Ramaswamy tanked itby claiming it spent too much. Despite their expected savings, the PBM reforms didn’t make their way into the massive spending plan that passed with Trump’s backing.

But the bipartisan push for the reforms continues. Ohio Attorney General Dave Yost last month led a bipartisan group of 39 state attorneys general in urging Congress to pass three reform bills pending before it.

One would delink PBM charges from drug prices, thereby removing any incentive to favor more expensive drugs over cheaper ones. Another would require that PBMs serving Medicare Part D only charge flat fees set forth in a written agreement, and that aren’t related to drug prices or rebates.

The third, the Lower Costs, More Transparency Act, is intended to shine a light into all manner of health transactions, including hospitalization. For drugs, it would require disclosure of what drugs are dispensed, what their net prices are and patients’ out-of-pocket costs.

Burke said there’s a consensus to rein in the middlemen.

“I’ve spoken to folks in our congressional delegation,” he said. “They’re asking the right questions. Here in Ohio, freshman legislators don’t have to be taught what a PBM is anymore, and I guess that’s what’s happening in Washington, D.C. This is a trainwreck you can’t turn away from. People are going to have to fix it.”

He added that Walgreens’ private-equity suitors appear see the same thing as they look into the future.

“Even if you strip (a better-performing pharmacy) out, who’s going to buy it?” he asked.

Viewed through that lens, Burke said he thinks the Walgreens sale is actually good news.

“Probably one of the best things that happened in pharmacy was Walgreens saying, ‘We just can’t take it anymore,’” he said. “I think we’re at a point of inflection. It’s slow-moving, but I think we’re there. If I were (part of the private equity group) I would probably buy Walgreens as well because we are at rock bottom. If this goes any lower, I don’t know where people get their prescriptions. We have a health crisis at that point.”