Declining Margins in Retail Pharmacy – The Main Causes and How to Combat Them

Pharmacies aren’t going anywhere. And, in fact, consumers are increasingly showing interest in getting more clinical services there than in other healthcare settings. Nonetheless, profit margins are declining in retail pharmacies for a number of reasons.


Fortunately, pharmacies can widen the gap by advocating for change and making wise technological investments in workflow efficacy and job optimization.

Pinpointing the Problem(s) 

Complexities of Pharmacy Compensation


Annual American healthcare spending is expected to exceed $7.2 trillion by 2031, accounting for nearly 20% of the US GDP.[1] Nearly 7 billion prescriptions were dispensed just last year in the US. In 2021, $603 billion was spent on prescription drugs – and year-over-year growth was largely due to increased costs rather than increased utilization;[2] the rise in drug prices has consistently outpaced the nation’s average inflation rate.


Meanwhile, drug reimbursement is shrinking for US pharmacies for two main reasons: Direct and indirect remuneration (DIR) fees and ongoing evolution of the pharmacy benefit manager (PBM) model, leading to unpredictable and unsustainable (often below cost) reimbursement.[3] DIR fees are charged by payers back to pharmacies, oftentimes long after prescriptions have been dispensed, based on performance quality measures stipulated by Medicare regulations. The Centers for Medicare and Medicaid Services saw DIR fees grow 107,400% between 2010-2020, having a detrimental effect on thousands of pharmacies.[4]


According to the 2022 National Association of Community Pharmacists (NCPA) Digest, the average independent pharmacy dispenses more than 63k prescriptions per year at an average charge of $59.62, with an average gross profit of 23%.[5]


While DIR fee reform legislation will take effect in January 2024, pharmacies still face lack of transparency in how drugs are priced, whether reimbursement will cover the costs, which drugs are prescribed to patients, whether those prescriptions may be abandoned, if claw-backs will come into play, etc.

Industry resources such as Pharmacy Practice News provide guidance on the latest CMS payment and policy updates in articles like this one.

Labor Shortages

Burnout and shortage of pharmacists, technicians and even clerks presents another challenge. Studies show as many as 61% of pharmacists are experiencing burnout.[1] NCPA survey results show that more than 70% of pharmacies struggle to fill front-end staff and technician positions.[2] Three in four pharmacy staff members felt they didn’t have enough time to safely perform their duties in 2022.[3]

Beyond just pharmacy, the World Health Organization (WHO) anticipates a global shortfall of 10 million healthcare workers by 2030,[4] despite that the need for healthcare certainly isn’t diminishing for the more than 8 billion patients worldwide.

Pharmacies’ imperative to do more with less is only exacerbated by consumers’ expectations of ‘more.’

Shift in Consumer Expectations


Digitization has changed everything from how consumers get care (telehealth), to how we get prescriptions (home delivery), to how we pay for medications (insurance copays vs. discount programs). But it hasn’t diminished the need for pharmacies; in fact, pharmacies are increasingly becoming the most accessible hubs of care in our communities.


Within five years, 61% of US healthcare consumers anticipate that ‘most’ primary care services will be provided at pharmacies or retail clinics rather than traditional doctors’ offices, according to a survey
recently commissioned by Wolters Kluwer. Furthermore, 72% would trust pharmacists to prescribe medications.[1] And pharmacists want to expand their practices, earn provider status, offer more patient care services and get reimbursed accordingly.[2]


Providing more clinical services in pharmacies would have an outsized impact in rural areas where clinics are fewer and farther between. Fortunately, roughly 90% of Americans live within 5 miles of a pharmacy and visit them 12 times more frequently than PCPs.[3]


However, more than half of consumers fear mistakes being made – worrying that their meds will negatively interact with one another; they’ll get the wrong drug, wrong dosage or wrong instructions; or other errors will occur because pharmacy staffs are stretched in too many directions.[4]


Pharmacies’ ability to support and equip employees, ensure patient safety and confidence, and enable ‘more’ quality services without more people demands fresh thinking, technological investments and
workflow innovation.


Seizing the Opportunities

Meeting Patients Where They Are


One of the most important things pharmacies can do is build awareness in their communities, among patients and providers alike. Low-cost marketing, advertising, public relations, community engagement and word of mouth will help get patients in the door.


And delivering outstanding (thorough, reassuring, efficient, impressive, friendly, collaborative, doctor-synced, educational, safe!) experiences when they’re in the pharmacy will keep them coming back for prescription fills, care and retail items.


Advocacy for the expanded role of pharmacists and corresponding reimbursement is crucial, too.

Consider the many clinical services you can provide to grow revenue when you have the time to spend with patients.

Investing in Smart Technologies


Whether you add to your existing repertoire or not, incorporating technological advancements into your workflow will help your staff operate at their best for your patients and business.

Tech investments aren’t intended to replace staff – rather, they’ll help them do their jobs more effectively, efficiently, accurately and with a greater degree of satisfaction. Employees will have time and capacity to get to know your patients and, in turn, create those outstanding experiences and positive word of mouth referenced above.

You likely already have software systems like a customer relationship management (CRM) and pharmacy management system (PMS) that integrate with one another, e-prescribing, point-of-sale, electronic health record and other systems.

Other strategic technology investments can help improve different aspects of your workflow, such as dispensing and medication verification via counters, robots or Central Fill operations, or will-call automation. Click here to access a free guide to assess whether you need a will-call automation system, and how to choose the one that would provide the best value for your pharmacy.

Prioritize areas where your staff or customers are feeling particularly strained and/or you see opportunities for measurable profit improvement. For example, with will-call automation, you not only see improvements in will-call organization, but also in:

Analyzing the Data

Don’t stop with the tools; capitalize on the insights.


By better understanding what’s happening in your pharmacy, you’re better equipped for patient advocacy, provider collaboration, inventory management and human capital management.


For example, will-call system data can tell you about which prescriptions are being ordered and filled, where errors could occur, which prescriptions could be abandoned due to high copays or other factors, which patients could benefit from additional consultation, when patients will be in the pharmacy and could access additional services, what’s getting returned to stock, etc. Visibility into this data can help staff prioritize tasks throughout the day, support good patient outcomes and optimize pharmacy revenue.


The US is anticipating a shortage of up to 124k primary care physicians by 2034,[1] and 72% of physicians expect pharmacists to help fill the gap as regulars in patient care teams by 2030.[2]

By taking a rightful seat at the managed care table – offering clinical services and verifying prescription drug treatments; monitoring medication adherence and patient outcomes; and strengthening communication and health data interoperability – pharmacies can enhance patient care and help transform the healthcare ecosystem.

Being cognizant of the factors impacting pharmacy margins and thoughtful investments in the staff and patient experience, including technology and automation, can make all the difference.

If you’re ready to start exploring how will-call automation could help with all of the above, schedule a scripClip demo and ROI analysis.