Charles Walgreen was born to Swedish immigrants in 1873. He became a pharmacist and purchased his first pharmacy on the South Side of Chicago in 1901.  He chased the American Dream and, by 1916, owned nine drug stores.  He took Walgreens public in 1927, introduced the lunch counters, and invented the malted milkshake.

Walgreens became a fixture throughout the country, the place to go for prescription drugs, cosmetics, and children’s treats.  At its peak, on July 30, 2015, it had about 8,700 stores and a peak market cap of $105 billion.

On March 6, 2025, it was announced that Walgreens would be taken private by a private equity firm named Sycamore for around $10 billion.

The first question is how a once mighty publicly traded company fell far from grace.

The answer is hidden in the annual report in 2015.

The Walgreens annual report of 2015 stated that it experienced lower reimbursement rates in 2015 than in 2014.

The reimbursement rates are how much Walgreens is paid to fill your prescription.  Walgreens is paid for the costs of the drug prescribed as well as the costs of filling the prescription.  The payments to Walgreens come from a group of companies known as pharmacy benefit managers or PBMs.

PBMs were founded in the 1960s as claims processors for prescription drug coverage.  They started as simple entities, but we are left with three dominant PBMs over decades and dozens of mergers.  The top three PBMs are CVS Caremark, Express Scripts, and OptumRx, which control approximately 80% of all prescriptions dispensed in the US.  The market share of the three large PBMs can be massive in an individual state.  For example, the market share of Express Scripts in Michigan is 89%, and that of OptumRx in South Carolina is 83%.

 It also reported that consolidation and strategic alliances in the healthcare industry have increased pricing pressures. The report explicitly referred to United Health’s OptumRx, a Pharmacy benefit manager or PBM taking over another PBM, Catamaran Corporation. The combined entity will fill over 1 billion prescriptions and be the country’s third-largest PBM.

The annual report warns that the increasing market share of the three large PBMs enables them to underpay Walgreens to fill prescriptions. 

The Walgreens annual reports from 2015 through 2024 noted that payments from PBMs were lower than the previous year and that PBM consolidation risks the company’s business.  Over that period, Walgreens went from a company worth over $100 billion in 2015 to one that was taken private at $10 billion.

The power of this market consolidation was seen in 2012 when Walgreens disagreed with Express Scripts and decided to opt out of its network. This was a disaster for Walgreens, as patients with insurance that used Express Scripts as their PBM would have to pay higher fees to fill their prescriptions at Walgreens. Millions of prescriptions migrated from Walgreens to CVS, and Walgreens had no choice but to capitulate to Express Scripts.  From that point on, the three large PBMs were in charge.

To make matters worse, the three dominant PBMs are part of enormous healthcare conglomerates that contain insurance companies, pharmacies, and providers. 

The PBMs now set the reimbursement for retail pharmacies.  There is a conflict of interest as they all own their mail-order and specialty pharmacies.  The largest PBM, CVS Caremark, with a 34% market share, is part of CVS Health Corporation, which includes the largest retail pharmacy in the US, CVS Pharmacy.  Imagine if you could control the payments received by your competitors.  The three large PBMs can set the reimbursement rates for their competitors so low that they can drive them out of business and pay more to their affiliated pharmacies. 

The next question is, what will happen to Walgreens when it is taken private?

Private equity companies finance company takeovers by taking on large amounts of debt. The debt is placed on the acquired company’s balance sheet, and the company struggles to manage its debt load.

Sycamore is financing Walgreens’s takeover with 83.4% debt, twice the amount used to finance takeovers last year. 

When Sycamore acquires companies, it sells assets to reduce the debt load. In Walgreens’s case, this may include the Boots UK business and the Village Medical primary care business.

The next step is to reduce costs, save money, and service debt aggressively. Walgreens planned to close 500 stores in 2025 and 1,200 stores over the next three years. CEO Tim Wentworth reports that about a quarter of Walgreens stores are unprofitable.  There are currently about 8,363 Walgreens stores in the US, which means that over 2,000 stores are unprofitable and likely to close.

Florida has the highest number of Walgreens stores in the country, with 801, of which about 90 are in the Jacksonville area. This takeover could lead to a severe shortage of pharmacies in Jacksonville and throughout the state.

The following steps need to be done to save our pharmacies:

• Prohibit spread pricing, where the PBM charges the insurance company a higher price for a drug than it pays to the dispensing pharmacy.
• The pharmacy must be reimbursed for the drug’s acquisition cost and a reasonable dispensing fee.
• PBMs should not be allowed to use audits to collect fees retroactively.
• Federal anti-trust laws need to be enforced. If they had been implemented, we would not have a monopoly in the PBM business. 
• PBMs should not own retail, mail order, specialty, or any pharmacy.
• Insurance companies should not be allowed to own PBMs.
• PBMs should be paid a flat, transparent fee not indexed to the drug’s price.

We must ensure that our healthcare system works for patients and those who care for them.  The current system works for middlemen and politicians.