Even more pharmacy consolidation: UPMC in Pennsylvania

 When I was doing research on public markets a few years ago, I came across a book called Civic Agriculture, about the development of local food systems centered upon small business.  

One of the interesting discussions within the book was how the prominent sociologist C. Wright Mills did a study for a Congressional Committee just after World War II, about the difference in economic effect of small businesses versus chain businesses and the impact on local communities.

-- Small Business and Civic Welfare, United States. Congress. Senate. Special Committee to Study and Survey Problems of Small Business Enterprises, 1946

Well, in terms of government support for small business versus large business, we know the road that was taken.

At the beginning of the covid vaccination program, West Virginia was touted for its program which focused on utilizing independently owned pharmacies to deliver vaccines, leveraging the trust in locally based professionals within the community ("A West Virginia pharmacist on how the state became a vaccine success story," Vox).

I also remember stories about independent pharmacists taking their own initiative to go to local nursing homes, senior centers, etc., to do vaccinations "in place" rather than expect often infirm people to come to them ("This Pharmacist Had Vaccine Doses to Spare. So He Hit the Road," New York Times).

Just like there is a term food desert, the same goes for pharmacies, "pharmacy deserts," as the industry has pretty much chained up on two primary firms--CVS and Walgreen's--and one also ran, Rite Aid.  Plus Walrmart.  A few years ago Target sold its pharmacies to CVS, which now runs them within Target stores.

-- "Mapping pharmacy deserts and determining accessibility to community pharmacy services for elderly enrolled in a State Pharmaceutical Assistance Program," PLoS One, 2018

While supermarkets have been quite active in having pharmacies, increasingly stores are getting out of the business, especially because prescription benefit companies keep lowering the reimbursement levels, making it unprofitable to fill a prescription.

Health care organizations are doing the same thing.  UPMC, the major hospital and health care group based in Pittsburgh, has just reduced the number of pharmacies able to participate in its health care program, and this has targeted small pharmacies in small towns ("As UPMC takes drugstore network trend to Obamacare plans, small-town Pa. pharmacists worry," Pittsburgh Post-Gazette).  From the article:

UPMC Health Plan is reducing by 60% statewide the number of drugstores where people with Obamacare coverage can fill prescriptions, a move that follows an industry cost-cutting trend and one the insurer said is needed to better align pharmacist services with overall patient care.

The smaller networks will affect both individuals and small employers who are insured through Pennsylvania’s online marketplace, called Pennie. Enrollment in Pennie plans for 2023 continues through Jan. 15 and will determine the number of people affected by the change.

But some independent pharmacy owners predict the downsizing — and similar efforts to drive down drug costs by limiting the number of participating pharmacies available to plan participants — endangers Pennsylvania’s 829 independently owned pharmacies, including many serving rural areas.

Healthcare deserts, nationally.  While the switch will reduce costs up to 2%, it comes at the cost of abetting the medical desert problem, and makes getting medical care that much more difficult in small towns and rural areas more generally. 

-- "Mapping Healthcare Deserts: 80% of the Country Lacks Adequate Access to Healthcare," GoodRx

Government policy should differentiate between place conditions--inner city urban versus suburban versus rural in particular, and these kinds of program changes should be disallowed because of the negative impact on local communities and businesses.

The immediate savings for the health plan are dwarfed by the negative costs imposed on communities in other ways, costs which can exacerbate health conditions rather than improve them.

AMIBA national conference: Vision 2020, Madison, WI, early bird registration until 2/14

With the aim of trying to answer the question, what does a public market look like in the 21st century,  specifically how does it define, manifest and carry out a "public purpose" when there is no longer a need for a system of market buildings to distribute food to urban consumers, I skimmed the book Civic Agriculture.

Community capitalism.  It turns out that Thomas Lyson, the now deceased author who was a professor at Cornell University, was equally interested in a more local and "community oriented capitalism" ("Local Capitalism, Civic Engagement, and Socioeconomic Well-Being," Social Forces, 1998).

One of the antecedents he called attention to was a report by sociologist C. Wright Mills, Small Business and Civic Welfare, which was commissioned by a Congressional Committee in the post-war period.  Needless to say, Congress chose not to endorse the small-business oriented capitalism that Mills outlined.

AMIBA, the American Independent Business Alliance, which is focused on small and independent businesses and not limited to retailers, has an annual conference, which this year is in Madison, Wisconsin, from April 22nd - 24th.

The theme is "Local Economies for the 21st Century."

There is an early bird price for registration through February 14th.

It's pretty timely, considering some of the new books out about concentration and decreasing innovation in the American economy, such as Goliath: The 100-Year War Between Monopoly Power and Democracy and The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon.

Economic Development vs. Building A Local Economy.  Sometimes I term this in terms of the difference between "economic development" and "building a local economy."  The difference has to do with the economic multiplier effect -- how many "spillover" jobs are created as a result and "where the money goes."

The example is spending at a locally owned store or a chain.  A chain--a supermarket, department store, clothing store, bookstore, etc.--repatriates the money it makes to its headquarters, and for the most part "back office" jobs like accounting, marketing, etc., are located elsewhere, if not at the national headquarters a regional headquarters.

(For example, today Macy's announced it would finally close the original Federated hq in Cincinnati and consolidate its functions in New York and elsewhere--the Macy's chain is the amalgamation of four other chains, which once had hqs in other cities like St. Louis, now closed.)

AMIBA and other organizations have conducted studies in the past showing the difference.

-- Ten Studies of the “Local Economic Premium”

I've written about this in terms of big sports events like the Super Bowl too. While large numbers are bandied about, the reality is that most of the spending is on hotel, travel, and food. Travel spending is captured by airlines and rental car firms. Hotel revenues, exception for minimal numbers of employees (housekeepers, etc.), is repatriated outside of the city as well.

If you want legitimate small and minority businesses operating in the government side of the construction trade you have to build the infrastructure for it

Photo by Darrow Montgomery, WCP, showing a small house-based office building used by multiple contractors.

The cover story in last week's Washington City Paper, "Construction Companies Open East-of-the-River Offices to Win Lucrative Contracts," is a nice piece about how despite claims by Events DC about how. in building the new professional basketball practice facility in Ward 8, large amount of work directed to contractors and workers based in the city's most economically impoverished areas, the reality is more nuanced.

It turns out that the companies are usually based elsewhere with only minimal ancillary operations in Wards 7 or 8, often having little more than a desk or two in small buildings shared by one half dozen or more businesses. And only small numbers of employees end up coming from the immediate area of the project.

From the article:

A City Paper review of DSLBD’s quarterly Entertainment and Sports Arena reports identified millions of dollars’ worth of contracts that went to businesses that are local by the District’s standards, but are actually headquartered outside of wards 7 and 8. Some of their D.C. locations are sparse, if they exist at all.

One company, JJ Prime Services, received a $1.7 million contract for work on the Ward 8 arena. The business does not appear to have a website—just a Facebook page, which does not describe what kind of work the company specializes in. But a quarterly report from DSLBD shows that JJ Prime Services was hired for “excavation” at the Entertainment and Sports Arena.

Public records from D.C.’s Department of Consumer and Regulatory Affairs show that the company is a Maryland-based LLC, with headquarters in Silver Spring and a separate office in Prince George’s County. But D.C.’s DSLBD records show that it’s also registered as a Ward 7 local business. City Paper visited the company’s Ward 7 address, an office park off of Bladensburg Road NE, just shy of the Maryland border.

The article features an extended interview with Adam Sacks of Saxon Collaborative, and he outlines the various difficulties in the way of truly small businesses making a go of it from construction contracts on government-funded projects and problems with basing offices East of the River:

Sacks says that, in his experience, it’s difficult to find CBEs based in Ward 8 that are financially stable enough to navigate the obstacles involved in working on larger D.C.-funded projects, which are often slow in reimbursing general contractors for work and stacked with burdensome hiring requirements. (“We know that’s been an issue,” McDuffie says of delayed payments.)

Sacks cites infrastructure work Saxon has completed on the St. Elizabeths East campus, and the beleaguered Parkway Overlook project (“truly a disaster,” Sacks says) as examples of poorly run D.C. projects in terms of timely repayment and subcontractor hiring.

Creating different business forms to support business development. In culture planning, I have discussed a report, Cultural Infrastructure: An Integral Component of Canadian Communities, by the Creative City Network of Canada, outlining the necessary infrastructure for artistic endeavor.  It outlines six elements including multi-use hubs, incubators, and creative production habitats.

Similarly, public market type buildings and retail cooperatives are ways to support the development of small retail operations or ways to provide the equivalent of grocery stores but through bringing small businesses together.

Similarly, in start up business development, there are all kinds of various business incubator operations.  Although a big problem with "incubators: is that they focus on providing assistance for a relatively short period of time, and often most businesses need more time and support in order to become successful and as importantly, stable, especially those working in the government sector, where margins can be very small.

-- "Business incubators models of the USA and UK: A SWOT analysis," World Journal of Entrepreneurship, Management and Sustainable Development

But traditionally there aren't such initiatives in construction. More than ten years ago, the Abdo Company of DC didn't create an incubator exactly, but in a city where it is hard to find industrial space, they purchased a site for staging and storage, and made it available to their contractors. 

This provided the contractors an in-city place to locate their businesses that was stable and at a lower cost than finding or buying space elsewhere in the city or the region.

Construction business incubator in Greater Indianapolis.  While incubators primarily focus on development of new technologies, and some exist in the construction industry too, in Fishers, Indiana, there is a construction business incubator under development called the Hub & Spoke Design Center ("Indiana's skilled-trades workers are in short supply. A Fishers jobs incubator could help," Indianapolis Star).

It has multiple goals: (1) to provide lower cost space for businesses in the construction and design fields; (2) to provide access to peers for business development, technical assistance, and innovation; and (3) to provide training for potential employees to address labor shortages in the trades. From the article:

The center will be anchored by about 10 home-building-related businesses, with four scheduled to move in first: OnPoint; About A/Co, a Carmel-based flooring and cabinet dealer; Franklin Window and Door, of Carmel; and Battersby Danielson Azbell and Associates, of Westfield.

Decker said the center will offer a potpourri of goods and services.

“There will collaborative desks and offices, event space, showroom space where people can see the latest best projects and a dedicated “maker” space with tools where visitors can build things,” Decker said.

The tenants will work with higher education institutions and Hamilton Southeastern High School to develop a teaching curriculum that is likely to include students working on projects or gaining internships at a company at Hub & Spoke or elsewhere.

Government contractors also need help with finance.  Given the delays that are often experienced with payment, and the reality that payment isn't made in advance, so businesses need money to front operations and performance, there also needs to be access to financing and related technical assistance too, perhaps with the aid of what are called CFDIs, Community Development Financial Institutions.

But different from construction project finance, which many CFDIs already do, construction vendor finance and support, which I don't think any CDFI is doing.

Performance bonds.  Although there are some programs that assist with bond financing--performance bonds are one of the requirements for government contractors.

Microenterprise development.  Another way of looking at this is termed "microenterprise development" as part of the five step model outlined in the Community Economic Development Handbook by Mihalio Temali.  (Another of the steps is "workforce development.")

If you want local employees and local employers, provide contracts isn't enough, partly because the system is gamed, but also because the capital and organizational requirements are considerable and onerous, even if you're getting special considerations as a certified (minority) small business enterprise.

Initiative to preserve low cost office and working space in London

Jane Jacobs wrote in Death and Life of Great American Cities that cities need "a large stock of old buildings" in order to spark innovation. "Old buildings," paid off, probably somewhat scruffy, have low rents, and startups need low costs to succeed.

From the book:

Cities need old buildings so badly it is probably impossible for vigorous streets and districts to grow without them. By old buildings I mean not museum-piece old buildings, not old buildings in an excellent and expensive state of rehabilitation–although these make fine ingredients–but also a good lot of plain, ordinary, low-value old buildings, including some rundown old buildings.

If a city area has only new buildings, the enterprises that can exist there are automatically limited to those that can support the high costs of new construction. These high costs of occupying new buildings may be levied in the form of an owner’s interest and amortization payments on the capital costs of the construction. However the costs are paid off, they have to be paid off. And for this reason, enterprises that support the cost of new construction must be capable of paying a relatively high overhead–high in comparison to that necessarily required by old buildings. To support such high overheads, the enterprises must be either (a) high profit or (b) well subsidized.

If you look about, you will see that only operations that are well established, high-turnover, standardized or heavily subsidized can afford, commonly, to carry the costs of new construction. Chain stores, chain restaurants and banks go into new construction. But neighborhood bars, foreign restaurants and pawn shops go into older buildings. . . . Well-subsidized opera and art museums often go into new buildings. But the unformalized feeders of the arts–studios, galleries, stores for musical instruments and art supplies, backrooms where the low earning power of a seat and a table can absorb uneconomic discussions–these go into old buildings. Perhaps more significant, hundreds of ordinary enterprises, necessary to the safety and public life of streets and neighborhoods, and appreciated for their convenience and personal quality, can make out successfully in old buildings, but are inexorably slain by the high overhead of new construction.

As for really new ideas of any kind–no matter how ultimately profitable or otherwise successful some of them might prove to be–there is no leeway for such chancy trial, error and experimentation in the high-overhead economy of new construction. Old ideas can sometimes use new buildings. New ideas must use old buildings.

This is basically the concept of filtering or what the Chicago School of Sociology work on cities called "ecological succession" but applied to commercial office space. 

In the residential model, people moved to the place that they could afford, typically a "slum," and as their circumstances improved, they moved up and out(ward), replaced by people in similar economic circumstances compared to their outset, and the process is repeated.

In commercial property development, this is defined in terms of the quality of the building, which is usually a function of age:

Class A the newest, best and most expensive, versus inferior or older properties, typically referred to as Class B and Class C buildings, but I'd say there are even Class D buildings, usually in terrible locations.

The thing is, in the strongest markets, most property owners are motivated to constantly refresh their buildings so that they are the most marketable, profitable, and fully rented.

In those markets, having a large stock of buildings matters less, because the prices aren't any lower.

One way to deal with this is through shared spaces like We Work.

-- "Do companies like WeWork offerany meaningful value?," Chris Harvey/LinkedIn
-- "Why People Thrive in Coworking Spaces," Harvard Business Review
-- "Co-Working Spaces Are Redefining What It Means To Go To The Office," NPR

But like the concept of incubators, it's important to recognize what such spaces are good at, and the needs that they aren't very good at meeting.

Collaborative work spaces are ideal for nano businesses and usually individuals and very small groups, not going concerns with greater demand for space, especially at low cost.

The East End Trades Guild is making affordable commercial rent an issue in local borough council elections.

The New Economics Foundation in London is calling attention to a campaign focusing on the cost of commercial office space in London, with an aim of being able to keep buildings around that exemplify the ability to effectuate what Jacobs wrote about.

-- "LONDON’S SMALL BUSINESSES COME TOGETHER TO DEMAND AFFORDABLE RENTS: 230 SMALL BUSINESSES CALL ON LONDON POLITICIANS TO JOIN THEM IN CONFRONTING THE CAPITAL’S AFFORDABLE WORKSPACE CRISIS," press release

The East End Trades Guild is the lead group pushing the issue, and had a campaign forum a couple weeks ago, which included the launch of their "Affordable Workspace Manifesto for a London Working Rent":

The manifesto calls on councils across the capital to:

• Recognise Community Value of small and micro business to boroughs’ prosperity and reflect this in economic and planning policy decisions
• Identify at least one Empty Asset in their borough and convert into affordable workspace before the end of 2018
• Create a Small Business Community Land Trust to support small and micro businesses in perpetuity
• Create a Register of Landlords to allow small businesses to compare rents
• Support the development of an Affordable Rent Formula for small and micro businesses

The concept of a "Small Business Community Land Trust" is not unlike the SEMAEST initiative in Paris.

-- Wrk/LDN: Shaping London's future workplaces, New London Architecture

Again, as part of doing economic development planning, strong market cities especially need to plan for this.

I've become particularly attuned to this within DC, where the height limit ends up constraining land supply and office space, creating the opposite of conditions called for by Jacobs.  

-- "DC height limit revisted," 2012

-- "Height Act: it's important to discuss, but too late to make a difference on what has already happened," 2012

Federal tax provisions for "small" retailers help big retailers more

According to Chain Store Age ("House approves bill to help retailers with remodeling costs") the House passed a bill authorizing a 15-year depreciation period for store renovations, instead of the 39 year period required in current law.

Mayor Michael Nutter promoting Small Business Saturday in the Kensington neighborhood of Philadelphia. Flickr photo by New Kensington Community Development Corporation.

Yet, retail stores have to be refreshed every 5-7 years anyway.  

It would make sense to have a depreciation period more in line with the expected useful life of the expenditure--15 years is 1/2 to 2/3 too long a period.

Similarly, the bill approves "bonus depreciation," allowing the claiming of a deduction of half of the total costs in the first year, but only for "leased stores."

That puts small store proprietors who own their properties at a comparative disadvantage to chain stores. Along with many other tax and legal stratagems (for example, big companies put their intellectual property, like logos, in a separate corporation and require individual stores to pay royalty fees for use of the logos, depressing reportable income).