Like the mythical phoenix, the chain drug industry finds itself in the midst of a cycle of death and rebirth. The business model that has sustained the sector for decades is now under severe strain, with relentless reimbursement pressure in the pharmacy department, declining store traffic, and increased competition from traditional rivals and e-commerce retailers eroding the industry’s financial underpinnings.

Those challenges were top of mind for the retailers and suppliers in attendance at the National Association of Chain Drug Stores’ Annual Meeting in Palm Beach, Fla., last month. The ongoing battle over direct and indirect remuneration, a mechanism used to determine payments to pharmacies for prescriptions filled under the Medicare Part D program, was a focal point.

DIR fees enable pharmacy benefits managers and other payers to claw back some of the money paid for medications based on a set of murky criteria that are inconsistently applied. Originally intended to tie remuneration to performance, the program has instead introduced a high level of uncertainty for pharmacy operators, who often can’t be sure a given script is profitable until months after it has been filled.

NACDS and its allies have pressed hard for reform of the DIR system, and they have made a great deal of headway in convincing the Department of Health and Human Services that changes are needed. A proposed Part D rule from the department promises some relief from what HHS Secretary Alex Azar recently called “the burdensome nature of the DIR system” by requiring that the fees be applied at the point of sale.

Pharmacy operators have been anxiously awaiting the release of the final rule, a development that was expected to occur more than a month ago. While that document could depart considerably from the proposed rule, provisions to clarify and simplify application of DIR fees are likely to be included. That would enable pharmacies to track their business more accurately, which in and of itself would be a big improvement over the current system.

It is less clear how much financial relief pharmacy operators will see as a result of the final rule. Several retail executives at the Annual Meeting predicted that PBMs will continue to try to exert downward pressure on profit margins by shifting their focus to other aspects of contracts with pharmacies. The situation is further complicated by HHS’ ongoing work on a second rule that would eliminate prescription drug rebates, a change that would have repercussions for everyone in the supply chain — from pharmaceutical manufacturers to ­patients.

In addition to challenges in the pharmacy department, chain drug retailers are confronted with the task of crafting new ways to revitalize the front end. With consumers visiting brick-and-mortar stores less frequently, members of the trade class need to come up with ideas to raise the productivity of categories that, on average, take up 90% of selling space and generate only 30% of sales.

CVS Health and Walgreens Boots Alliance are spearheading the reinvention of the drug store. Both understand the centrality of pharmacy and health care and are buttressing that part of the business.

Following its acquisition of Aetna, CVS should be viewed as a health care provider, not a retailer. Despite the change in status, drug stores remain central to its mission. The company’s new HealthHUB format, in greater Houston, proves the point. Designed to serve as true neighborhood health care centers, HealthHUBs devote 20% of the store to such health and wellness services as MinuteClinic. The stores feature Care Concierges, who are charged with helping customers access the products and services they seek, along with new digital tools. Front-end offerings have been fine-tuned to better harmonize with CVS Health’s mission, while still satisfying shoppers’ desire for convenience.

WBA is exploring similar territory, experimenting with different offerings with the intention of reinventing the drug store. At a Walgreens outlet in Deerfield, Ill., for instance, an array of health and wellness services — vision care, audiology, lab tests and pharmacy — are displayed along one wall. The front end has been bolstered by offerings from such partners as FedEx and Sprint. (Some other Walgreens stores include Kroger grocery departments, and enable consumers to pick up orders fulfilled by the supermarket chain.)

CVS’ pilot project in Houston and the experiments that WBA is conducting in various cities reflect the resilience of chain drug retailing. Guided by patients and customers, and maintaining a willingness to test and learn, drug stores are beginning to rise from the ashes of the old model.