Day: December 15, 2015

The origins of pharmacy are squarely rooted in the small business world. Back in the 1950’s, even small towns had one or more independent pharmacies. My own father-in-law, a long time pharmacist, regularly recounts more than a dozen pharmacies in our area, most of which resided downtown.

Mergers and Acquisitions

Over the years,  the number of small, independent pharmacies has decreased. Today, they are actually becoming rather rare in many areas of the country. Where once there were over a dozen in my area, today only a few continue to survive.

Chain stores with pharmacy departments have slowly taken the place of the neighborhood drug store. In fact, these chains routinely purchase and then close independent pharmacies to expand their own business. Rarely a month goes by that we don’t receive multiple inquiries asking if we want to sell our practice.

This merger and acquisition process is not limited to chain stores buying independent pharmacies, either. Recently, CVS purchased Target’s pharmacies [2]. In a response reminiscent of the cold war arms race, Walgreens is now looking to acquire Rite Aid [3]. This merger would combine the nation’s second and third largest chain stores, which would catapult Walgreens over CVS in number of stores.

Mergers have not been limited to pharmacies, either. The business of pharmacy involves pharmacy benefit managers (PBMs). A decade ago, dozens of national benefit managers serviced insurance companies and pharmacies. Today, however, the merger and acquisition bandwagon has left just 3 or 4 very large PBMs responsible for almost all prescription claims processing in the United States.

The Price of Big

If one goes back and compares small businesses to the much larger corporations, some things become very obvious. A Small business employs, on average only a few employees. Recall that almost half of all workers are employed by small businesses, and that small businesses represent 99.7% of all firms. By contrast, then, the remaining 0.3% are large firms who employ the other half of all workers.

These larger corporations have a some advantages over smaller businesses. They are capable of generating significantly more revenue than smaller companies. This gives these companies considerably more clout when it comes to politics, were money and influence go hand in hand. The proliferation of mega PBMs and Mega Chain Pharmacies, is in part, a power struggle.

But larger corporations also have weaknesses. The larger a company, the slower it is able to adapt to market conditions. Recently, an executive for a large company visited our store to evaluate one of our proprietary pieces of technology. The process of this evaluation has continued over many, many months, and we were becoming frustrated by the pace of the progress. The executive explained that his company was “like an aircraft carrier — taking several miles to make a turn.” Our small business, on the other hand, was essentially a jet ski running circles around them. The analogy makes a lot of sense.

What is the Goal?

The idea of four dollar generics did not come from independent pharmacies. This idea from larger companies was designed to loss-leader their pharmacy department to drive customers into their stores with the goal of making money on their other purchases. The loss-leader programs played into the PBM industry’s main tool: reducing drug costs. The PBMs used these programs to further push reimbursement for these products well below that four dollar level. Both large and small companies alike  continue to look for ways maximize efficiencies and reduce costs as reimbursement continues to plummet. Today, many products are being reimbursed at levels well below the cost to dispense them. This is not a sustainable goal.

Given the current emphasis on quality care at reduced costs, community pharmacists have been tasked to make sure that the patient achieves their therapeutic goals. The least expensive medication may not be the one that saves the health care system the most money. Pharmacy with an emphasis on patient care is increasingly being recognized for its ability to decrease total health spend. This is aligns well with the new goals Medicare and other payor are gradually adopting. Care is the new goal.

It will take a lot of effort for the large chains to turn their ships in this new direction. Without reimbursement for this professional service, however, the large ships have little incentive to change course. While small independent pharmacies can change course quickly, they are faced with an equally difficult challenge: with reimbursement levels now so anemic, sustaining a practice without other revenue streams is becoming near impossible. This pharmacy driven care initiative is in jeopardy. The jet skis can lead larger ships only if they continue to have fuel.

Congress needs to recognize the problem and take action. Congress needs to look past the large and powerful lobbies preaching savings from reducing drug cost. The real game is patient care. Congress needs to recognize the contributions made by pharmacists and allow them to be paid for these contributions. This is going to involve more than pharmacists receiving provider status under Medicare.

To make care a driving force, Medicare Part D plans must have a stake in the total health spend. This will force them to broaden their product-only strategy. Congress should reward the Part D plans for reducing Medicare’s health-spend, and the Part D plans should pay pharmacists for making this happen. A care-centered revenue stream is what pharmacy practice needs. This will also create the necessary incentive required to help the larger ships at sea to start their turns.

Pharmacists need to unite in a grass roots campaign to reform the system at the federal level. Now is the time. Make your voice count.

[1] https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf