The other day I wrote about PBMs and their role as Middleman (See The King is Naked). But every story has two sides. Today’s installment is a little more depressing: it relates to the economics of the current health care system.
From a Wall Street perspective, retail pharmacy is at the bottom of the pharmacy food chain. Consider the following quote from a financial analyst looking at the economic differences between PBMs and Retail pharmacies:
Whereas the PBM business is an oligopoly, the retail pharmacy business is extremely competitive with inferior economics (See seekingalpha.com)
One significant deduction made by the financial analysis is that PBMs are indispensable to retail pharmacy networks. This indispensability is due in large part to the current state of oligopoly the PBMs have over the market. Where once there were dozens of small PBMs, today there are only a few, controlling most of the market (See Does Size Matter). The marginalization of retail pharmacy is due, in part, to their relative ubiquitous nature: pharmacies, in the eyes of the investor, are essentially interchangeable. This creates a perceived weakness in the economics of retail pharmacies.
Marginalization
Consider another quote from the same analyst:
A PBM’s customers are exclusive to it. But a retail pharmacy network does not have exclusive customers. This enables a PBM to squeeze retail pharmacy networks by playing them off against each other.
A PBMs customer is the payor, and the exclusive nature of this relationship is basic contract law. A retail pharmacy network’s customers are patients. Non-exclusive access to a patient implies that the patient is not actually going to a pharmacy for any other reason than drug product. It implies that PBMs are able direct where the patient goes without respect to the level of care or service provided. This is where an investor’s perspective starts to diverge from the reality of care.
Patients want a choice with respect to their pharmacy provider. While some may consider price to be of paramount importance, others consider service and care as driving forces. If asked to characterize themselves, it is my assertion that most patients would consider themselves exclusive to a pharmacy provider. When the PBMs play pharmacy off against each other, patients are marginalized. The payor is interested not only in drug cost, but also in total health spend. With the PBM focusing primarily on price, and ignoring the impact of care on the payor’s bottom line, the PBM is marginalizing the payor.
An Upside-Down Market
The current market is upside down. Traditional competition of pharmacies for patients has been removed by the PBMs. Patients are now being manipulated by the system, and the manipulation is based entirely on drug cost. The market is no longer a free one.
In the current market, there is really only one winner: the PBM industry. Both the patient and the payor become losers. Without an effectively competitive market that values not only cost, but also care and customer service, pharmacy will regress toward the least common denominator: drug product.
Part of the reason this situation exists is the complexity of the current system. Most patients do not understand how the system works, or how they are being manipulated by the PBMs. Pharmacists need to be ready to explain the system to their patients in simple, understandable terms. It is going to take a groundswell of patients voicing their discontent with the current system to bring real competition back to the market. And this groundswell is going to have to start at the prescription counter. Take time to work with your patients. Educate them. Be sure they understand both their medications and the system that provides them. Make every encounter count!