We are well into the fall seasons, with Halloween right around the corner and Thanksgiving is not far behind. Besides the costume fun and turkey with all the fixings, we are also preparing our pharmacies for the new year. Medicare Part D Open Enrollment has begun and Retroactive DIR fees will soon be a thing of the past.
While that all sounds pretty normal, there is a reason that this blog post is titled as it is: the future of pharmacy is very uncertain, murky, and potentially terrifying. One only has to look at the news to understand that things are shifting quickly, and not for the better. Consider:
- Pharmacy Employees walking out in protest of working conditions
- Pharmacy departments closing earlier or even unexpectedly due to insufficient staff
- a large national pharmacy chain filing for bankruptcy
- An uptick of independent pharmacies closing
This is an abbreviated list, but the theme is the same: pharmacies of all types are struggling.
Consider the first two bullet items above: Poor wages and lean staffing results in unhappy, over-worked employees and difficulty hiring new employees. These both are things that a company would normally address. But pharmacy is unusual: it is one of the few examples of a business where supply and demand don’t truly apply.
This is because of insurance: pharmacies and other health industries don’t set their selling price. It is dictated to them by a contract. So you re-negotiate the contract, right? That would work if the pharmacy had significant leverage. These contracts are largely one-sided: take it or leave it.
The last two bullet points fall into place once you understand this current dynamic in healthcare. Pharmacies are being squeezed by the insurance–paid less and less for the product and service they provide. Given that there is only so much a business can do to decrease its cost of goods, they have to become more efficient elsewhere. Eventually, this leads to lower staff levels, unhappiness, walkouts and ultimately bankruptcy or closing.
To be fair, there are some pharmacy operators that doing better than others at balancing the lower reimbursement. The most successful pharmacies share one thing in common: having other revenue streams including front-end sales, selling groceries, or perhaps owing the insurance company.
But none of this is easy, and smaller operators and independent pharmacies are perhaps the most challenged. If it isn’t enjoyable and profitable to provide patient care and fill prescriptions, why own and operate a pharmacy? Pharmacy is rapidly reaching a breaking point.
What does this mean? Well, we are already seeing chains struggle. Target sold their pharmacies to a competitor — one that also owns an insurance company. Where historically some chain pharmacies were opening a new store every week, they are now closing stores instead. Overall, the country is losing access to pharmacies.
Some might say that this contraction of the pharmacy market is a good thing. I disagree: the contraction is not due to over-supply. It is due to an artificial constraint on the profitability of these pharmacies. It is due to insurance. If we ultimately arrive at a point where only a few chain pharmacies and mail order options remain, we will all suffer.
We are already seeing pharmacy deserts emerge. Places where larger operations cannot justify opening or maintaining a presence. Without access to a pharmacist, drug safety suffers, access to immunizations and point of care testing decrease.
We envision that pharmacies of all types will ultimately have to make some hard choices if they want to survive. Some possible outcomes of the challenges facing pharmacies are:
- Pharmacies drop out of insurance plans that are not reimbursing them adequately.
- Pharmacies stop carrying brand name medications — as these are paid well below the pharmacies acquisition cost and are costly to keep on the shelf
- Pharmacies stop taking insurance entirely
- More pharmacies close.
If a handful of pharmacies in an area drop some, or even all insurance contracts, those patients will be forced to use the remaining pharmacies that accept that insurance if they want to use their plan. If stores stop caring brand medications, that business will also shift to those that continue to stock them. And unless the stores that took these actions were very wrong about the actual impact of those decisions, the added unprofitable business that the remaining stores receive will likely be detrimental to them as well. The spiral would then continue.
The possibilities above are drastic, but real. While there is significant risk in doing something drastic like eschewing brand name medications drugs entirely, or dropping unprofitable plans, inaction is equally risky.
What is right for your pharmacy? Are you able to ride out the next 12-24 months without making a drastic change? If you do survive, what then? We cannot see the future with any certainty, but we know that now is the time so start planning. investigate your options. Get an outside opinion. There is opportunity, you must make the decision to Make Every Encounter Count.
