 |
|
 |
 |
| |
|
|
| |
| Retail Pharmacy Today |
 |
by Edward A. Ullmann, IRPh, MPA - December 6, 2011
|
The profession of pharmacy and the retail distribution of pharmaceutical services to the public has changed significantly over the years. What was once an industry dominated by local community pharmacies with an apothecary feel (high customer trust; flexible hours/home delivery; modest front end sales; 40% pharmacy margins; low insurance revenue), the industry shifted to large scale production with dominance by chain and grocery pharmacies with large front end shopping opportunities, drive-thru windows, strategic locations, direct mail advertising and competitive pricing. Independent community pharmacies merged with the chains, diversified with specialty services or accepted lower margins along with increased third party insurance revenue.
Americans filled more than 4 billion prescriptions in 2010 at 60,000 retail and specialty pharmacies. Total industry revenues exceeded $277 billion. Chain and grocery pharmacies (Top Four: Walgreen’s; CVS/Caremark; Wal-Mart & Rite Aid) filled 60% of all prescriptions and sold 60% of all OTC medications (Dr. Adam J. Fein, Drug Channels). In 2010, 38.5% or 23,064 stores remained independently owned and operated community pharmacies with 50% of these stores located in communities with populations less than 20,000 (2011 National Community Pharmacists Association (NCPA) Digest).
Key trends that face the retail pharmacy industry today:
1). Dependence on third party insurance income (90%+ for most pharmacies).
Both private and public sector sources (Medicare Part D and Medicaid) are unreliable and can impact margins on short notice and with little opportunity for appeal. In 2010, independent pharmacies dispensed 32% of all prescriptions under Medicare Part D, 14% under Medicaid and realized a flat net-operating income of 3.0% (2011 NCPA Digest). For chain pharmacies, public sector revenue is trending close to 50% and pre-tax margins are often less than 3%. While a logical off-set to insurance income would be the growing number of customers deemed medically uninsured (15% of all Americans), this population only accounts for 4% of retail pharmacy prescription revenue (Medco).
2). Increasing regulatory environment with costly third party audits, lawsuits and compliance maintenance.
3). Increasing capital, labor and bad debt cost for insurance reimbursement and technology enhancement. E-script prescribing has been encouraging with 52% of all office-based medical practitioners in 2010 (Surescripts) now sending prescriptions on-line to pharmacies and 25% of all prescriptions nationwide now e-scripts (80% new; 20% refills).
4). Internet pharmacy and an increasing mail order pharmacy distribution industry driven by cost conscious employers and consumer satisfaction with 90 day supplies of chronic medications for a single co-payment. Although federal and state laws require patients to receive controlled substances, antibiotics and certain other medications directly from a licensed pharmacy, mail order pharmacy is growing annually at 30-40% (Drug Channels) and impacting prescription growth and profit margins for all retail pharmacies.
5). Increasing power of Pharmacy Benefits Managers (PBMs) to dictate third party reimbursement policy, exclusive distribution arrangements and to overall be able to operative in a liberal regulatory environment on behalf of employers and clients.
6). Increasing use of in-house pharmacy departments by supermarket/discount chains to increase customer volume and loyalty. Effort was exacerbated by the Wal-Mart company when they began offering generic prescriptions for a fixed price of $5 (average labor cost per filled prescription is $10-12). Effort has been followed by other chains offering free antibiotics and select drugs for diabetics. With 92% of revenue (2011 NCPA Digest) coming from the pharmacy department of a typical independent pharmacy (68% for chains), this trend is alarming.
7). Competitive challenge, especially for chain pharmacy, to maintain high customer satisfaction while operating under tightened labor budgets. Reported and unreported prescription dispensing errors are escalating along with customer complaints for poor service. Issue can only intensify as retail pharmacy tries to meet consumer demand for increased in-store clinical services (immunizations; consultations; health fairs) and faster service.
8). Changing class distribution of dispensed prescriptions. In 1975, Valium was the #1 prescription dispensed, product selection was MD/pharmaceutical representative driven and prescriptions for low cost generic medications was less than 15%. Thirty-five years later, prescription medications are advertised freely on every media outlet (only allowed in USA & New Zealand) and pharmaceutical advertising now accounts for over 1/3rd of most media budgets. Over 70% of dispensed prescriptions today are now low cost generic medications (will peak at 80% (Drug Channels)) and the top medications dispensed today are cholesterol and stomach acid reducers, treatments for hypertension, diabetes and COPD/asthma and the escalating and controversial use of narcotics and psychotropic/mind altering medications.
9). Increasing poor health of our nation. While an overall feeling of anxiety, fear and loss (worried well) remains the number one reason for patients seeking care from a licensed health professional, physical health challenges are threatening to overwhelm a health care industry (national spending on health care services now exceeds 17.5% of GNP) with an aging population and shortage of primary care providers (with less than 30% of medical students today choosing primary care for a career it is estimated that their will be 130,000 fewer primary care physicians than needed by 2025(Drug Topics)).
Eight (8%) of Americans are now diagnosed with asthma, 6.2% with diabetes, 1/3rd with sinus/allergy issues, growing number of patients over 50 with arthritis and over 50% of Americans are deemed to be over weight.
By 2030, it is estimated that close to all Americans will be diagnosed with at least one chronic disease (75% of total health care costs today goes to treat patients with at least one diagnosed chronic illness (National Association of Chain Drug Stores)).
All health care trends plus the growing baby boomers turning age 60 point to an escalating demand for prescription and non-prescription medications and enhanced clinical services by pharmacists.
10). Until recently, retail pharmacy faced a real and serious challenge with a shortage of licensed pharmacists. Without a licensed pharmacist on premise, a pharmacy department cannot be opened. Licensed pharmacists were able to demand signing bonuses, preferred schedules and specific locations. Responding to this need, pharmacy colleges across the country (with the help of federal financing) expanded their pharmacy programs and delivered the product (licensed pharmacists from around the world). Today, there is no shortage of pharmacists in the USA. Recruitment and labor costs are stabilizing and retail pharmacy and licensed pharmacists are adapting to the change. More importantly, retail pharmacy needs to recruit and train high quality pharmacy technicians (one of the top #5 growing jobs in America) in order to operate efficiently within tough margins. Without high-quality technicians, pharmacists cannot meet the demands of their customers, employers, regulatory/third party insurance obligations or be ready to expand clinical services to an aging population.
11). Retail pharmacy will be asked to innovate its product to serve a changing American consumer and employer. This will include expanding wellness services and products, specialty care pharmacies, in-house urgent care and primary care clinics, expanding specialty care services, increased clinical services, joint ventures (i.e., grocery chains; health systems), expanding on-line products and services and product differentiation. Retail pharmacies that successfully meet this challenge will be rewarded with increased market share, improved margins and greater growth potential.
Understanding these trends is the key to understanding the opportunities that lie ahead for retail pharmacy in this country. Unlike other industries that thrive on change and adaptability, retail pharmacy historically has been a conservative industry that operates best with certainly, conformity, structure and modest risk taking.
While this business model has shaped the image of modern pharmacy in our country today and has blended in reasonably well with other members of the health care market, it will be forced to adapt to a changing American consumer that demands greater service, more complete information, more value for their time and money, a greater understanding and sensitivity to their health care needs and a greater accountability from health care providers, including retail pharmacists, for health care cost containment and the success of national health reform efforts.
Experienced executive manager with unique background in both private and public sectors of the health care industry. Responsible for 30 start-up companies. Selected as INC Magazine’s “Entrepreneur of the Year” in Health Care, Southern New England District in 1994. Represented rural HMOs in America before the US Senate Finance Committee in 1994. Strong public speaker and educator. Strong background in community, government, network building and leadership activities.
The viewpoint expressed in this article is the opinion of the author and is not necessarily the viewpoint of the owners or employees at Healthcare Staffing Innovations, LLC.
RECOMMEND THIS ARTICLE
You must be logged in
to recommend articles
|
|
|
|
| |
|
|
 |
 |
|
 |
 |
 |
|
