PBM Issues Obscure a Bigger Challenge

By American Pharmacies

American Pharmacies is a member-owned purchasing cooperative for independent pharmacies with more than 700 members in 38 states.

Increased Competition, Changing Patient Needs Are Both Threat & Opportunity

The urgency for PBM reform has reached new heights as many pharmacies struggle to keep their doors open under the weight of poor reimbursements and loss of patients to PBM-owned mail-order and specialty pharmacies. Many independent owners hope that new laws curbing PBM behaviors will enable them to survive in a more fair and competitive landscape. But will PBM reform — and the stabilization of pharmacy revenue that is expected to follow — be enough to ensure independents’ long-term survival? The evidence says it won’t.

Prescription Drug Fulfillment is Rapidly Changing

Many independents attribute their declining revenues and loss of prescription volume to poor reimbursements and PBM steering of business to affiliated mail-order and specialty pharmacies. But those well-publicized problems distract from a powerful reality: ending abusive PBM practices and poor reimbursements will not end disruptions of the dispensing model.

Growth of mail order, central fill, specialty pharmacies and alternative distribution and payment models are eroding the core dispensing business of traditional brick and mortar pharmacies. Disruptors like Amazon, GoodRx, Cost Plus Rx, etc., are slicing off their own pieces of dispensing revenue. And though automated dispensing through kiosks is allowed in only seven states at this time, that number is sure to expand greatly in the next few years.

Online operators like hims, hers, ro and GoodRx Care are merging telemedicine with mail-order pharmacy to offer low-cost, on-demand consults for conditions ranging from ED, hair loss, STDs, fertility and skin conditions to minor illnesses and mental health. Prescriptions are issued and mailed promptly. Rx costs are often higher, but people are willing to pay for convenience and privacy.

In fact, convenience and speed of service rank #2 and #3 in patients’ stated criteria for choosing a pharmacy; price ranked only #5. Pharmacist knowledge and advice ranked only #8! Companies with larger scale and resources are finding ways to deliver prescriptions faster, more conveniently and cheaper than you can. So, how do you compete with a company that allows a patient to visit a provider online about a health condition, and get a script mailed to them, eliminating two trips? You give them other compelling reasons to come to your pharmacy.

Necessity Meets Opportunity

As patients shift from hierarchical health care relationships to a partnership role with providers, wellness and prevention grow in importance along with self-care options. And the escalating shortage of primary care providers creates timely opportunities for independent pharmacies to take on chronic disease management, wellness and prevention, diagnostic testing and digital therapeutics to help patients monitor and report data on their conditions.

The Association of American Medical Colleges projects a shortage of up to 48,000 primary care physicians by 2034, which will disproportionately impact smaller communities and rural areas. The number of Americans 65 & older is expected to increase 42.4% over this period. The number of pharmacists will continue to grow. Clearly, the opportunity is ripe for pharmacies to become health care destinations where patients can be tested for infections, get immunizations and advanced clinical services, and purchase nutrients, vitamins, CBD, probiotics and digital health monitors.

Patients Want More from Their Pharmacies

More than half of Gen Z (56%) and Millennial (54%) respondents said they’d like to visit the pharmacy to get primary care, according to a May 2023 Wolter Kluwers survey of more than 1,000 U.S. health care consumers. That compares to 40% of Gen X and 35% of Boomers who said the same. More than half of adult patients said they would visit a retail health clinic in a pharmacy. 81% of those surveyed say they trust a pharmacist, nurse or nurse practitioner to diagnose minor illnesses and prescribe medications to treat them.

A New Business Model for Innovation

The traditional pharmacy derives its revenue from the profits made on dispensing medications. It is a transaction-based business model that measures success by profit per sale. Success depends on growing both dispensing volume and margins, a near-impossible task in an era of rising competition and inadequate third-party reimbursements.

The Traditional Pharmacy is a transaction-based model focused on profit per script, which is outdated and increasingly untenable.

Innovation is best engendered by a new-generation model that seeks to generate substantial revenue — cash sales — outside third-party reimbursement channels. It is a model based on relationships, measuring success by cumulative profit per patient or household. It is a model driven by opportunities. 

Transitioning to a relationship-based economic model means expanding the products and services offered to patients to better assess and address their whole-health needs. It means evaluating a patient’s economic value not by the number and cost of scripts filled, but by the value of all products and services purchased over time. It requires access to PHI and demographic data to better understand your potential customer base and shape your offerings and marketing to appeal to them.

Most importantly, it requires a staff that is forward-focused, well-trained and empowered to implement new services and workflows.

American Pharmacies’ Path Forward

Knowing that pharmacists are often averse to risk and change, American Pharmacies decided to invest in resources and infrastructure to engage/educate/empower owners to make the changes that will transform their pharmacies. We created change/innovation blueprints and identified change agents among our members to help us LEAD all members through change.

Acting on the vision of President Laird Leavoy, American Pharmacies created the Pharmacy & Clinical Services (PCS) department in late 2023 to advance the clinical and revenue capabilities of the co-op and its members. Headed by VP of Pharmacy and Clinical Services Danny Nelson and VP of Pharmacy Analytics and Clinical Services Jeff Jacobs, PCS guides our staff in providing members the intelligence and tools to optimize their ROI and workflow efficiency. PCS engages innovative vendors and carefully evaluates their solutions to gauge viability, performance and affordability. American Pharmacies regularly brings members into partnership evaluations to gain perspective and to better understand the potential for successful, widespread adoption.

The PCS team works closely with American Pharmacies primary wholesale partner, Cencora, to ensure that members are supported to take full advantage of the many Cencora programs and resources at their disposal.

“Raising awareness among our members is the first step in supporting pharmacies that are focused on diversification and revenue growth,” Jacobs said. “These are the attributes of tomorrow’s pharmacy health center, which will bring favorable outcomes for both owners and their patients.”

Nelson said American Pharmacies constantly evaluates and brings in new partners to strengthen its efforts and collaborates with groups like CPESN and Cencora’s Good Neighbor Pharmacy to promote clinical opportunities for pharmacies.

“We are constantly identifying partners that offer the services pharmacies need to evolve their patient care model,” Nelson said. “We seek out forward-looking companies that support our mission to find the best resources and strategies that can advance our members’ performance.”

The Power of RxCompass

A vital component of American Pharmacies’ efforts is our industry-leading data analytics program, RxCompass. Built from EnlivenHealth’s® MyDataMart, RxCompass extracts actionable insights from what is arguably pharmacies’ most powerful resource: their own dispensing data. American Pharmacies works closely with members to develop best practices and promote optimal performance, ROI and refill adherence for pharmacies using the platform.

Through coaching and support, users learn to improve refill adherence and profitably engage patients via personal outreach. During an average 1-to-2-minute phone call, pharmacy staff can simultaneously target profit, patients with multiple past-due refills, med sync enrollment, copay affordability, and promote services such as home delivery and nutrient supplementation. Our industry-leading Guided Growth adherence program empowers users to become peak performers while forging stronger patient relationships. RxCompass users can also take quick dives into reimbursement data, top dispensing, and gauge the economic value of patients and households.

Don’t Underestimate the Speed of Change —Or the Need to Act

In an age where speed and convenience rules and dispensing competition is intensifying, pharmacies must give patients compelling reasons to come to their stores. They must offer valuable services and products that patients can’t get elsewhere — patients will come and pay out of pocket if you offer them products and services they value enough.

Pharmacists should not underestimate the challenges before them, nor ignore the absolute necessity of change. Bill Gates quickly switched Microsoft from a hardware/software company to an internet-focused one after he belatedly recognized the rapid ascendance of the worldwide web. Gates learned from his mistake and quickly adapted. As he remarked in his book The Road Ahead, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”