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Can retail pharmacies beat other players to patient intimacy? Many pharmacy retailers understand that big data can improve business operations, enabling intimate consumer engagement and thereby driving bigger baskets and more door turns, along with healthier customers and margins. They see impacts almost completely confined to the income statement. Too few grasp the strategic ability of big data to redefine the delivery of health care to consumers, potentially through new players and businesses.
Although retailers, pharmacies included, often think about data in terms of assortment, inventory, promotions and new offerings, companies in other industries see data as a strategic asset. For a company such as Google, data doesn’t merely fuel innovation, it creates connectivity. Connectivity then leads to new industries and business models, new ways of improving people’s lives and new ways of making money.
Thus, although the immediate challenge for retail pharmacies is to use big data to outpace their traditional competitors at improving operations and expanding into new sectors, the unrecognized challenge is that potential new competitors may use that same big data to expand operations in ways that might put retail pharmacies out of business.
As the retail pharmacy industry shifts from a product-centric model to a services-centric model built around the consumer, it is exposing itself to disintermediation from innovative thinkers who view everyone’s big data as a strategic asset. That’s why we call big data a disruptor. In this two-part article covering the front of the store and the health care corner of A.T. Kearney’s yearlong series on potential retail pharmacy industry disruptors, we’ll look at three specific areas of big data disruption.
But first, let’s talk about the real value of data: patient intimacy. With big data you can track patient behavior, decisions and rationales in order to better understand patients. It’s logical for pharmacists to play this role, especially considering that seven out of 10 consumers trust a pharmacist as much as or more than other clinical professionals.
However, if pharmacists continue to spend a majority of their time away from the patient and centered on activities like dispensing and compounding, who will play this role?
In a changing health care marketplace, all players are searching for new sources of revenue from new ways of creating value for the consumer. And in the view of powerful payers and provider networks, one source of value might include disintermediation: getting rid of that “extra” step of visiting the retail pharmacy.
Like you, we at A.T. Kearney know that pharmacists are not extraneous to health care delivery; rather they are essential to it. Today, pharmacies are trusted by patients, convenient for patients (92% of Americans live within five miles of one, according to an NACDS study) and, from a systemwide perspective, less expensive than hospitals as points of delivery for basic health care services. But as the market gets disrupted, these advantages centered on the physical store do not guarantee success.
Instead, for pharmacies to succeed, they must harness the disruptors more quickly than other players. Specifically, they must use big data to gain better connectivity with patients and other health care players, and thus expand their current relationships into new and more lucrative sectors of the changing health care delivery space.
Big data will disrupt who controls prescriptions’ flow to the pharmacist, how the pharmacist interacts with the patient, and where the consumer will demand that this interaction occur. Specifically, let’s look at three areas.
Who Will Run Drug Adherence Programs?
As many pharmacists know, the Centers for Disease Control and Prevention (CDC) estimates that poor drug adherence costs the U.S. health care system as much as $250 billion annually in additional expenses. Addressing adherence is thus a huge opportunity to improve revenues by improving health. That is a big prize for the world of innovators to chase. To put it in context, the Ansari XPrize was only $10 million, and it was the catalyst that launched the new industry of private space travel.
The behavior modification needed to improve adherence is driven by big data and analytics: Models can predict poor adherence based on anonymized data on consumer demographics and attributes, disease states, prescribed drugs, and refill rates. The models will generate insights that target both individuals and specific segments of at-risk consumers.
It’s exciting for pharmacies to imagine the digital technologies involved: smart pillboxes that monitor adherence in real time, in-store beacons that alert a pharmacist when an at-risk customer enters or a smartphone-based pharmacy app with automated alerts to take your medicine.
But slow down: Adherence programs are a data-driven disruption that retail pharmacies may not be able to control. After all, these programs are built on data analytics that can identify those at-risk consumers — and pharmacies are not the only ones with the required data infrastructure.
Who Will Own the Health and Wellness Experience?
Consumers expect an integrated shopping experience — even for health and wellness purchases. Retailers have recognized the need for big data analytics and infrastructure to operate in an omnichannel world. Similarly, retail pharmacies that extend these capabilities from the front of the store to the pharmacy counter will disrupt shopper behavior in ways that capture incremental value from health and wellness products and services.
Consider John, who was born with cystic fibrosis and has been managing it his whole life. John has filled his prescription for Pulmozyme at his local pharmacy. Can his pharmacy’s specialty call center help him manage co-pays through available patient assistance programs? Has his pharmacy successfully integrated its specialty and retail pharmacy systems and operations so that the pharmacist can suggest vitamins and supplements to help John consume and absorb more nutrients? Has it expanded into food and beverage to help John improve his health through diet? All of these are valid questions — assuming that John and his script actually make it to the pharmacy.
Big data and connectivity allow upstream players to intervene early and redirect John and his valuable script to service providers that can more efficiently deliver the desired patient behavior. Think of a world where the payer intervenes while John is sitting in the doctor’s office with a text message that a specialist will videoconference with him in the privacy of his home at a time of his choosing, that Amazon will deliver his prescription as well as an initial sample of vitamins and supplements, and on and on. Big data could create a world where John, with his valuable script, never visits a retail pharmacist.
Many of the techniques to do this type of real-time analysis already exist as part of the consumer insights toolkit of most proficient retailers. But as big data disrupts shopping behavior, how much of the spectrum of health care data is the retail pharmacy pursuing? Investments may be required to deal with data sets containing both structured and unstructured data (such as radiology scans or clinical notes), which have to be quickly analyzed and transported across a complex network of stakeholders with near real-time decision makers.
Meanwhile, the data behind the disruption is available to other players, such as grocers, hospitals, online players and new entrants. As an ACO (accountable care organization) assembles a health care delivery network, might it seek to exclude retail pharmacies in favor of partners that have better data capabilities?
Where Will Health Services Be Dispensed?
The pharmacy reimbursement curve will get ever closer to the drug cost curve, putting continued downward pressure on pharmacies’ long-term profitability regardless of smart shorter-term actions such as partnerships or strategic acquisitions. To change the cat-and-mouse dynamic, pharmacies need to drive the disruption of basic health services.
Healthier outcomes can result from pharmacist-based services such as enhanced consumer engagement, online self-help tools, targeted clinical counseling and healthy incentives. An expanded portfolio of services opens the path to a larger share of reimbursement-related revenue.
Many pharmacies are making bold, worthwhile efforts in this area, including retail clinics from Walgreen Co. and CVS Health. But how do you know which communities would most benefit from the opening of such clinics, or how best to tailor their services for efficient, profitable delivery? The answers to these questions — and many more in such complex care models — come from big data infrastructure and analytics.
It is likely that traditional providers will defend their provision of these services as vigorously as a retail pharmacy would defend incursions into its space. So success at disruption will depend on execution.
It’s no small undertaking to try to pull together data from across the health care ecosystem: prescription data, unstructured physician notes, medical images, genomic data and data from research findings. Add in consumer buying behavior data, and then mine it all for insights, and you have a sizable challenge. The good news for pharmacies is that the health care industry has been a late adopter of big data. Nobody else (providers, payers or new entrants) has yet mastered that data challenge. With the right investments and focus in big data analytics and informatics, retail pharmacies could master disruptions in such a way that the center of gravity for care management moves away from the general practitioner’s office to the corner pharmacy.
However, absent a big data push from pharmacies, disruptions — new treatments and service models from both traditional and nontraditional players — might also drive a transformation in which retail pharmacies barely exist at all.
At A.T. Kearney, we believe the former is more likely. As consumers gain more control over their health care decisions, they will turn to pharmacies as trusted, reasonable-cost partners. This would put retail pharmacies in a powerful position to shape the new landscape. However, to fulfill that partnership role, pharmacies must invest in big data and use that data to build connectivity. Only by expanding their intimacy with consumers will retail pharmacies prove worthy of their trust.
KHALID KHAN is a partner with A.T. Kearney’s Analytics Practice leading the Americas. Based in Chicago, he can be reached at khalid.khan@atkearney.com. BOB O’MEARA is a partner with A.T. Kearney’s Consumer Products & Retail Practice. Based in Chicago, he can be reached at bob.o’meara@atkearney.com.
