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Steven Robins
It’s hard to believe that at one time, chain drug was so entrenched in business as usual that mail-order pharmacies were considered an existential threat to the channel. Despite increasing competition, the best chains have evolved, and have shown a willingness to push the boundaries of both their physical and virtual footprints to remain relevant to consumers.
Even more interesting is that they are evolving in different ways, creating a learning lab for future investments and strategies in the channel. As we at the New England Consulting Group look out at the health care landscape, we know that not all of today’s experiments will work, but the continued, disciplined, test-and-learn approach of the channel leaders will continue to bear fruit as competition also evolves.
Competition that could change the landscape
When we talk about competition, we are not talking about freebates versus reward dollars, we are talking about new models, new practices and new(ish) competitors that could change the landscape. Here are three (plus one bonus) that we are watching very closely:
• Amazon/PillPack — While the PillPack proposition feels like a relatively small threat at first glance, the real potential power of this acquisition for Amazon is the pharmacy licenses and know-how they got as part of this acquisition. While they will look to expand the medication aggregation aspect of PillPack, it serves as their best entry point to true pharmacy e-commerce.
• Civica Rx — This coalition of 17 health systems (750 hospitals) is looking to source generic drugs directly as a nonprofit company. While the initial scope is in hospital distribution only, we see Civica Rx as a potential threat to chain drug as more hospital systems join, more drugs are sourced directly, and the opportunity to continue to supply patients after they leave the hospital becomes a viable way for hospitals to generate much-needed incremental revenue.
• The expansion of “med to bed” programs — A powerful incentive in the Affordable Care Act is the penalty hospitals pay for readmissions in less than 30 days. Our estimates, from a variety of published sources, indicate that the cost to hospitals is over $500 million annually. In response to this, more and more hospitals are rolling out transition-of-care programs that typically offer patients up to 30 days of medication at discharge. While this should drive down readmissions, it also pulls prescription volume out of the retail channel and potentially facilitates enrollment in specialty pharmacy services fulfilled outside of chain drug.
• Haven (bonus) — While Haven, the joint venture between JPMorgan, Amazon and Berkshire-Hathaway, has not been publicly defined as of yet, their mission may ultimately lead them, like Civica Rx, to disintermediate established elements of the existing system, including retail pharmacy, PBMs and drug manufacturers. While their scope today will only impact the employees within their benefactors’ troika, the future may hold bigger plans for them.
The chain drug response
While this competition will be formidable, we see that many of the initiatives chains are testing and expanding position them well for success today and tomorrow. We have captured these initiatives and organized them across three categories: expanded access to experts, compliance programming and improving off-site support.
• Increasing on-site access to experts — The expansion of retail clinics across leading chains like CVS Pharmacy, Walgreens, Rite Aid Corp., Walmart and Kroger Co. continues to be a winning proposition for retailers and consumers. According to a report published by Grandview Research, the retail clinic category will grow at a 20.3% compound annual growth rate through 2025 to reach $7.3 billion. In many situations, including the cold and flu season, annual physicals, and some chronic conditions, these clinics are quickly becoming the primary point of care. This will only increase as telemedicine access also expands in-store. One good example of this is Publix Super Markets Inc., which is expanding its test of in-store telehealth kiosks after initial success.
Beyond access to nurses and virtual doctors, chain drug is expanding the presence of live beauty consultants as well. CVS is investing in a new store format that will include a larger beauty section and live beauty consultants, just as Walgreens has done. Combined with a few exclusive/captive brands, this formula increases the appeal of shopping chain drug for beauty and pushes back against the specialty stores and direct-to-consumer players that have stolen share in recent years.
Finally, as many retail pharmacies continue to test and expand pharmacist programs that increase patient education and drive compliance, they find that the consumer’s level of engagement increases (as does the satisfaction of many of the pharmacists). The results coming out of CVS’ HealthHUB stores and Walgreens’ partnership with Humana should be good barometers of the degree to which consumers will embrace a curated point-of-sale/point-of-care experience.
• Compliance (adherence/persistence) programming — According to Statista, prescription drug spending in the U.S. was $345 billion in 2018. These sales represent a world where the average rate of nonadherence across multiple disease states is 24.8%, according to a review done by the University of California, Riverside. Conservatively, this means that $15 billion to $25 billion is up for grabs if pharmacies can help improve adherence.
Adherence is a major potential revenue driver, and virtually all of the significant chains are looking at ways to capitalize on it. Walmart has the well-established $4 generics program, and now Kroger is launching the Rx Savings Club in partnership with GoodRx. While it carries an annual fee of $36 a year for an individual, it promises drug prices ranging from free to $12 for a 90-day supply.
In addition to discounts, multiple retail pharmacies have launched home delivery programs, often subsidized by manufacturers who also understand the value of the lost sales due to noncompliance. These programs are focused on continuity of medication but also on delivering the first prescription. This drives down the abandoned fills and mitigates one of the most significant points of dropout for many medications.
To make picking up refills easier, most of the retail pharmacy apps now include the ability to scan your meds at home and have them refilled for you without having to call them in. Two-way messaging and CRM (customer relationship marketing)automation now tell you when the prescription is ready. You can even request a “fill by” time window.
A few chains are even testing partnerships with diagnostic companies. Walgreens has a new agreement with Lab Corp that will expand its presence in Walgreens to 600 stores, and some of the Albertsons Cos. banners have partnered with Genomind, a company with a unique product that not only can optimize antidepressant prescriptions but has a built-in drug interaction capability that prevents potentially unforeseen drug interactions.
• Improving off-site support — As mentioned before, many of the chain drug payers have continued to improve their online and mobile presence. Most now use geo-targeting and personalized promotions, easy scheduling for retail clinic appointments, and tracking of information and health records, along with e-commerce, which often includes an expanded selection. Further, in some cases you can access telemedicine appointments directly through the apps.
This access to telemedicine will become increasingly valuable to the chains that partner wisely in this space. As reimbursements increase and consumers become more experienced, adoption will expand rapidly. Further, as telemedicine marketplaces drive down costs further, payers will push their populations to use telemedicine first in certain situations.
While it is impossible to predict what the retail drug channel will look like in 10 years, it is clear that the best operators have left any complacency behind and replaced it with a healthy appetite for experimentation followed by evaluation followed by expansion. And there is no indication it will be slowing down any time soon.
Steven Robins is managing partner and principal at the New England Consulting Group.
