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I had the opportunity to participate in a roundtable discussion — moderated by Chain Drug Review during the most recent NACDS Total Store Expo — that included leaders from across the industry representing chains, wholesalers, pharma and solution providers. It was a thoughtful and far-reaching exchange on a number of important topics, and we spent quite a bit of time on the profitability challenges facing pharmacy.
Lari Harding
Doug Hoey, chief executive officer of NCPA (National Community Pharmacists Association), stated that many drugs are being sold below cost and are not covering the $10 to $12 cost to dispense and that these economics contributed to the fact that 5% of U.S. pharmacies had closed in the last three years. I felt compelled to add that DIR (direct and indirect remuneration) fees are also increasing financial pressure on pharmacies, as they’re now consuming 1.8% of sales.
Those participants from the chains talked about missing the opportunities they had to improve their clinical services practices in the early years of MTM (medication therapy management). Margins were good, and separating drug-cost reimbursements from services was not as important as it is now. There is a bifurcation in the service levels needed by patients. A young woman taking birth control pills does not have the same service needs as an elderly patient with multiple chronic conditions.
My nephew, David Dean, is a student at the University of South Florida and is working towards his Master’s in medical sciences and applying to medical school. He and I talk often about the “business of health care,” as I believe it is essential that those looking to practice medicine fully understand that is, in fact, a business. We need changes to health care, and we need the best and brightest working towards them.
During one of our recent chats, Dean suggested I read a book that just came out in September, The Price We Pay, by Dr. Marty Makary. I took him up on his suggestion and wound up reading this 300-page book in a single day. Subtitled “What Broke American Health Care — and How to Fix It,” the book is written so that anyone reading it can understand the challenges that permeate the business of health care.
Makary tells many stories about the bad actors and bad practices that hurt our industry, including overuse, over-billing, excessive middlemen, the opioid epidemic and taking advantage of people who need care. While I found some of it to be heavy handed towards some dramatic instances and possibly under-representing some high-quality execution, his point about how health care should be “shopable” is spot on.
During the roundtable discussion, I raised a similar point. We don’t often use the word “shopper” in health care, but we should. With high-deductible health plans becoming more and more the norm, patients are starting to exhibit consumer behavior that’s more typically seen in other areas of commerce. These patients-turned-shoppers are now making decisions regarding their health care based on the consumer equation of price versus benefit. We all need to recognize, appreciate — and enable — this behavior.
As an industry we need to do a much better job of communicating our value proposition to our shoppers, who comprise not only patients but also employers, health plans and, of course, the government. As these latter groups are proxy shoppers making buying decisions on behalf of their thousands of covered lives, it’s essential that they fully understand the services and offerings available to them. In his book, Makary states, “Sixty percent of medical care is ‘shopable,’ representing a large opportunity for competition to reward quality and fair prices.” It’s an opportunity that should be leveraged — to everyone’s benefit.
Makary uses an analogy in his book that resonated with me and one that I would like to take a step further. As he put it, if you are in a grocery store and you want to buy an orange, but you don’t know the price, you can ask the cashier for a price check before you make your purchase. You don’t have to buy the orange first only to find out afterwards that $500 was charged to your credit card and there are no returns.
In grocery retail, sellers employ a consistent pricing and promotion strategy. While not all shoppers exhibit the same level of price sensitivity, grocery stores still publish their prices and promote their weekly deals across multiple media channels so that value-conscious consumers can clip coupons and shop promoted items. Again, not everyone will take advantage of the promotions (or even compare prices) but everyone can easily access the information and make their own decision as to how and where they shop.
Unfortunately, too many employer “health care shoppers” are far too dependent on brokers and consultants when it comes to purchasing self-insurance. In fact, almost 80% of the self-insured market buys from a broker. This is entirely understandable given the complexities of selecting coverage for any number of employees, but many brokers are being paid significant dollars to sell one of the well-entrenched pharmacy benefit managers. Many are also tied to insurers who make it very difficult to carve out prescription benefits.
(Word out to employers: Only accept advice from a consultant that you pay and that does not accept compensation from the insurer or PBM. And if your PBM does not offer separate reimbursement for drug costs and pharmacy clinical services, then find another one.)
Still, there are many “transparent” PBMs that offer better value to employers through either a fee-per-member model or transaction-based model. Ironically, they have not been as successful as you might expect given the flexibility and service they offer to employers.
A pharmacy’s financial viability should not be tied to the volume of drugs it dispenses. “Winning” isn’t about the number of ‘scripts filled’; it’s about outcomes. When pharmacists are given the opportunity to counsel their patients on the lowest-cost alternatives for the best efficacy, both patients and employers get better care at a better price point.
Makary also explains the Healthcare Bluebook, which partners with employers to collect pricing data, identify fair-priced providers and flag price gougers. More than 4,500 employers have signed up for this service. Its potential impact on the marketplace has yet to be fully realized. Stay tuned.
Patients actively and intelligently shopping for care is disrupting the business of medicine in America. Technology and more “open” markets in other industries have made it much easier for buyers and sellers to do business together without middlemen inflating costs and deflating value. We need to keep working together to make health care affordable, ensure unrestricted patient access to pharmacists, and structure incentives so that the best value wins.
Lari Harding is vice president of product strategy and marketing at Inmar.
