Channel Retail Pharmacy’s Digital Transformation December 20, 2021 Olivia NwezeSenior Consultant, Advisory Services Team Tim KeysDirector, Gross-to-Net Advisory 3 Minute Read Regulatory Market Update Updates for Life Sciences Manufacturers As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting Lead or advisory@integrichain.com and we would be happy to talk you through it. ICYMI: November’s market update discussed COVID-19 vaccine mandates, the recent HHS drug discount ruling, and Medicare drug price reforms. Pharmacies Downsize, Shift Toward Delivery-Focused Future The pharmacy retail industry is facing a number of economic challenges as the pharmacy shakeout continues to accelerate. Smaller companies continue to exit the market and larger companies are downsizing in store counts. Recently, CVS Health announced it would be closing about 900 of its pharmacies in line with its digital transformation towards a healthcare delivery future. As the industry continues to transform, retail pharmacies face fierce competition and pharmacy locations in the U.S. continue to decline through downsizing or consolidation. A number of key forces are behind the dwindling retail pharmacy industry profit margins including: Fierce competition for customers due to an oversupply to pharmacies in the U.S.and lagging prescription growth rates which have remained low. Overall low prices of generic drugs and persistent slow growth rates in brand name drug prices Narrow pharmacy network models that use designated pharmacy channels and discourage customers from open pharmacy networks, resulting in lower profitability in retail pharmacies Increased 90-day retail prescriptions with lower mail pharmacy reimbursement rates Rapid increase in pharmacy direct and indirect (DIR) payments and rebates Limited access to specialty drug revenues which are typically earned by mail pharmacies The retail pharmacy industry cost structure has increased pressure for network position due to low operating costs. Retail pharmacies have increased per-store averages and become busier to counter the decline in the number of pharmacies. Increasing competition from technology-enabled digital pharmacies and potential policy changes like the most recent Build Back Better bill which if passed would inflate the costs of pharmacies that dispense to Medicare Part D patients This puts small pharmacies at odds, with many having to leave the retail pharmacy industry as a result of the competition created by these trends and most of this has been due to acquisitions. CVS in particular acquired almost 1,700 pharmacies in 2015 and since then its store count has increased to nearly 10,000 locations. Their recent announcement represents the first major closing of the company’s retail pharmacy stores. Source: CVS Pharmacy Downsizes: 10 Industry Trends Driving the Retail Shakeout Are You Using a Digital Pharmacy for Your Distribution? Digital, mobile-friendly pharmacy options are on the rise While a lot of manufacturers use a typical wholesaler, specialty pharmacy, or specialty distributor to distribute their products, digital pharmacy distribution is available and on the rise. What is a digital pharmacy? With the explosion of telehealth services during the COVID-19 pandemic, the rise of direct to patient digital pharmacies should come as no surprise. A digital pharmacy uses real-time data and technology and requires physicians to prescribe an electronic prescription directly to one of the member pharmacies, which provides the patient the ability to receive mobile app or email communications related to their prescription. A typical wholesaler will take physical control of your product, whereas a digital pharmacy will not. The manufacturer will sell directly to one of the member pharmacies and the digital pharmacy will manage the inventory across the member networks, which is a mix of independent, regional, and national retail pharmacies. A digital pharmacy can also help manage prior authorization as well as co-pay programs. What this means for manufacturers Pharmaceutical manufacturers should be aware that not all digital pharmacy fees may be included in Gross-to-Net and Government Pricing forecasting and manufacturers may have to maintain separate contracts with some of the member pharmacies. If you only use the digital platform, you may have to make other distribution arrangements for the VA, DOD, and Kaiser, such as a direct sale using another source. Digital Pharmacies claim their fees are much less than a typical wholesaler and they are more effective compared to traditional wholesalers. This could be a great advantage, especially for smaller manufacturers. While this may not replace the current landscape, it does provide another option in the ever-growing cost and complexity of distribution. Source: PhilRx About the Author Olivia Nweze Senior Consultant, Advisory Services Team Olivia Nweze is a Senior Consultant on IntegriChain's Operational Consulting team specializing in state price transparency, healthcare compliance, and government pricing. She has worked with a wide variety of pharmaceutical manufacturers to establish state price transparency infrastructure, evaluate compliance with state reporting obligations, perform compliance assessments, billing audits, and policy documentation reviews. Olivia earned her Bachelor of Science and Master of Science in Global Health degrees from the University of Notre Dame. About the Author Tim Keys Director, Gross-to-Net Advisory Tim Keys is a Director of Gross-to-Net Advisory at IntegriChain. Tim provides guidance and expertise to manufacturers setting up or improving their Gross-to-Net processes. He has 10 years of industry experience in Gross-to-Net and Market Access and over 20 years in FP&A. Tim earned his MBA from Park University and his Bachelor of Science from Missouri Western State University.
Contracts & Pricing September 4, 2024 Understanding the $35 Patient Out-of-Pocket Strategy: Implications for Pharmaceutical Manufacturers 2 Minute Read