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Pharmacy Times

With the federal government set to pay for prescription drug benefits and Medication Therapy Management services, the aging population promising a boon in pharmaceutical demand, the growth of consumer-directed health care and technology lifting many of the administrative burdens from the shoulders of pharmacists, the future of retail pharmacy could be filled with opportunity and promise. But to reach that far shore, pharmacy operators know they have to cross a dangerous patch of water.

The perils community pharmacy faces today are well-known. Despite new technology to make the dispensing process safer and more efficient, pharmacists' workloads are still rising as prescription volumes increase steadily. The labor shortage remains a stubborn issue. Mail order pharmacy is eating steadily away at the prescription sales pie. The sale of pseudoephedrine-based products continues to draw scrutiny. And, underlying everything, pharmacies are still beset by the challenge of the pharmacy benefit management industry, which now dictates everything from reimbursement levels and gross margins to drug formularies and generic substitution rates.

Both chains and independents continue to chafe under the yoke of third party payment systems, both public and private. The move to third party plans, said Dan Haron, senior vice president of pharmacy for Brooks-Eckerd Pharmacy, "has been the biggest thing that's happened in pharmacy. It's changed the way we do business ... and it's turned us into a commodity business."

Independent pharmacy owners concur. Said one, "We're seeing very unfair contracts being passed our way that we cannot negotiate with because of antitrust laws." PBMs, he added, "either won't return our calls, or they tell us: 'This is what we have on the table at this point. Please contact us at a later date.'"

In the search by public and private health plan sponsors for ways to cut costs, said Alan Levin, chairman and president of Happy Harry's, community pharmacy is "always the sitting duck. But I really think we've reached the point where we as an industry have to say we're tired of being everybody's doormat."

Chain and independent pharmacy operators have many concerns, but among the biggest is the threat mandatory mail order prescription plans pose. Over the past three years, those plans have been imposed on millions of patients by pharmacy benefit managers, who extract high retail co-pays from patients if those patients refill their chronic care medications at their neighborhood pharmacy instead of at the PBM-owned mail order pharmacy. An increasing number of major employers like General Motors, IBM and DuPont also have adopted mandatory mail. And when the United Auto Workers last year adopted a new contract requiring its members and their dependents to switch to mail order, the result sent shock waves through the industry.

Pharmacy industry sales results from 2004 underscore the huge impact mail order is having on chains and independents. According to IMS Health, mail order pharmacy remained the fastest-growing segment of U.S. prescription dispensing in 2004, with prescriptions dispensed by mail rising 13.2 percent to 213.9 million. By contrast, IMS reported chain drug stores' total prescription volume in units rose just 1.1 percent to 1.5 billion, with mass merchandise pharmacy unit volume rising 2.4 percent to 353 million prescriptions. Against those numbers, independent pharmacies saw total prescriptions dispensed basically flat with 0.3 percent growth to 728 million, and supermarket pharmacy volume rose 1.6 percent to 470 million units.

Total prescriptions dispensed in 2004 rose 1.8 percent to 3.27 billion, IMS reported.

The dollar sales picture tells an even more dramatic growth story for mail versus retail. While traditional drug chains saw a 6.2 percent increase in pharmacy sales last year to 490.7 billion, mail order's sales jumped 17.9 percent to 41.3 billion. Overall U.S. retail sales of pharmaceuticals rose 8.2 percent to $221 billion.

Despite the inroads made by mail, that segment's momentum appears to be slowing as retailers like Walgreens and pharmacy organizations like the National Association of Chain Drug Stores aggressively promote the 90-day retail refill option as a cost-effective alternative to mail order. What's more, pharmacy operators shouldn't underestimate the power they wield as community health resources. Retail pharmacists still rank among the most respected and trusted professions, according to Gallup. Other studies indicate that patients interact with their pharmacist an average of 12 to 15 times per year, compared with just three or four times per year with their doctors.

That vast reservoir of consumer trust and loyalty remains a potent--if often untapped--weapon that could be brought to bear far more effectively in the industry's ongoing effort to influence health care policy and to gain stature as a valuable component of the health care system. Enlisting both policy makers and the public in the effort to gain greater recognition and payment for pharmacy-related services just makes good sense, say pharmacy leaders--particularly as community pharmacy is locked in a battle with mail order pharmacies for the right to continue serving millions of patients on long-term medications.

"We as an industry are perfectly positioned to play a role and benefit," said Kerr Drug chairman, president and chief executive officer Tony Civello in his first speech as NACDS chairman in April. "Our patients visit us five times more often than they visit any other health care provider.

"If this industry partnered" more effectively among its own members and with its pharmaceutical suppliers in the search for more recognition and payment for critical patient care services, he added, "We would be unstoppable."

Civello and other industry leaders say cost-cutting pressures are driving a new era of consumer-driven health care spending by shifting the insurance industry and pushing more of the costs for prescription drugs and other care to patients themselves in the form of higher deductibles and copays, flexible spending accounts, etc. "More and more, these consumers will control their own health care spending, resulting in smarter and hopefully increased usage of the very products and services we provide," he said.

Civello said community pharmacy has some powerful built-in advantages to bring to the health care table--advantages it has yet to fully exploit because of the often-fractious and disconnected nature of the relationships among chain and independent pharmacies, drug manufacturers, plan payers, health policy makers and other members of the health care spectrum. "We are at a pivotal point in our history where identifying our collective common interests and successfully driving them has far surpassed diversity and competition as a means of ensuring our future growth and success," he said.

NACDS president and chief executive officer Craig Fuller is among those calling for an all-out campaign by chain and independent pharmacies to educate payers and policy makers on the value those pharmacies bring to patient health and cost savings. "Every time we get an elected official into a store or behind a counter, it greatly enhances their appreciation of community pharmacy," Fuller said.

Bruce Roberts, executive vice president and chief executive officer of the National Community Pharmacists Association, echoed that call to action. "It's absolutely critical we all get engaged in this process. It's too important a time to put proprietary issues ahead of this fundamental challenge," he said. With the pending launch of Medicare Part D drug benefits and government-sponsored Medication Therapy Management services for some 41 million Medicare patients, Roberts continued, "We've got an opportunity to have pharmacists step up to the plate ... to be risk managers" in the new, more cost-conscious U.S. health care system.

"This isn't brain surgery," Roberts added. "This is not full-blown disease state management we're talking about. If you just get patients to take their prescriptions properly, you save money."

That's the message that all of pharmacy now is trying to get across to health care decision makers-including those within the halls of state and federal government as they mull pharmacy reimbursement policy for Medicare and Medicaid, as well as those who oversee employer-sponsored health plans and those who negotiate contracts on behalf of pharmacy benefit management firms across the country.

"Clearly, we believe that government is going to get more and more involved in setting the stage for health care," observed John Hammergren, chairman and chief executive officer of McKesson Corp.

"We need to proactively work together as a team, aligned for the common purpose of making sure that people understand that health care begins with pharmaceuticals, that prevention begins with pharmaceuticals and that safety begins with the safe use of pharmaceuticals," Hammergren said. "And we're only going to get that if we maintain that individualized relationship between a pharmacist and a patient."

J. Lyle Bootman, dean of the College of Pharmacy at the University of Arizona, is among those convinced that the profession will navigate its current sea of troubles and reach that far shore. "Pharmacists are at a zenith in our ability to manage, cure and prevent disease," Bootman wrote on behalf of Pfizer. "Demographics in this country practically ensure a bright future for those entering the profession."

With Medicare set to launch prescription drug coverage for 41 million seniors in January, the continuing aging of the population and the discovery of new drug compounds through pharmacogenomics and biotechnology, Bootman noted, "It's easy to understand why, over the next few years, the number of prescriptions dispensed is expected to more than double."

He also sees pharmacists playing a greater role as consumer-directed health care becomes more of the norm. "One need only turn on the television or pick up a magazine to learn about the explosion of new prescription drugs," Bootman noted. "People absorbing this information are becoming more educated and informed consumers. It also appears that an increasing number of consumers are intent on participating in their own health care, and when they do, they tend to turn to their neighborhood pharmacist for assistance."

Prescription drug dollar sales by segment

                            2004                   2003
Channel                   $ sales *   % change   $ sales *   % change

Traditional drug chains     $91.0       6.2%       $85.4      12.5%
Mail order                   41.3      17.9         35.0      15.9
Independent drug stores      40.5       5.2         38.5       8.9
Supermarkets                 27.0       6.9         25.2       9.1
Mass merchants               21.2       7.6         20.0      11.0
Total                      $221.0       8.2%      $204.2      11.8%

* All sales in billions

Source: IMS Health/National Association of Chain Drug Stores

Prescriptions filled by segment

                     2004 total        %       2003 total       %
Channel            prescriptions *   change   prescriptions   change

Traditional drug        1,510         1.1%        1,494        1.4%
  chains
Independent drug          728         0.3           726        2.5
  stores
Supermarkets              470         1.6           462        4.0
Mass merchants            353         2.4           345        1.7
Mail order                214        13.2           189        8.4
Total                   3,275         1.8%        3,216        2.5%

* All figures in millions

Source: IMS Health/National Association of Chain Drug Stores

Drug chains carve out
biggest share of Rx market

Total $ sales = $221 billion

Traditional drug chains    41.2%
Independent drug stores    18.3%
Supermarkets               12.2%
Mass merchants              9.6%

Source: IMS Health/National Association of
Chain Drug Stores

Note: Table made from pie chart.

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