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2014 Outlook: Industry adapts as pharmacy evolves
January 14th, 2014
NEW YORK – Chain drug executives in the United States and Canada expect 2014 to be a pivotal year for the industry as the changing face of health care is impacting community pharmacies on both sides of the border.
Executives said issues over pharmacy reimbursement, changes in the drugs that patients take and the potential for a flood of newly insured patients will reshape the way they operate.
In the United States, despite having more than three years to prepare for the full implementation of the Affordable Care Act, community pharmacy leaders admit to having a few uncertainties about how health care reform will impact their business.
What's more, some executives noted that a continued lack of consumer confidence is likely to add another layer of uncertainty about how the industry will fare in the coming year.
And as the community pharmacy business environment evolves, so is the way that the pharmacist fits into the health care picture. Executives agreed that 2014 will see the profession continue to broaden is scope and play an even greater role in patient care.
Here's a sample of what some drug retail executives had to say about the business landscape and key issues for their companies and the chain drug store industry in 2014.
"Third-party network accessibility is one of the major challenges that the industry will face in 2014. We need a set of standards and expectations for these plans: If you can meet those requirements, why should access be withheld? ...The regional players of today have come a long way and can demonstrate their value to patient care. Make no mistake: We are being measured, and if we demonstrate results we deserve a seat, but we will need to demonstrate value to get that seat." — Robert Narveson, president and CEO, Thrifty White Pharmacy
"Third-party network accessibility is one of the major challenges that the industry will face in 2014. We need a set of standards and expectations for these plans."
— Robert Narveson,
Thrifty White Pharmacy
"Dealing with restricted pharmacy networks will be the No. 1 challenge facing us in 2014 — Walmart's alignment with Humana is a prime example. To compensate for the customers lost to these networks, we must continue to develop new relationships with our patients and work to create independent networks. Hopefully, Congress and others will wake up and see that we are willing providers but are being denied access to these networks. We have worked and will continue to work with Sens. John Thune (R., S.D.) and Tim Johnson (D., S.D.) on this problem." — Mark Griffin, president and CEO, Lewis Drug
"Like all the regional chains and independents, we've had a challenge getting into the Medicare Part D preferred provider network. We've been locked out because they granted exclusivity to national chains and big boxes. A lot of our customers are unhappy about getting notices saying they cannot come to our stores anymore. That's a challenge we'll be dealing with more as the years go by and people increasingly have to go to the preferred network. ... We're working with our association and our federal and state legislators to open up the network to us. The frustrating piece is that when it comes to the Medicare Star Ratings, we rank pretty high among our peers. By all logic, we should be at least invited to participate at the pricing structure the PBM is proposing based on our Star Ratings." — Tom McConnell, chief financial officer, Discount Drug Mart
"The future of community pharmacy continues to be challenged by the preferred networks established by pharmacy benefit managers. This challenge poses significant hardships for retailers as well as for patients, especially the elderly. In 2014, 70% of the Medicare Part D business will be driven to preferred networks, and we anticipate losing 30% of our business this year to those networks. ... We are cut out of these networks without ever getting the opportunity to participate. We meet with all the pharmacy benefit managers that have preferred networks two times per year and have regular correspondence with them. We always inquire about all their networks, and still we are not even offered them." — Yvonne Gallagher, executive vice president, Sav-Mor
HEALTH CARE & REFORM
"There will be many opportunities for Rite Aid and others within our space, but our industry will also face many challenges in the new year, including continued reimbursement rate pressure, fewer new generic drug introductions, and the unknown effect of the Affordable Care Act, just to name a few. A key to overcoming these challenges will be leveraging the knowledge and expertise of our pharmacists. It was no surprise to any in our industry that in December, for the 11th consecutive year, pharmacists were once again ranked among the top three most trusted professionals, second only to nurses in Gallup’s annual Honesty and Integrity survey. With this top accolade comes great responsibility, one that I know all members of our industry association, the National Association of Chain Drug Stores, takes very seriously. As the incoming chairman of NACDS, I look forward to collaborating with members in our continued efforts to champion the role of the pharmacist and, ultimately, deliver superior health care to our customers in 2014 and beyond." — John Standley, chairman, CEO, Rite Aid
"With health care spending estimated to rise by 5% a year, drug spending is expected to grow by roughly $35 billion to $45 billion by 2016, according to the IMS Institute for Healthcare Informatics. With this growth, Forbes magazine recently named the drug store business as one of four health care businesses that will see 'tailwinds' in the next four years. Health care reform is further driving the demand for affordable, high-quality health care and is estimated to provide another 30 million people with access to health insurance coverage. The pharmacy profession has always played a key role in America's health care system. In the future, as pharmacists and nurse practitioners practice at the top of their professions, together they can help fill the gap in primary care, expand health and wellness, and lower overall health care costs." — Greg Wasson, president and CEO, Walgreens
"The ongoing success of community pharmacy requires evolution from a business model based on product distribution to a new approach that emphasizes the provision of patient care services for which pharmacy is fairly compensated."
— Carmen Churcott, Pharmasave Drugs
"Public and private payers are increasingly using performance data to determine which retail pharmacies are most effective in impacting positive clinical outcomes for patients and selecting the top performers to be their preferred pharmacies. Of the 15 metrics that are included in a Medicare Part D Star Rating, five core pharmacy metrics are triple weighted and can influence nearly half of a drug plan's total composite score, increasing payers' desire to partner with high-performing pharmacies. To help our Health Mart stores thrive in the new era of performance networks, we recently announced that Health Mart will offer its member pharmacies access to EQuIPP, an online information management platform that makes pharmacy performance data available to health benefit plans and community pharmacy organizations." — Nancy Chung, vice president of strategy and technology, Health Mart
"On the health care front, the website issues with the Affordable Care Act will gradually be fixed. The big question is, after enrollments are done, what the cost results will be — and, hence, future rates. It may take a couple of years to sort out. Pharmacy being a bit of a sideshow in the universe of health care, I expect more twists and turns." — George Bartell, chairman and CEO, Bartell Drugs
PRACTICE OF PHARMACY
"The ongoing success of community pharmacy requires evolution from a business model based on product distribution to a new approach that emphasizes the provision of patient care services for which pharmacy is fairly compensated. Pharmacy also needs to continue to enhance relationships with governments, provincial pharmacy associations and other stakeholders, advocating the value pharmacists add to the health care system and encouraging continued expansion of pharmacy scope of practice and funded professional services, as well as a viable dispensary business. Additionally, proactively engaging with other health care providers to explore additional opportunities to improve patient outcomes and raising consumer awareness of these cognitive services also serve to increase customer loyalty." — Carmen Churcott, CEO, Pharmasave Drugs
"The initiation of the Affordable Care Act and the Medicare Star Ratings will be a focus for Fruth in 2014. We are working to determine how we can improve outcomes and adherence through a variety of clinical programs and partnerships. The challenge will be how to integrate these services in our current work flow or ways to expand clinical staff to meet the requirements or benchmarks needed to get superior Star Ratings. Our focus will include educating (or reinforcing) staff on the changes in pharmacy and helping our pharmacists succeed in the new paradigm." — Lynne Fruth, chairman, president, Fruth Pharmacy
"Our new advertising platform, which was launched last year, develops the 'family pharmacist' positioning. Since everyone wants access to a family doctor in times of need, our message is clear: At Uniprix-affiliated pharmacies, family pharmacists are always available. The word 'family' is central to this campaign, which shows neighborhood pharmacists taking part in their own family activities and professional activities with patients. While Quebec pharmacists' scope of practice will be even broader in 2014 and beyond, we are focusing even more on our close relationships with people." — François Castonguay, president and CEO, Uniprix Group
"Retail pharmacies continue to experience pressure on reimbursement and narrowing access to patient care networks. Our industry will continue to respond to these trends in several ways. First, we’ll see a continued focus on diversifying revenue with services that meet evolving patient needs. ... Second, in this environment where all providers are expected to provide quality, outcomes-based care to an increasing number of patients, we see a continued emphasis on cost efficiency. ... Third, as all players across the continuum of care are increasingly pressured to focus on patient outcomes, new and innovative models for care delivery are emerging. ... These three opportunities are essential ingredients for retail pharmacies to drive value and thrive in 2014 and beyond." — Jon Giacomin, president, U.S. pharmaceutical distribution, Cardinal Health
"We continue to invest in and innovate in digital opportunities. We know it can deliver a differentiated customer experience and can help drive greater share of the health and prescription wallet."
— Helena Foulkes, CVS/pharmacy
"Pharmaca saw substantial growth in all areas of our business model in 2013. Retail sales grew by over 11%, and our e-commerce business has risen dramatically. ... In the coming year, we will still face challenges managing total store profitability. As an industry, the squeezing or downward pressure on prescription reimbursement will continue with payers becoming more aggressive. Generic introductions will be welcome due to the increases in margin contribution, but they will also erode top-line sales. ... The economy will pick up speed in the latter half of 2014, which should bode well for our format. Pharmaca still holds a unique position in the industry, serving as a trusted source for health and wellness, and we look forward to serving an expanded customer base both in stores and online." — Mark Panzer, president, CEO, Pharmaca Integrative Pharmacy
"As pharmacy margins continue to face pressure, we know that it's now more important than ever for independent pharmacies to operate efficient businesses with diversified revenue streams. Toward that end, we will continue assisting our franchisees in building focused, cost-efficient, revenue-diversified businesses. Our franchise business consultants will work with franchisees to assess the overall health of each pharmacy and benchmark their performance on key indicators against other pharmacies in the system. They'll also remain focused in 2014 on working with franchisees to develop and fine-tune store-specific business plans that address potential weaknesses and capitalize on strengths." — John Fiacco, vice president, Medicine Shoppe, Medicap Pharmacies
"Demographic trends are expected to contribute to the growth in prescription drugs consumption and to the increased use of pharmaceuticals as the primary intervention in individual health care. Management believes that these trends will continue and that the corporation will maintain its growth in revenues through differentiation and quality of offering and service levels to its network of franchised stores, with a focus on sales growth, its real estate program and operating efficiency." — François Coutu, president and CEO, Jean Coutu Group
"As we look ahead to 2014, we feel confident that the retail pharmacy industry is poised for another strong year. There will be considerable change in the industry, including the implementation of health care reform, an increasing emphasis on positive patient outcomes, a steady rise in the baby-boomer senior demographic, continued growth of preferred networks and a focus on a pharmacy's ability to impact Star Ratings. ... The key to long-term business success will be anticipating the industry changes, adapting to meet the needs of the new market and continuing to provide excellent patient care." — Mark Walchirk, president, McKesson U.S. Pharmaceutical
"We continue to invest in and innovate in digital opportunities. We know it can deliver a differentiated customer experience and can help drive greater share of the health and prescription wallet. It helps reduce the total cost to serve our customers, and ultimately it helps us deliver better health outcomes for our patients. In 2014, we'll focus on revamping the specialty pharmacy digital experience. Our customers will also be able to manage all of their retail and mail order scripts in one place." — Helena Foulkes, president, CVS/pharmacy
"At London Drugs, we firmly believe that the evolution (and improvement in) of health care will be the utilization of technology and providing innovative health care. ... Through a new pilot project in partnership with Medeo Corp., British Columbia residents can now visit a licensed doctor from the London Drugs pharmacy via secure video conference.
Dedicated Medeo-enabled private consultation rooms are available at select London Drugs locations. Customers with valid Medical Services Plan coverage can visit with a licensed doctor via secure video conference in stores or connect to doctors via secure video conference from their own personal computers, iPhone or iPad and have their prescription sent directly to any London Drugs pharmacy location in British Columbia. Our goal is to provide patients with easier access to professional care, prescriptions and additional health services." — Wynne Powell, CEO, London Drugs
*To read the full six-page Retail Forecast 2014 report, please see the Jan. 6, 2014, print issue of Chain Drug Review.