Kearney Leaderboard

Competing imperatives shape pharmacy’s future

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The commoditization of community pharmacy has come in for a good deal of criticism in recent years.

Many members of the profession assert that generic drug discount programs and other initiatives focused on price tend to lower the standing of pharmacists in the eyes of patients, payers and their colleagues in health care. The trend, they argue, undermines pharmacy’s bid for greater recognition, an expanded role in patient care and a fundamental shift in how the industry is compensated.

Despite the protests, most major pharmacy operators have responded to concerns about rising health care costs and now offer prescription drug customers programs that deliver price breaks.

The forces behind the development are explored by John Agwunobi, senior vice president at Wal-Mart and president of the company’s health and wellness division, and Paul London, a former deputy undersecretary in the Department of Commerce who is now an economic consultant, in an article in the current issue of the policy journal Health Affairs.

They say health care providers can learn from the example of mass market retailing.
“Improved supply chain management and high-volume purchasing have benefited other industries,” Agwunobi and London write. “This same approach could also reduce health care costs. Streamlining layers in the supply chain and using purchasing volume to reduce prices can save money and may improve patient care.”

After defining a commodity as something that is not distinguished by brand, they say, “Many standardized health care products and services today are priced as customized items, when they should and could be priced as commodities. Examples include generic pharmaceuticals; routine lab tests and procedures, such as blood tests; and services, such as the treatment of uncomplicated ear infections.”

The impact of generics discount plans, which became a big factor in community pharmacy when Wal-Mart launched its program in September 2006, is cited to support their case: “Low-cost generics today are offered in some cases for as little as $4 for a 30-day supply at commonly prescribed dosages. Increasingly, these drugs are priced in relation to what they actually cost. By forgoing high profit margins in exchange for volume growth, mass retailers have created a competitive cascade that has begun to affect overall health care costs.”

The same principle could be constructively applied to other parts of the health care system, the authors note, including the role of pharmacy benefits managers, over-the-counter medications, routine wellness services and the monitoring of chronic conditions.

Agwunobi, a physician by training, and London understand that not every component of health care can be treated as a commodity, citing speciality pharmaceuticals, high-risk medical procedures and complex diagnostic tests as instances where commoditization is not appropriate. At the same time, they assert, “much more can and should be done to leverage lessons from retail, where scale, supply chain networks, and cost-cutting experience can make a sizeable dent in overall health care costs.”

To the degree that Wal-Mart, the nation’s third-largest prescription drug provider and No. 1 seller of O-T-Cs, gets behind them, the ideas espoused by Agwunobi and London will be tested in the marketplace and become a competitive fact of life for other pharmacy operators.

The challenge for everyone involved in the profession is to find the right balance between the competing needs of reducing health care costs and improving patient care. The solution will likely require some combination of commoditization and the seemingly contradictory elevation of the pharmacist’s role. One thing is certain, change is afoot.

Emerson Industry Day 2023

Emerson Industry Day 2023

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