As health care players race to deliver on the promise of integrated care, they’re assembling capabilities through M&A and changing the way the ecosystem works. While community pharmacies continue to publicly demonstrate commitment to evolving their offerings, they will need to demonstrate their value in different ways as influencers in the health ecosystem evolve. For many pharmacies, further expansion into clinical services will be the next step in their journey. As they make this move, they need to ask how they are helping ecosystem partners achieve better outcomes aligned with the promise of integrated care. Will payor/provider partners see sufficient value? What capabilities are critical to scaling and expanding?
Moves to integrate care
For years, players across the health care value chain have been moving toward a more integrated model of care delivery with increasingly visible examples of established payor/provider networks (e.g., Kaiser Permanente, Geisinger, Intermountain Healthcare) and the growing integration sought by players such as United Health Group and even Amazon (with the recently announced acquisition of One Medical). The seemingly endless growth of legacy health care costs — exacerbated by pandemic-related service demands — has continued the years of pressure to decrease costs without risking the service and quality expected of those footing the bill. This has created powerful incentives for organizations to redefine their value proposition, positioning themselves as efficient, connected and comprehensive single-stop purveyors of services. We see this manifesting in a dramatic increase in payor acquisition of physician medical groups (up 56% over the prior year from November 2020 to 2021) and consolidation of health systems. Beyond new combinations of legacy companies, we continue to see new, compelling, digitally led market entrants designed for a radically different health landscape, operating with a customer-first mentality and unencumbered by last-generation processes, technologies and organizational structures.
If the buzz generated by Amazon’s proposed purchase of One Medical is a sign of what is to come, expect acquisitions, consolidation and new entrants to continue to shake up the space as payors and providers explore the balance and extent to which they manage risk and deliver care. We see a few archetypes emerging (see figure 1):
- Traditional payors consistently seeking to build low-cost networks with broad comprehensive coverage. While growth often occurs through expansion, several are looking to M&A to break through historical growth patterns.
- Fully integrated providers create a one-stop shop for patients, enabling seamless transitions and driving growth through product and market expansion, as well as through expansion of health services.
- Direct-to-consumer retail providers, including pharmacies, deliver low-cost, accessible resources to patients. As fee-for-service models continue to be prevalent, cost pressures have been especially acute and resulted in many working to grow through scale and differentiated capabilities.
- Stand-alone providers treat higher-acuity patients with specialized expertise coordinated by care delivery teams, many prioritizing enabling value-based care models.
Preparing for more integrated care delivery
Each archetype brings unique assets to their care model, with certain capabilities needing to be expanded and others shrinking in importance. For pharmacies to profitably differentiate they must continue to ask how they are partnering with the forces shaping care delivery in their community. What gaps exist? How is their value proposition changing as their ecosystem partners seek earlier interventions to manage risk, and ultimately cost? We envision five critical capabilities for success (see figure 2):
Success will require meeting certain “must-dos”:
- Data and analytics. Enable increasingly integrated patient data, building on existing prescription visibility to elevate evidence-based care across the care journey. Going beyond current data access to ensure new products and services are tailored and integrated with outside data to forecast patients’ future health needs.
- Care-delivery strategy. Evaluate ownership versus partnership for core capabilities. Pharmacies should view this with a multiyear lens, identifying patient use cases and quickly piloting opportunities to validate hypotheses, demonstrate payor value and prioritize those to be scaled.
- Patient experience. Provide a “one-stop shop” experience where practical, linking with community-care resources to foster optimal health outcome management. Community pharmacies serve a core community need — enabling access to high-quality care and expanding service opportunities to meet broader health care needs.
- Value-based care. Amend cost structures to take on risk-based models. As entities become increasingly integrated, there is an increasingly acute need to invest in offerings that demonstrate meaningful value (and result in an outsized payoff). Delivering on a value-based care proposition requires processes (both centrally and in-store) operate with greater flexibility and data access to inform contracting and relationship management activities.
- Claims management. Develop an efficient and integrated adjudication process that connects back to data and analytics. In their current role, community pharmacies are overwhelmingly focused on working with pharmacy benefit managers. Maximizing value from the broader ecosystem will require connectivity into the payor partners managing broader health care risk and claims management capabilities (relationship management, claims automation and integration).
Maximizing the opportunity at hand
As payors’ priorities and expectations evolve, pharmacies can better align to support payors’ needs in their communities. Success will depend on the extent they are able to pivot, tailoring their offering toward the activities that help payors manage risk, and ultimately lower cost. At the core of this transition is the curation of an experience that meets customers where they are — a capability pharmacies have honed through years of managing community-based care models and cultivating trusted customer relationships.
Community-based customer relationships are grounded in the proximity and familiarity that defines community pharmacy in America. For most Americans, the pharmacy represents the closest, most convenient brick-and-mortar outpost of the health care system. Unlike doctor’s offices, clinics or hospitals, pharmacies are woven into the rhythms of daily life.
In expanding their value with payors, pharmacies must build on pandemic-related proof points, cementing their role in delivering a broader slate of offerings that translate evidence-based care management from the provider’s office to local retail settings. Pharmacies’ skilled workforce, community trust, regular customer access and a growing emphasis on the preventive health measures that payors desire are capabilities that can be leveraged to deliver on the promise of integrated care. Given increasing M&A activity occurring in provider groups across the country, community pharmacies must be proactive, closely watching for signals of integration within their markets. For the pharmacy, integration can threaten volume (and the economic model they depend on) or be an opportunity, highlighting that partner organizations (like hospital pharmacies) can’t meet the community needs in the same way as the local pharmacy. To prevent volume erosion and capture potential upside, pharmacies must actively evaluate the needs of their community and demonstrate how they can support the interests of their payor partners in managing risk, and ultimately total health care costs.
The path forward
Community pharmacies face an uphill battle. Increasing levels of collaboration and consolidation among their community providers and payors are changing the dynamics for community pharmacies, reorienting relationships. The advantage of efficient, consistent operations across a broad footprint is eroding under reimbursement pressure. Care models and consistent connections to customers are at risk with evolving market forces and pandemic-driven changes in consumer expectations.
At this critical juncture for the community pharmacy, taking risks will be required to evolve their model, build flexibility into a historically standardized model and develop new offerings in line with payor requirements that are tailored to relevant community needs.
A handful of questions will shape the journey pharmacies undertake in the years to come:
- How can pharmacies ensure that they are the “go-to” partner in this newly integrated environment?
- To what extent will gaps in care continue (or widen) in the local community? Do pharmacies have the organizational flexibility and local “muscle” to tailor offerings to meet community-based needs?
- What new capabilities will be “no-regrets” moves?
- How can pharmacies more nimbly test and scale new offerings and demonstrate value to ecosystem partners?
Whether assessing their own assets or investments in innovation, allowing for degrees of flexibility in the retail pharmacy operating model and positioning pharmacies to best serve unique community needs will be critical to success. Pharmacies are well positioned with customers to drive value, but partnering successfully with payors (and now providers) is key to unlocking the promise of integrated care.
Kathryn Rauen is a partner in the Health Practice at Kearney, a global strategy and management consulting firm. She can be reached at [email protected]. Kate Maheu is a principal in Kearney’s Health Practice. She can be reached at [email protected]. DJ McKerr is a manager in Kearney’s Health Practice. He can be reached at [email protected].
The authors would like to thank Calypso Montouchet, Shruti Sethi and Laura Bowen for their valuable contributions to this article.