Today’s retail pharmacies face increasing pressure from all fronts. Governments are aiming to reduce health care costs, and public sentiment is pushing the industry toward a value-based model. The use of high-cost specialty drugs is increasing dispensing complexity and shifting channel volume — at a time when disruptors like Amazon are poised to impact pricing. Meanwhile, pharmacy benefit managers are growing in influence and wielding their power in ways that reduce pharmacy profitability.

Todd Huseby

The challenges abound. But so, too, do the opportunities. Before COVID-19, pharmacies had already begun to expand their range of clinical services, such as chronic disease management and immunizations. The COVID-19 crisis may serve to accelerate these efforts by highlighting the role pharmacies can play in the health care ecosystem beyond drug dispensing. In many countries, pharmacies have become integral players in the pandemic response — serving patients who wanted to avoid busy medical clinics — becoming centers for education and providing patient testing.

While the industry may be in a state of flux, one thing is for certain: The forces at work today are creating a dramatically different business for tomorrow. As the industry evolves, these three global trends will continue to shape pharmacies globally:

Moving beyond markups

As health care and drug costs continue to rise, governments are looking for new strategies to control costs and increase affordability. A Democrat win in the upcoming election could give way to new policies, such as an expanded government-funded insurance option like Medicare and increased restrictions on pharmaceutical pricing. Some countries are focusing on reforming pharmacy reimbursement structures, exploring flat-fee models for dispensed drugs, instead of relying on the traditional markups. The rationale behind this shift: de-linking reimbursement from drug prices and transitioning toward a pay-for-service model.

Rodey Wing

Australia offers a prime example with its Pharmaceutical Benefits Scheme (PBS), a national drug policy that subsidizes and covers medication costs. The government updated the PBS to restrict pharmacy markup and move more funding to an Administration, Handling and Infrastructure (AHI) fee. The fee has three tiers, and pharmacists are reimbursed depending on what cost bracket the dispensed drug is in (the middle tier has a markup component in addition to the fixed fee).

As drug costs continue to rise, other governments may explore a flat-fee reimbursement. For instance, in the U.S., the 340B program is gaining traction. The program enables nonprofits and hospitals to purchase drugs at a discounted price from manufacturers and contract with retail pharmacies to dispense them for a service fee. Overall, these flat-fee models offer increased transparency and some additional control for pharmacies. Still, it’s not all roses. Large pharmacy chains often use their size to negotiate a larger margin spread between the wholesale costs and payor reimbursement value. Flat fees could reduce that competitive advantage.

Emily Rowe

Over the long term, as the industry faces the possibility of new regulation, decreased margins and increased influence from PBMs, flat-fee models may provide pharmacies with a way to increase reimbursement transparency and protect their profitability.

Rewarding patient outcomes

As governments search for additional strategies to reduce health care costs, public and private payors are also testing reimbursement structures tied to patient outcomes. For instance, in the U.S. PBMs have historically connected patient outcomes to reimbursement through direct and indirect remuneration (DIR) fees. However, the unpredictability and financial burden of these fees has made them unpopular with pharmacies.

Canada is experimenting with linking reimbursement to patient outcomes as well. Payor Green Shield Canada recently introduced plans for its Value-Based Pharmacy initiative, a program that will measure, evaluate and rank pharmacy performance against outcomes metrics. The financial impact on pharmacies is not yet clear. But pharmacies can count on the growing interest in incorporating patient outcomes to continue.

In other markets, such as France, the U.K., Belgium and New Zealand, governments incentivize pharmacists to focus on outcomes by providing funding for pharmacist consultation and monitoring patients with chronic diseases. These efforts ensure that patients receive proper treatment, and they may even improve outcomes. However, to succeed in this new model, pharmacies will need to develop analytical capabilities for measuring, tracking and reporting results. They’ll also need new processes to intervene and adjust care if the outcomes aren’t in line with expectations.

An evolving scope of care

In some countries, reimbursing pharmacies for services is a model that’s gaining ground. The services provide a diversified revenue source for pharmacies and a way to offset declining drug profits. What’s more, pharmacies can elevate their role by reducing stress on other areas of the health care ecosystem, such as emergency rooms and walk-in clinics.

For example, in Canada, pharmacies receive government reimbursement for services such as immunizations, chronic condition management and smoking cessation services. Some provinces are also expanding scope of care, allowing pharmacists to assess and prescribe for minor ailments, such as urinary tract infections, skin rashes, and strep throat.

The COVID-19 crisis highlighted the critical role pharmacies can play in primary care delivery. In South Korea, the government used pharmacies as the primary distributor for face masks, and pharmacists educated customers on the proper use of PPE and social distancing behaviors. In the U.S., pharmacies such as Walgreens and CVS used their store footprint and drive-thru capabilities to provide COVID testing in a safe and convenient way.

Going forward, pharmacies should consider how they can expand patient care capabilities in order to focus more time on higher-value services. In the U.S., pharmacies have taken steps to offer patients greater access to primary care, such as Walgreens Find Care or Walmart Health, but some have struggled to create a sustainable model. As they continue to elevate their role in the health care ecosystem, pharmacies should look to use technology to free up labor, advocate for expanding pharmacist scope and evaluate how in-store space can best meet future needs.

The pressures on pharmacies will accelerate. Amidst the changing business models, shifting reimbursement structures and rising competition from direct-to-consumer players, retail pharmacies need to evaluate and update their own capabilities. Those that do will be well positioned to respond to current trends and set themselves up as the leaders of the future.

Todd Huseby is a partner in the Health practice at Kearney, a global strategy and management consulting firm. He can be reached at [email protected]. Rodey Wing is a partner in Kearney’s Health practice; he can be reached at [email protected]. Emily Rowe is a manager in ­Kearney’s Health practice; she can be reached at [email protected].