Todd Huesby

We are more than two years into COVID, and the health care industry still has an “edge of your seat” feel — even as the crisis wanes, there’s an uncertainty about what will happen next. This rings especially true for retail pharmacies, which experienced pandemic highs and lows. American consumers applauded as pharmacies elevated the role they play in health care, providing emergency clinical services such as COVID testing and vaccinations. Meanwhile, payers have continued seeking ways to improve members’ health outcomes and experiences through new and innovative services.

Rodey Wing

Looking ahead, success will depend on moving beyond the “front door” aspiration, with pharmacies becoming a home for affordable, accessible health care built on the foundation of pharmacy-led services. To what extent pharmacies can maintain and expand an elevated role in the eyes of consumers and payers is a multibillion-dollar question. Kearney’s recent research reveals that consumers appreciate the increased connection with their pharmacists and are open to receiving additional services from their local pharmacy. In fact, 39% of consumers say the relationship with their pharmacist is why they chose their pharmacy, while also expressing openness to pharmacies expanding their role in care management. For example, two-thirds of pharmacy customers express comfort with pharmacists managing prescription renewals, and more than half would be comfortable with pharmacists assessing and prescribing medication for common conditions (see figure 1).

Kate Maheu

However, pharmacies still face a host of challenges. Labor unpredictability, continued reimbursement pressures, the debut of new digital players, and more threaten the ground that pharmacies worked hard to gain. Further complicating the situation are payers’ own goals of strengthening customer relationships, seeking out opportunities to integrate care management, and improving health outcomes. As payers are conducting their build/buy/partner evaluations, pharmacies must act quickly to be the partner of choice for payers’ unmet needs.

As we look ahead, three imperatives are coming into focus for pharmacy chains. Those that can deliver will be well positioned to transform pandemic-driven gains into long-term success, unlocking health care improvements so desperately sought by the health care ecosystem.

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• Retail pharmacies must unlock new business models — Consumers looked at retail pharmacies through a more favorable lens during COVID. Historically, consumers viewed retail pharmacies as convenient places to fill commodity medications; the pandemic showed that pharmacies could be heroes — creating a central source of COVID support with access to in-store testing, rapid test kits and vaccinations. Pharmacies provided 40% of all COVID vaccinations, while continuing to deliver life-saving medications, counseling services, and more.
It’s hard to grow profits as reimbursements steadily fall and wages rise. The pharmacy business model demands innovation; retail pharmacies must capitalize on their current momentum. Critical to success will be launching products and services in support of expanded care management and outcomes-based payment models. The CVS–Aetna merger is the most prominent example of a pharmacy strengthening payer connections in the search for new business models, but other examples are emerging.

Walgreens VillageMD is a prime example of health care expansion. Building primary care capabilities into the foundational pharmacy offering creates an anchor point for community-based, localized care while elevating the role of the pharmacy team to enable better primary care outcomes. Those care outcomes are increasingly compensated in at-risk models.

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• Retail pharmacies must accelerate the transition to integrated care delivery across digital and physical assets — Retail pharmacies have compelling assets to offer customers and payers alike, but the next frontier of value generation requires rethinking the role of each asset and driving connections across them in order to deliver on customer (and payer) expectations (see figure 2). For years, brick-and-mortar pharmacy locations determined pharmacy access. In today’s world, there is not a one-size-fits-all pharmacy customer as needs and preferences evolve. Meeting their needs will continue to require some physical infrastructure (evidenced by the expansion of Capsule into select physical locations), but at the right size and scope to complement the overall service model rather than drive the sole experience.

For those who value the security and convenience of visiting a retail pharmacy or seeing an in-person provider, this need will not go away with direct-to-consumer pharmacy and health care offerings. In other situations, however, delivery and remote service may be the best option. The future is not an either/or situation, but rather giving customers flexibility and choice by meeting their needs across physical and digital touchpoints. Customers are demanding a pharmacy experience that bridges digital and physical offerings, expanding beyond the physical “front door” that drove prior success.

As business models evolve, the race is on to create a winning “integrated care” offering and build the proof points required to enable the envisioned business models. With CVS’ recent announcement of a Health Dashboard aiming to anchor the customer experience in a common view of an individual’s digital health history, we see CVS putting a visible stake in the ground on how they will use data to drive further integration across the broader health care ecosystem.
In some cases, pharmacies and payers are each partnering directly with emerging digital health start-ups to expand the credibility and capabilities of their integrated pharmacy offerings.

Announcements sharing acquisitions or partnerships aimed at bolstering the customer experience through digitally led offerings seem to be increasing in frequency. We see the highly integrated health care network Kaiser-Permanente announcing investments in digital mental health solutions (e.g., Ginger) to augment their in-person offerings. As Walmart expanded the breadth of its physical health care offerings (e.g., Walmart Health including primary care, dental, etc.), they have recently complemented their emerging health care solution with partnerships such as BetterUp.

As digital health start-ups continue to introduce and incubate new capabilities, we expect these relationships to continue to emerge as pharmacies and payers alike put together (and integrate) the right pieces to drive care delivery across digital and physical settings. Whether it’s telehealth, in-person vaccines or online counseling, the idea behind these new business models is the same. Payers and pharmacies that want to build off the COVID momentum are searching for more ways to integrate their offerings into customers’ daily lives (and get paid for it), providing a broader range of solutions aimed at keeping customers engaged and ultimately spurring healthy habits that yield better health outcomes.

Retail pharmacies’ physical and digital assets combined with core pharmacy capabilities can provide direct and convenient customer access, creating a setting amenable to broader care delivery.

• Retail pharmacies must innovate on their value propositions to access the health care gatekeepers, payers — Payers are constantly evaluating how to bring together solutions to create the greatest value for their members, keeping them healthy and bringing down the total cost of care. For years we have seen the CVS–Aetna merger continue to play out, launching new offerings and working to capitalize on opportunities to create a stronger offering and customer value proposition than either could on their own. More recently, we see emerging examples of regional relationships being formed to accomplish similar goals, including California BCBS and Walgreens’ plan to roll out Health Corners across the state — further evidence that pharmacies and payers are open to (and investing in) new business models to engage customers and expand care offerings.

To that end, integrating retail pharmacy offerings with the broader health care ecosystem presents a new source of differentiation and value creation. As emerging solutions demonstrate customer-tested value and new capabilities, payers will continue to look to them for inspiration (and as potential partners) to strengthen their own value proposition. The key for pharmacies is creating experiences (and relevant proof points) that reinforce the value of the offering and further customer connection points to payers. While pharmacies benefit from strengthening customer connections, fully capitalizing on the value created requires pharmacies to partner with payers differently than most do today.

Payer-pharmacy relationships must go further, advancing beyond typical pharmacy/PBM contracting and pivoting toward building and selling solutions aimed at managing the holistic health of their shared patient population. Underpinning this pivot is the need to expand beyond the PBM, engaging with health plans, plan sponsors and benefits consultants to sell solutions that improve health outcomes. We recognize this pivot is not inconsequential for teams laser-focused on the transactional PBM contracting that has largely driven pharmacy profitability for years. Creating this new dynamic requires that pharmacies elevate strategic relationships with payers, building new pharmacy roles and capabilities to effectively support the model.

Payers, in turn, benefit from healthier patients overall. As payers evaluate capabilities to provide customers with improved access to affordable, connected health care services, they remain the gatekeepers determining pharmacies’ ability to expand their role in delivering health care. Across both parties, data and advanced analytics will be foundational to demonstrating outcomes and aligning incentives across parties as new products and additional services are enabled.

A window of opportunity
The pandemic has accelerated (and created new) challenges for pharmacies. But it also provides an opportunity for pharmacies to solidify and expand their value proposition. Payers have been increasingly interested in growing their customer offerings and improving health outcomes. Retail pharmacies have shown over the past few years that they are uniquely positioned to provide expanded services, thanks to their existing customer relationships, physical locations, digital offerings and other ­capabilities.

As we move into a post-pandemic reality, pharmacies have the opportunity to continue this expansion through new business models and integrated health care services. But they can’t do so without payer support. Pharmacies need to change the dynamic of their relationship with payers, unlocking new conversations and partnership opportunities, paving the way for more integrated, pharmacy-led solutions critical to delivering improved health outcomes and building on pandemic market gains.

The authors would like to thank Laura Bowen and Karen Yocky for their valuable ­contributions.
Todd Huseby and Rodey Wing are partners in the Health practice at Kearney, a global strategy and management consulting firm. They can be reached at [email protected] and [email protected]. Kate Maheu is a principal in Kearney’s Health practice; she can be reached at [email protected].