Check out at the pharmacy
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After a recent conversation with Brandon Newman, CEO of XEVANT, I'm convinced that there are many ways pharmacies can save money at a time when competition is intense and operations are very expensive.
Brandon, who spoke at the PBMI (Pharmacy Benefit Management Institute), pointed to the primary factors that contribute to pharmacy closures. They include operating costs that have increased significantly, forcing chains to close many low-volume stores. We see this problem facing many industries. However, in the pharmacy/drug store space, he also pointed out some unique challenges facing the industry. He noted that pharmacy companies may face difficulties in securing the best/lowest prices for medicines as some government regulations require compliance. While most pharmaceutical retail companies are keen on sourcing quality branded medicines for the customers, they also make every effort to offer generic alternatives to the original medicines in order to reduce the costs to the customer. In doing so, the goal is to secure a good price for the store as well.
There have also been changes in how customers shop for and receive their medications. One must also take into consideration that the recent introduction of drones by AmazonAMZN and WalmartWMT is a new competitive factor affecting pharmacies. The drones target customers who live in remote locations and whose medication needs are often urgent but access to those medications is difficult. Deliveries are fast and efficient, but take sales volume away from brick-and-mortar stores.
Brandon then pointed out another factor; He stressed the role that pharmacists play in helping customers obtain prescribed medications, providing advice on the appropriate time to take the product and ensuring that pharmacy customers take the appropriate medication at the appropriate time. He regretted the lack of focus on the role of pharmacists in our fast-moving world. Rexall's pharmacist has long been a staple in many people's lives, and the helpful advice he provided motivated customers to come into the store – for their medication needs as well as any other purchases they could make while they were there. That has changed forever, although we still have some pharmacies that deal with their customers the old-fashioned way.
Another factor shaping the pharmacy and drug store industry is the role played by PBMs (Pharmacy Benefit Manager). In the United States, PBMs are third-party prescription drug administrators; It plays a role in access to and pricing of prescription drugs. Today, three companies dominate PBMs.
Originally, these administrators were formed when insurance companies began covering prescription drugs in the 1960s. Their goal was to determine which drugs would be covered, according to the National Association of Insurance Commissioners, a standards-setting organization. Nearly a decade later, PBMs began processing claims to streamline the process. In the 1990s, drug manufacturers began purchasing performance management drugs, but the Federal Trade Commission put a stop to that to avoid conflicts of interest.
Today, there are 66 PBMs in the United States, and the top three are vertically integrated with some of the country's largest health insurers. CignaCI Express owns ScriptsESRX; CVS, which merged with insurer AetnaAET in 2018, owns Caremark; UnitedHealth GroupUNH owns Optum Rx.
As drug prices inflate, PBMs that can negotiate the highest discounts can literally create a “magnet pole effect in their direction” – meaning they will get the most business. Those who can negotiate the lowest prices are the ones who have the most leverage. Large PBMs gain more leverage through consolidation. The top three companies maintain control, so it is very difficult for new PBM companies to break into the market. Pricing has become so complex that convincing a payer that a new PBM system can save them money is not easy. PBMs have kept the prices they negotiate secret, so it's difficult for payers to get a clear view of how much they're actually saving (according to Antonio Ciaccia, CEO of the drug pricing nonprofit 46brooklyn Research).
Given the complexity of the prescription drug industry, I asked Brandon Newman how his company could help improve the industry. He told me that they had built the first automated data analysis and reporting platform for pharmaceutical organizations. They independently compile full analytics, create reports and identify specific customer opportunities to better manage expenses. He pointed out that major hospitals use his services and are able to reduce medication costs.
Postscript: You've covered a difficult topic here. It takes partnering with a top PBM to get the best prices for any drug. Perhaps Brandon's company can help organizations that need his special services. We are all aware of the high costs of medicines, and we hope that the Public Budget Department will strive to reduce these costs. This would benefit customers and pharmacies.
