Analysts are saying that Amazon’s possible entry into the pharmacy market could be a “massive threat” to chain and independent retail pharmacy business. So what is pharmacy’s response? The answer is in this headline:
CVS Health will launch a new performance-based pharmacy network early next year.
When Amazon.com announced in May 2017 that it is considering entering the pharmaceutical industry, shares of CVS Health and Walgreens Boots Alliance were down more than 3% the day after the announcement.
In June 2017, Walgreens CEO, Stefano Pessina, told analysts, “Honestly, I don’t believe that Amazon will be interested in the near future…in this market. They have so many opportunities around the world in many other categories, which are much, much simpler than healthcare, which is a very regulated business.” He made his comments about the online retail giant the same day Walgreens Boots Alliance said it would buy 2,186 Rite Aid for $5.2 billion to become an even bigger brick-and-mortar drugstore chain.
In August 2017, the CVS Health President and CEO, Larry Merlo, announced that he didn’t see Amazon as a threat, despite the speculation. Merlo noted that the CVS pharmacy model is based on convenience, with 9,700 points of access and almost 80% of the population within a few miles of a CVS. “There are many barriers to entry when you’re looking at pharmacy,” said Merlo. “I think most people are thinking about pharmacy as another distribution point. But pharmacy is also about the clinical outcomes that are provided. “There’s no question that Amazon is a competitor in the marketplace,” said Merlo. “They’ve done a great job, and you don’t take anything that they’re doing for granted. But at the same time, I think that we have a lot of capabilities and a value proposition that can compete effectively in the market.”
A flurry of articles speculated on the impact this would have on chain pharmacies and PBMs and many agreed with the pharmacy chain CEOs for the following reasons:
- Ordering drugs by mail is nothing new. CVS and Walgreens have been in this business for years and have relationships with drug companies and insurers that give them an early advantage.
- Mail order penetration has been flat to slightly down over the past five years.
- Amazon would face major infrastructure, payer and regulatory hurdles.
- It would be hard for Amazon to get wider discounts on generic drugs than the current players.
- Many older people would rather go to drug stores than get their drugs by mail, giving an edge to companies with retail locations.
- Amazon would have a tough time competing against pharmacies that have established relationships with doctors, hospitals, health systems and the insurance companies that pay them.
CVS and Walgreens are also taking additional steps to make it even more difficult for the likes of Amazon to rival their efforts to improve health outcomes. In October 2017, CVS and Walgreens announced a “performance-based pharmacy network” that will be “anchored” by CVS and Walgreens as well as potentially 10,000 independently owned pharmacies. In all, the network will have 30,000 participating stores.
The network is designed to improve clinical outcomes for clients who use the CVS Caremark PBM by holding participating pharmacies to performance measures designed in part to improve medication adherence.
“This network recognizes that pharmacists do more than dispense medications. They are key members of the patient care teams and add value by helping and encouraging patients to take their medications as instructed, improving overall health and wellness while lowering costs for patients and payers,” Walgreens Boots Alliance co-chief operating officer Alex Gourlay said. “Tracking performance provides additional accountability and incentive to achieve measurable outcomes.”
The performance-based part of the network will include performance measurements such as medication adherence for chronic conditions including hypertension, diabetes, respiratory conditions, and behavioral health. The network will, according to CVS, help to deliver cost savings through its PBM CVS Caremark, but also improve patient outcomes that will in turn further reduce costs. Participating pharmacies are encouraged to implement their own proprietary programs and workflow processes to enable them to deliver results related to the measures being tracked.
The network will be available to PBM clients for implementation staring in March 2018.
CVS and Walgreens continues to work with accountable care organizations and other value-based models that contract with insurers to manage the care of populations of patients, making sure they get the right care, in the right place and at the right time. The drugstore chains say the performance network builds on its value-based approaches.
Independent community pharmacists have been dealing with performance-based programs for some time now, but the National Community Pharmacy Association (NCPA) representing independent pharmacies has concerns about how the network might play out. The NCPA favors payment models that reward quality and performance and is looking into the new CVS network, but has limited details at this time on which to evaluate its structure.
Value Pharmacists will continue to monitor the development and progress of this new network.
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