I don’t know if Drug Channels is simply channeling the Thriving Pharmacist, or maybe its writer, Adam Fein, is wearing a Zoltar costume to trick-or-treat tonight. Either way, his Blog Post Walgreens Plays to Win: Our Exclusive Analysis of 2017’s Part D Preferred Pharmacy Networks is germane to Thriving readers as well. Please head over to read it.
Of course, I cannot help but add some community pharmacy specific perspective. Let’s start with Table 1 from his post. Adam’s take is that Walgreens wants to be preferred. I don’t contest this: they certainly appear to be willing to take more of these hyper-aggressive contracts than others. But sometimes, it is what is unspoken that is most interesting. In this case, we might ask: why would Walmart relinquish their number-one position on the list? Unlike Walgreens, Walmart stores are generally much larger, and contain a broader array of non-pharmacy merchandise. In other words, they appear to be better suited than Walgreens to absorb pharmacy losses by increasing sales in their other departments. But in spite of this, Walmart has contracted its participation, and that is truly interesting! Will we be seeing Walgreens warn of than expected earnings sometime in 2017 like Walmart did in 2015?
Also, while Adam correctly notes that CVS is less willing to play this game, he forgets to mention that some of profits for this company originate on the OTHER SIDE of the ledger: the benefit manager side. CVS may be the smartest one of the bunch because it doesn’t participate in most narrow networks. Likewise, Rite Aid appears to be following in the shoes of CVS, both by limiting their participation and acquiring a benefit manager.
Finally, the independents are not spooked. To the contrary, like CVS and Rite Aid, they might just be smarter than the others. Most independent pharmacies, if given the option, would not sign with any of the preferred or narrow networks. It is only because chains are willing to sacrifice pharmacy profits for store traffic, that independents have to participate in at least one preferred network to prevent significant erosion of their patient base. And this is really the key point. Patients seem to have a lot more loyalty to their pharmacy, both chain and independent, than to their Part D plan. Patients will generally chose a plan both on the overall costs and the ability to maintain access to their pharmacy or pharmacist. It is unusual for a pharmacy to lose a patient when that pharmacy accepts one or more plans that are similar in out of pocket expense to another plan if the patient is forced to change pharmacy providers to gain the advantages offered by the other plan.
Happy Halloween. And I promise that we won’t be referencing Drug Channels in the post tomorrow.
