Meet Pharmer Rex. Rex lives in the country and runs the family apple orchard called the Apple Pharm, just as his father did before him. The local residents of the town regularly visit Pharmer Rex to get their apple-a-day to keep healthy. Pharmer Rex and his family have made a decent living over the years selling apples and keeping the town-folk healthy.
But things on the Apple Pharm have not been as good lately. Down the road, a big-box store opened up, and they too sell apples. Pharmer Rex’s business has declined because the competition is willing to sell their apples below cost just to get the town-folk into their store to buy other merchandise. Farmer Rex understands competition, so he invests in his orchard. Instead of trying to compete on price alone, our savvy pharmer starts growing fancy apple varieties that the competition doesn’t provide. Things once again pick up for Pharmer Rex, but even though profits are still down some, he is happy.
Soon, the competition notices the boutique apple selection up the road, and they don’t see the investment required to get into that business as insurmountable. They bring in their own boutique apple varieties. Like before, the big-box store looks to drive traffic to their store, pricing even their boutique apples much like fallen fruit in the orchard. Pharmer Rex once again sees profits and sales drop. But being a true apple pharmer, he reaches higher into his trees’ better fruit. This time, he invests in ovens and cider presses. Pharmer Rex starts selling fresh apple goods: pies, turnovers, and fresh apple cider. Pharmer Rex’s investment paid off once again. Sales and profits were up. And even though his apples were more expensive than the competition down the road, the town folk still bought some of his apples because they already had come for his other apple-related goods.
No doubt, by now, you recognized this as a thinly veiled parable about independent pharmacy. Independent pharmers, err, pharmacies have long been leaders in identifying and pioneering new fertile grounds for their practices. Each time an independent pharmacy reaches higher in their tree and invests in more valuable fruit, the big-box stores have to decide if they also want to follow the same course and invest. It is a lot like an arms race between the independent pharmacies and the chain pharmacies. Typically, the independent pharmacies forge ahead, but they are soon followed. But as the investment costs increase, the low-cost model of the chain pharmacies will eventually reach a tipping point. When will the required investment be too great to justify the chain store from following along?
We are already seeing signs that this is happening. Consider the Medicare Part D Medication Therapy Monitoring programs, usually referred simply as MTM. This is a significant problem for the chain pharmacies, as their pharmacists are very busy simply checking the high volume of fallen apples, err, prescriptions they are presented. Some chains have dabbled with a central clinical pharmacist to review and complete these cases. They have had varying degrees of success with this, primarily due to patient resistance: If patient doesn’t know the pharmacist cold-calling them to perform the service, they are less inclined to participate. There certainly still appears to be value in the patient-pharmacist relationship.
So how does Pharmer Rex’s story end? The ending has not been officially written. But as I see it, there is one inevitable ending for Pharmer Rex: He becomes a coffee farmer.
Now wait! you think. That makes no sense! Let me explain. Each incremental investment that our entrepreneurial pharmer made in apples was eventually matched by the big box competitor and then discounted. Our hero’s competitor put no value on the apple. Recognizing that the chains were so entrenched in providing low cost apples, to the point of losing money, he came to the conclusion that he had to completely change his focus in order to survive. Our pharmer, therefore, decided to invest in something completely different.
But now our agrarian simile loses some of its cachet. So let’s put some of this this back into pharmacy terms. The PBM industry is only paying pharmacies for fallen fruit, and that is not going to change. So instead of fighting to maintain that dying model by cutting costs and decreasing patient care, our hero instead elects to find payment for clinical services. This is a costly investment, as it necessarily requires more expensive pharmacist payroll and a completely different practice. None of this is easy. Finding sources of revenue requires significant work and investment, sometimes without immediate rewards.
Because Pharmer Rex is a visionary, he started this transition some time ago, he is now seeing the fruits of his labor. Pharmacists are close to receiving provider status with the federal government, and they have already received it in some states. The commercial insurance world is also taking notice of the savings the pharmacists can impact, and they too are starting to pay pharmacists for clinical services. Even Medicare Part D is moving in this direction with new emphasis being made on quality. Working hard, Pharmer Rex has several new opportunities that don’t revolve around the low-price PBM drug model.
But what about the chain pharmacies? Will they change their direction and follow? Because this change is so dramatic, it will take them a long time to decide. Ultimately, I feel that there will be two classes of pharmacy: dispensing operations, dominated by retail chain operations and mail-order, and clinical based pharmacies. Both will be paid (poorly) for product for the foreseeable future. The difference is that the clinical pharmacies will also be paid directly by the insurance plan for the impact they have on total health spend on their patients.
So if you identify with our friend farmer Rex, you need to start now. Invest in your practice. Work to develop the relationships with both payor and patients that will allow you to impact healthcare and be paid for your efforts. Make every encounter count!