Viewpoints: November/December 2013

Prognostications for 2014

As we approach the end of 2013, our thoughts turn to next year and what issues and trends will impact the pharmacy industry. We have compiled our annual predictions for what is ahead in 2014, including changes in reimbursement, more critical analysis of technology investments, and the impact of pharmacist supply.

Reimbursement Rates

The Affordable Care Act (ACA) mandates implementation of average manufacturer price (AMP) pricing for reimbursing generic drugs through the Medicaid federal upper-limit (FUL) program. FUL reimbursement is pegged at 175% of the AMP plus a dispensing fee. Implementation of this provision has been delayed, but it’s expected to go into effect in 2014. The AMP represents transaction prices paid to the generic suppliers from the retail class of trade.

We have analyzed the draft AMP numbers published by CMS, and these rates will be the lowest generic reimbursement rates in the market. Another challenge with AMPs is the wide fluctuation seen in the monthly prices. CMS has attempted to mitigate this by introducing a three-month rolling average price. This strategy has minimal effect on the fluctuations, and a 12-month rolling average would be more effective in minimizing these fluctuations, which retail pharmacies have no control over.

Publication of AMPs has led to a reduction in commercial reimbursement rates for generic drugs. Historically, the mantra has always been to dispense generics whenever possible because these prescriptions provided more gross profit dollars per prescription. This is no longer the case, and lower generic margins, coupled with about 84% generic dispensing rates common today, will lead to further pharmacy consolidation.

Technology and Automation

For over 20 years, retail pharmacy has maintained acceptable net profit margins in spite of declining reimbursement rates. New technology and automation have improved the pharmacy workflow process and contributed to a positive bottom line. The decision to incorporate technology and automation such as counting devices, IVR systems, and barcode scanners has been straightforward in most situations.

We see future decisions regarding new pharmacy dispensing platforms, incorporation of packaging automation, and other technology to be more complex. In a recent project, we assisted a client in evaluating a new pharmacy dispensing software platform by examining not only the cost of acquisition but also the ongoing costs of operation once the new system is implemented. While the upfront cost is a primary focus in the purchasing decision, the ongoing cost of operation, including projected labor savings (with fewer personnel needed to dispense prescriptions) were key factors in the decision. It is our belief that these detailed analyses should be made in advance of a technology purchase to validate the investment in your pharmacy.

Pharmacist Supply

The pharmacist shortage is a distant memory in most areas of the country. The number of pharmacy schools has grown from 72 in 1987 to 128 today. These schools will graduate about 13,000 pharmacists each year, compared to 6,000 graduated in 2002. With this change in the market, pharmacy owners can be more selective in their hiring process, oftentimes requiring medication therapy management (MTM) training and immunization certification as prerequisites for employment consideration.

With a recent prediction of 20% unemployment for graduating pharmacists by 2018, new graduates will be offered lower starting salaries based simply upon the laws of supply and demand. New graduates will have to be flexible in choosing their location to practice pharmacy or face unemployment in areas with a concentration of pharmacy schools. The oversupply of pharmacists is muting salary increases, contributing to pharmacies remaining profitable in the face of declining reimbursement rates.

We see retail pharmacy raising the bar and creating higher practice expectations for pharmacists. Applying the clinical skills acquired in pharmacy school will become more of an expectation, focusing on improving patient adherence and medication outcomes. Medication therapy management will continue its slow uptake, due in part to the opportunity cost of not filling prescriptions. For example, if the pharmacist can generate $180 gross profit per hour filling prescriptions versus $120 profit per hour providing clinical services, the pharmacy owner would prefer to focus the work activity on filling prescriptions. We believe the oversupply of pharmacists will narrow this gross margin dollar difference, leading to new strategies of providing clinical services.

Pharmacists will also be expected to help their patients understand their new insurance coverages and to work with the prescriber and patient to select the most cost-effective, clinically appropriate product. The insurance offerings on the health exchanges typically have a high deductible, and this will introduce consumerism at the point of sale as patients are exposed to the actual cost of their prescriptions, instead of a flat dollar co-pay. Patients will ask pharmacists to contact their doctor to determine if a lower-cost therapeutic alternative may be appropriate. We anticipate retail pharmacy will refocus its efforts on customer service to both retain existing and attract new customers. Having pharmacists focused on assisting patients with insurance questions and navigating deductibles, co-insurance, and managed-care edits will become a service differentiator.

New Healthcare Delivery Models

As new healthcare delivery models such as accountable-care organizations (ACOs), medical homes, and even health information exchanges evolve and grow, we wonder how the role of the dispensing pharmacists will change. It is our belief that pharmacists need to use technology to capture, document, and report upon the valuable services that are provided to patients on a daily basis. Preventing a duplication of therapy, reporting a relevant drug interaction, verifying/correcting the strength on a prescription issued by a physician, and counseling on medication adherence are all examples of valuable services provided by pharmacists that go undocumented, unmeasured, and unreported.

Solid documentation on pharmacist interventions and specific case histories of these valuable pharmacist interventions should lead to payers and the government recognizing the value of pharmacists in the healthcare system. This documentation could provide the rationale for pharmacists to achieve provider status by the government and receive remuneration for clinical services provided beyond the dispensing of prescriptions. Absent robust intervention and, where possible, outcomes documentation, we don’t believe the government will grant provider status to pharmacists, as the additional costs would outweigh the perceived benefits.

Intervention and patient outcomes reporting may lead to segregation of pharmacies that provide these services, which we see as future criteria for performance-based pharmacy networks. Pharmacies that demonstrate a higher level of patient care and service could then be compensated for these services in the new healthcare delivery models, if there is a documented ROI for these expenditures. This prediction will require a change in mindset from the current preferred networks in Medicare Part D that appear to be cost driven and illustrate the different business models of organizations that offer retail pharmacy services.

The year 2014 will provide many challenges and opportunities for the pharmacy profession. Helping patients navigate the launch of Obamacare will get the year off to an interesting start. We have enjoyed the opportunity to share our views over the years in ComputerTalk, and we welcome your comments. Our best wishes for a safe, healthy, and prosperous New Year! CT


Tim Kosty, R.Ph., M.B.A, is president, and Don Dietz, R.Ph., M.S., is vice president, at Pharmacy Healthcare Solutions, Inc., which provides consulting solutions to pharmaceutical manufacturers, PBMs, retail pharmacy chains, and software companies on strategic business and marketing issues. The authors can be reached at tkosty@phsirx.com and ddietz@phsirx.com.


Health Market Science
PrescribeWellness 201412