If the past few weeks are any indication, pharmacy isn’t going to be the same for very long.
If you’ve been working in a pharmacy for more than 10 years, you know that pharmacy is always changing. Automation, new rules and regulations, meds going in and out of style, changing clientele. Change is nothing new.
But now- arguably more than ever-pharmacy and healthcare at large are going through some huge changes. From healthcare reform to the idea of large players like Amazon entering the field, it’s likely that pharmacy will be radically different in the coming months and years. The last few weeks have really proven that.
You’ve heard about the CVS/Aetna merger and the threat of Amazon by now, but you may have missed some of the other important things happening in the industry. Trust us when we say that they will be shaping healthcare and pharmacy in the coming months-affecting how (and possibly where) you do your job.
The overall trend? The big keep getting bigger, and it doesn’t look like that’s going to change any time soon. If you’ve been having trouble keeping up with the slew of recent big announcements from the industry’s biggest (or just have trouble understanding why you should care), here’s what you need to know.
While Albertsons and Rite Aid’s merger is designed to help the two massive retailers better compete against Walgreens and CVS-and possibly Amazon in the future-the deal comes with significant risks, analysts say.
Albertsons Companies said in February that its planned acquisition of Rite Aid would create a company with $83 billion in annual revenue. The combined company will operate in 4,892 locations, 4,345 pharmacy counters, and 320 clinics across 39 states, according to a new Moody’s report.
The merger provides numerous operational benefits to the two chains-including an expected spike in pharmacy sales-but also significant risks.
Related article: Albertsons Set to Acquire Rite Aid
“The Albertsons-Rite Aid merger appears to be a response of ‘last resort’ for two companies who have been left behind in the evolution of the market, constantly anxious of Amazon’s next move,” John Santilli, president of Access Market Intelligence, tells Drug Topics. “The merger benefits will likely not be enough to be successful competing against the large chains: CVS, Walgreens, and potentially Amazon, in the pharmacy space.”
In addition, independent pharmacies in certain markets will “continue to feel the impact of the big becoming bigger” as a result of the merger, according to Santilli.
While the combined Albertsons-Rite Aid conglomerate could realize significant cost savings and sales benefits, the two companies must execute their integration seamlessly or face accelerating losses, thanks to competitive pressures and a high debt load, Moody’s analysts write in the report. The merger does not change Albertsons’ overall near-term credit profile, which will remain pressured. “The combined company will face significant challenges within the food and drug retail subsectors, which will continue to pressure margins and top-line growth,” the analysts write.
However, those analysts expect Rite Aid’s pharmacy business to increase in the future, due to an aging population and an expected increase in generic drug approvals. “We believe that drugstore retailing will benefit over time from broad trends, in particular an aging U.S. population. This will continue to drive increases in the use of prescription drugs and will drive revenue growth for drug retailers,” Moody’s analysts write. “The large generic drug approval backlog will also benefit the industry in the longer term, as generics typically have higher margins than branded drugs.”
Related article: Why Health Systems Are Making Their Own Generics
Santilli adds that Albertsons’ grocery business should benefit from an increase in pharmacy customers and increased presence on the West Coast and other strong Rite Aid markets. Meanwhile, Rite Aid stands to benefit “from Albertsons’ resources in growing the front end of its stores.”
The combined retail operation also creates about $375 million in cost synergies and $3.6 billion in revenue synergies over four years, Moody’s says.
Meanwhile, Rite Aid’s PBM, EnvisionRx, a potential highlight of the merger, will remain a niche player in the market, Santilli predicts.
Walmart is in preliminary talks to acquire Humana, according to The Wall Street Journal, a move that some analysts say is Walmart’s attempt to stave off competition from Amazon’s impending entry into the healthcare marketplace.
Simultaneously, Walmart is considering buying PillPack, a start-up that helps patients manage their prescriptions by packaging pills together and delivering them, CNBC reports. Amazon also attempted to acquire the online pharmacy start-up, according to CNBC.
Meanwhile, Walmart and Humana already partner on the “Humana Walmart Rx Plan,” designed for seniors eligible for Medicare Part D drug benefits.
In addition, the U.S. government’s new initiative to boost payments to insurers who run private Medicare Advantage (MA) plans by nearly twice as much as the government had previously estimated makes Humana even more valuable to Walmart-and other interested buyers.
Humana is the second largest MA insurer in the U.S., according to Bloomberg.
Related article: Why Walmart Thinks a Gel Could Stop Opioid Abuse
“Walmart and Humana’s existing relationship with their co-branded prescription drug offering does indicate that the acquisition may happen,” Santilli tells Drug Topics. “Walmart’s strategy to acquire Humana would extend its reach into healthcare and position the company to compete with Amazon’s entry into the market.”
The acquisition of Humana would also give Walmart more control over healthcare for its 1.5 million employees, according to Santilli. “Increasing the attractiveness of Humana, the government recently announced it would boost payments to insurers who run private Medicare Advantage (MA) plans by nearly twice as much as the government had previously estimated,” he says.
Similarly, Walmart’s proposed acquisition of PillPack is a response to Amazon’s entry into the healthcare market-and a way for Walmart to expand its pharmacy services, Santilli says.
“Walmart’s 4,500 pharmacies would increase its competitiveness with retail pharmacies by expanding its reach with seniors and people living with chronic conditions as PillPack describes itself as a ‘full-service pharmacy that sorts your medication by the dose and delivers to your door.’”
In an exception to what seems to be the growing trend, Walgreens (currently the second-largest pharmacy chain) says it isn’t going to buy a health insurance company.
As Forbes reports, Walgreens Boots Alliance CEO Stefano Pessina says that while Walgreens will need to be flexible and adapt to customers’ future needs, but that doesn’t mean that it must also buy a health insurance company.
There is much to do with or without a merger with a health plan,” Pessina told analysts during a call to discuss the company’s fiscal second quarter earnings report. “I don’t believe that change is only possible if you merge with a health plan. There are many other models.”
Related article: Why Every Pharmacist Should Care About the CVS/Aetna Deal
What exactly Pessina means by “other models” is unclear. He did add that Walgreens needs to invest in its businesses and “change a lot,” but for now, it seems that a huge Walgreens takeover is off the books This comes a month after reports of Walgreens potentially buying major pharmaceutical distributor AmerisourceBergen ended (though parts of the deal could still go through), and just nine months after Walgreens massive takeover deal with Rite Aid was scrapped.
There are a lot of unknowns for Walgreens, but one thing seems to be clear: It will need to change in the near future. While it’s latest earnings report is strong-its earnings went up 16.6%-but that could very easily change. As Perry Cohen, CEO of The Pharmacy Group, told Drug Topics last year, pharmacy is changing quickly and “retail pharmacy needs to find new revenue streams to maintain profitability.”
The big question is this: Will Walgreens stay ahead of the race, or will it be left behind its competitors who are quickly consolidating into larger and larger players?
Large pharmacy chains aren’t the only ones becoming larger. The trend of the big getting bigger even applies to independents and other non-pharmacy organizations.
McKesson, the largest pharmaceutical distributor in the country, announced that it is forming a network of community pharmacies. Partnering with American Pharmacy Cooperative, Inc.’s (APCI’s) American Pharmacy Network Solutions (APNS), McKesson will manage pharmacy administrative organization services, such as PBM and payer contracting, credentialing, central pay, and maximum allowable cost pricing appeals.
The network will include all current APNS members as well as all AccessHealth members. AccessHealth is McKesson’s managed care solution, which already included several thousand small- to medium-size pharmacies.
Altogether, the new network, Health Mart Atlas, will serve over 6,600 pharmacies.
Related article: McKesson Supports Opioid Limits
“Health Mart Atlas was created to support the success of community pharmacies given the challenges they face today-lower reimbursements, narrow networks, industry consolidation and a general sense of uncertainty,” says Eyad Farah, vice president and general manager, Health Mart Atlas. “We’re committed to maintaining the largest network of high performing pharmacies because we believe that when patients are given a choice, they will choose the superior care and personal touch they receive from community pharmacists.”
McKesson stresses that this new network will allow pharmacies to focus on providing services to their patients, proving the value of community pharmacies.