Originally published on Apr 23, 2018.

Strategies include MTM, Compounding, Mail-Order and CBD Oil
As industry consolidation and disruptive technology continue to squeeze independent pharmacies, these organizations are getting creative about how to turn a profit.
Amara Advisory (www.AmaraAdvisory.com), a sister company to Five Rivers RX, can assist your company in developing a strategy of bringing your CBD Oil portfolio to market.
Industry Consolidation
The last 20 years has proven to be a difficult period for independent pharmacies: the consolidation of payors (insurance companies & PBMs), upstream suppliers (Cardinal, Amerisource & McKesson) and competition (CVS & Walgreens) squeezed the sector in every way. Online shopping and technology have only compounded the damage.
Market Arbitrage & Sourcing
By enforcing their VAWD requirement, OptumRx has at least significantly reduced the amount of Market Arbitrage Activity (MAA) taking place in the industry. Specifically, MAA is passing along discount pricing from high volume pharmacies to low volume pharmacies. As of 2016, there were an estimated 400 drug wholesalers dedicated to MAA. Naturally, the Big 3 wholesalers did not like MAA because it generally depressed drug pricing for independent pharmacies which is the most profitable sector of wholesale drug distribution.
The Big 3 wholesalers disliked the practice so much that, five years ago, an Act was brought in front of Kentucky legislature that zeroed in on wholesale distribution by a pharmacy (http://www.lrc.ky.gov/record/13RS/HB371/bill.doc), i.e. “A pharmacy shall not engage in selling or distributing prescription drugs to any entity that is a wholesale distributor.”
With limited effectiveness, it’s generally believed in the industry that the Big 3 instead turned to OptumRx to enforce a stop to the practice – read our deeper look on the VAWD Accreditation requirement here: https://goo.gl/7JVKNZ.
The new partnership also focused on diabetic test strips – read our take on it here: https://goo.gl/gNp793.
The Big 3 Consolidation
As the Big 3 launched their rise to power, the Most Favored Nation (MFN) clauses became a brutal requirement to do business with them. In the beginning, MFN clauses were designed so that the companies did not have to do extensive research to ensure they received the best pricing; instead, they simply made it a contractual obligation. However, as the Big 3 now control over 90% market share in the drug distribution industry,
 
the dynamic of reducing drug costs switched to a dynamic of increasing the cost of its smaller competitors  and increase the spread of pricing power.
 
The spread between the margin that a generic drug manufacturer makes on the Big 3 and the margins that it would make on its smaller customers has grown significantly. CVS Caremark famously sued Prasco for over $15 million in July 2007. A link to the filed complaint here: CVSxPrasco06July2007-Complaint
Now, when Bellco, Parmed and Masters (generic drug distributor arms of ABC, Cardinal and McKesson, respectively) go to market, they are guaranteed to have the best pricing available. They also serve as data mines so that each can keep their finger on the pulse of generic drug pricing.
Disruptive Technology
Disruptive technology touches on the growth of online pharmacies and retailers. Online pharmacy has been in the news very recently. See our coverage on Walmart’s PillPack acquisition (https://goo.gl/zT1soG), the benefits of HealthWarehouse (https://goo.gl/mMNVHa) and the Online & Delivery Craze (https://goo.gl/gJ1Z7K). Of course, centralized pharmacies and sophisticated websites require big budgets – something very difficult for independent pharmacies to replicate.
Creative Strategies
In line with Darwin, the concept of “Adapt or Die” is apt summary of how businesses must constantly fight to stay profitable. So what are independent pharmacies doing today?
CBD Oil
Wholesalers are developing CBD Oil portfolios to sell to independent pharmacies. The differentiation of selling in a pharmacy is that consumers may trust it more if a trained and educated pharmacist can endorse a specific line; as such, it is important that pharmacists have the knowledge and experience to back it up.
However, there are a few concerns. Regarding competition, Amazon and other online retailers make CBD Oil readily available; additionally, retail sales will be significantly impacted in those states where cannabis is legal across the state. Regarding legality, the sale and movement of CBD Oil must be looked at on a state-by-state basis. For example, Indiana takes possibly the strictest stance where the Attorney General claims it can seize product unless used for specifically for epilepsy. Entities in Iowa and Utah also have had their product seized. Additionally, on a Federal level, the DEA has an ambiguous stance as well.
Amara Advisory (www.AmaraAdvisory.com), a sister company to Five Rivers RX, can assist your company in developing a strategy of bringing your CBD Oil portfolio to market.
Medication Therapy Management
A key part of a pharmacist’s job is to ensure that patients get a drug regimen specifically suited to their needs. Medication Therapy Management (MTM) creates a way for pharmacists to be reimbursed for the time in which they make their valuable contribution to a patient’s health. Although it is foreseeable that payors will move to restrict these reimbursements, it could be a viable strategy to help the bottom line.
Compounding
Although compounding pharmacies often need additional accreditations and some capital investment, the margins on compounded product can be substantially higher. The issues here are that the DSCSA increases regulations of the space and that PBM’s have limited their reimbursements for the portfolio.
In-State Mail Order
In an effort to increase volume and profitability, retail pharmacies sometimes engage in mail-order activities. Although out-of-state mail order is usually stopped by PBM’s, lest their own mail-order pharmacies face competition, in-state mail order has generally escaped from network pharmacy contracts.
Expanding OTC’s
Pharmacies are expanding their over-the-counter medications to increase their revenue. For example, selling Replenish Vitamins which are an over-the-counter adjunct therapy for those patients taking prescription drugs as well as a replacement therapy for those currently taking other over-the counter multivitamins. (https://replenishvitamins.com/)
Contact Us

705 Montgomery Avenue Suite 200
Penn Valley, PA 19072

E: hello@fiveriversrx.com
P: 800.962.8760

Socialize