The Alternative Universes of Big PBMs and Little Independent Pharmacies

The news of the Express Scripts-Medco proposed merger hit the newswires just as two of the Big Three wholesalers—AmerisourceBergen and Cardinal Health—were holding their annual national meetings for independent pharmacies. We report on some of the aspects of this merger on p. 9; it has many repercussions for all pharmaceutical distribution channels, including chain drugstores, other pharmacy benefit managers (PBMs), healthcare provider organizations and specialty clinics. With consolidation on this scale (roughly a third of all prescriptions nationally would pass through the Express Scripts system), there are significant implications for pharma manufacturers.

The contrast between this $29.1-billion mega-merger (the second-largest of any announced for 2011) and the stories one hears at the independent pharmacy meetings could not be more stark. On the one hand, there are questions about exclusive distribution arrangements for specialty pharmaceuticals; restrictions on where prescriptions can be filled by patients; and, of course discounts, rebates and other financial arrangements worth billions. (Who pays, and who benefits, from these discounts is a mirror world all its own.) On the other, one hears new stories about individual pharmacists, in small towns or rural areas or tough urban locations providing essential health services to patients. A pharmacist in tornado-flattened Joplin, MO, who was back in business within weeks of losing his store; a pharmacist specializing in addiction treatment whom local doctors depend on for continuity of care; a pharmacy that is an oasis of healthcare in an inner city setting. We hear stories like these year in and year out; it’s part of the culture of independent pharmacy.

To be sure, there are many caring providers at chain stores, PBMs, in doctor’s offices and insurance companies (and let’s not overlook the manufacturers, too). And undoubtedly there are a lot of independent pharmacists who are wealthy, sharp businessmen and -women. But it is striking to hear—again—that independent pharmacies are frequently the only healthcare resource available in many rural areas, and that the preponderance of independent pharmacy customers is Medicare and Medicaid patients. Through the progression of how healthcare has evolved, and the business decisions of large corporations over time, independent pharmacies are left to take care of the lower end of the market-opportunity scale.

It’s also interesting to observe how most wholesalers, big and small, compete aggressively for business with the independents, providing business services and support to win their loyalty (p.14). This isn’t entirely altruistic—the independent pharmacy channel tends to be more profitable for wholesalers on per-prescription basis—and it necessitates a lot more hand-holding than the next deal with the next chain. Absent this higher margin, it’s questionable how broadly this support could be sustained, which is one reason (among many others) why NCPA, the independent pharmacy lobbying organization, opposes the Express Scripts-Medco merger.

The independent pharmacist isn’t the only line of work in our society where people say, “it’s not a profession; it’s a calling.” And a bright spot in the generally tough business environment that independents live in is that the decline in their number seems to have been arrested, for now. But what will the future bring?