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Disruption in the Pharmacy Industry: What’s Next?

March 14, 2018
Posted by: Gerald “Pharmacist Jerry” Finken, RPH, MS; Contributor: Meghan Mosser

Disruption in the Pharmacy Industry: What’s Next?

Several articles have been published about CVS buying the insurance company Aetna, including the Wall Street Journal.  The article claimed there was a hidden reason behind this venture. That hidden reason was summed up in one word:  Amazon.  In my opinion, this is correct.

Two major healthcare companies are joining forces to likely compete against a major “digital” giant, currently in the beginning stages of disrupting the pharmacy industry.  By merging will this new entity be able to maintain its command of the pharmacy industry? Or will it join the ranks of other legacy companies that didn’t quite understand from where the next wave of disruption could come in their industries?

While attending the 25th Annual A4M conference in Las Vegas, I had the opportunity to listen to Dr. Peter H. Diamandis give his keynote address titled, “The Coming of Abundance – Understanding Humanity’s Future”. During his presentation he spoke about two CEOs who had failed to admit how a technological disruption would affect their companies. Those companies were Kodak and Blockbuster Video. The former didn’t foresee the future of digital photography and the latter didn’t foresee the success of Netflix. Today, Kodak and Blockbuster are no longer household names.

Pharmacies and insurance companies, as well as pharmacy benefit managers (PBM), have grown to be very successful like Kodak and Blockbuster had been. Conversely, they have made disruption possible by commoditizing dispensing practices. Unfortunately, they have done this by reducing the role and importance of the pharmacist to simply a “dispenser” with the fee based upon the ever-elusive average wholesale price.

Mr. Melo cites this dispensing role of the pharmacist as the key barrier to entry for a company like Amazon to get into the prescription business noting how much time pharmacists spend on this responsibility:  “You’ve got more than 90% of prescriptions that are covered by some type of third party insurance, so there’s an awful lot of work that exists between pharmacists working with payers and physicians to provide that care.”  Should this be an accepted reality?

I believe that a pharmacist’s time could be better spent.  As a pharmacist looking for disruption, I see this “working with payers” role better suited for the PBMs and insurance industry rather than the pharmacist professional. It is this aspect of pharmacy, not the practice of pharmacy, that could easily be disrupted by technology and the internet. The question that should be asked and answered by today’s legacy companies is how and when the internet will take over the role of the current buyer/seller model? Now that pharmacies have been commoditized, companies looking for disruption could use the internet to negotiate directly with the generic and pharmaceutical companies and deliver this “commoditized” product directly to the consumer and by-pass all the middle layers.

CVS and Aetna coming together seems to be a revolutionary idea. However, Mr. Melo doesn’t seem to be concerned about a disrupter like Amazon because of the perceived barriers of entry. One must wonder, will CVS and Aetna pave a new way for the future? Or, will history repeat itself like it often does?

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