Pharmacy Outlook

Pharmacy Outlook 2016

by NCPA | Jan 10, 2016Douglas Hoey, RPh, MBA

B. Douglas Hoey, RPh, MBA

CEO, National Community Pharmacists Association

Note: First appeared in the January 4 issue of Chain Drug Review

It was just 10 years ago that Medicare Part D started on a havoc-filled Sunday, January 1, 2006. Since then, the role of government in health care—especially community pharmacy—has grown exponentially. In 2016, implementing government expectations for payment and quality will be one of the dominant themes in health care. Other dominant themes are likely to be the attention being given to the rising cost of medications, the 2016 elections, and pharmacist as provider legislation.

Emphasis on Value

Early in 2015, Health and Human Services Secretary (HHS) Sylvia Burwell announced that HHS is setting a goal of 30 percent of its traditional fee for service Medicare payments being based on quality or value by 2016 and 50 percent by 2018. Those are ambitious goals, but even if they are not met it clearly shows the direction in which the largest payer in health care—the U.S. government—is going.

Community pharmacists are recalibrating their practices to develop business models that meet the payment expectation changes. The NCPA Digest, sponsored by Cardinal Health, showed that over 70 percent of full line community pharmacies are offering adherence services to their patients. In fact, more than 100,000 patients have been enrolled in NCPA's Simplify My Meds® program. NCPA also released the video series "Rethink Pharmacy," which helps prepare pharmacists for practice evolution this year and beyond.

In the year ahead, community pharmacies must have the ability to form an interoperable network of pharmacies that can exchange pertinent data and assure predictable and measurable pharmacist services. Community pharmacy networks with these characteristics are in their early stages and in 2016 the need for their development will accelerate. This interoperable network will be vital to compete and/or partner with chains (see 'frenemies' below) that offer their pharmacies to health plans as a network that can deliver desirable quality measure results.

Here and Now Issues

While community pharmacies are rethinking pharmacy with an emphasis on value, their top advocacy interests, according to NCPA's annual survey of its membership, are slow and low MAC price updates, limitations to patient choice of pharmacy, and direct and indirect remuneration (DIR) fees. The overwhelming majority of community pharmacy revenue continues to be generated from dispensing prescriptions, and all three of these issues are having a negative impact on the economic viability of community pharmacies. In 2016 there will be continued efforts to balance the one-sided business relationship between PBMs and community pharmacies. Federal legislation and regulation will continue to be pursued and state legislation will continue to be promoted so that community-based businesses can help stimulate local economies and better serve their communities.

Rising Drug Prices

In 2016, the attention to the pricing of specialty drugs will continue and there will be more debate over what specialty medications get covered, who pays for them, and who decides. The percentage of employers offering high deductible health plans continues to grow and over one-third of employers now offer HSAs as their single option. As a result, more and more pharmacy consumers are paying the full cost of their prescription rather than a prescription copay. In a flashback to yesteryear, the number of cash customers will rise in 2016 and community pharmacies, which consistently show up in surveys of pharmacies as offering competitive cash prices, will need to review their pricing strategies.

The issue of the cost of prescription drugs was gaining attention because of the price tag of some specialty medications and the growing prevalence of health plans using cost-share consumer copays for specialty meds. Additionally, the overnight triple digit increases of some generic drugs has also generated increased interest. However, it wasn't until a 60-year-old, infrequently used drug called Daraprim saw a 5,500 percent price increase that it became a flashpoint for media and for politicians.

The collateral impact has been some political candidates trying to make the cost of prescription medications a campaign issue while others remain conspicuously silent. Even before Daraprim made the headlines, 2015 surveys from the Kaiser Family Foundation and Consumer Reports indicated a growing interest in the cost of medications. As 2016 progresses, it will be interesting to see if the drug price issue becomes a major candidate platform issue or if it plods along party lines.

Another byproduct of increased attention to prescription drug prices is a renewed focus by PBMs to promote their mail order pharmacies. The number of prescriptions through mail order has decreased 17 percent over the last five years (though mail order prescription dollar volume has increased 23 percent during the same time period—going from an average mail order prescription cost of $194.66 to $288.94). In 2016, some employers may be more strongly encouraged by plan advisers to steer their employees into mail order under the pretense of cost savings. Even though those promises may not be realized, in 2016 community pharmacies must be ready to educate their communities about the benefits to patient care and the local economy of using a local pharmacy.

Pharmacist as Provider Recognition

Legislation that would recognize pharmacists as providers in the Medicare program made great strides in 2015 with over half the members of the House of Representatives signing on as co-sponsors and the Senate also showing strong support. The unified efforts of virtually every pharmacy organization have produced unparalleled results. At the halfway point of the 114th Congress, there is tremendous momentum to pass the legislation and for the President to sign it into law. With all of this momentum, it's tempting to violate the old idiom of "don't count your chickens before they hatch," because there are still obstacles to passage that must be overcome such as navigating the estimated cost of the legislation and for the legislation to come up for a vote. Additionally, it will be important to keep pharmacist provider status at the forefront of pharmacy's agenda during an election year in which campaigning will be front and center.

2016 Elections

This is a presidential election year which, unfortunately, also always coincides with a leap year giving Americans an extra day to endure campaign television advertising! We know that there will be a new president in the White House and so far seven of the 34 Senators up for re-election have said they will retire including current Senate Minority leader, Sen. Harry Reid (D-Nev.). All of this political uncertainty ups the ante even higher for the relevance of the 2016 elections. Surveys show that health care is viewed as a top three campaign issue by the American people. Most of the media attention, however, is directed at the Affordable Care Act ("Obamacare") and whether it would survive if a Republican is elected to the White House or how it would be grown if a Democrat is elected.

Mergers—Round 2

One of the most remarkable developments in health care last year was the number of mega mergers and acquisitions in health care. Here are just a few: CVS-Omnicare. CVS-Target pharmacies. Rite Aid-Envision. Walgreens Boots Alliance-Rite Aid. Anthem-Cigna. Aetna-Humana. Most of these were still under review by regulatory authorities at the time of this writing but if they are approved the stakes will be raised with the buyers of the services of these companies. For example, health systems must negotiate with health plans for fees and physician provider networks. As health plans merge to get bigger and gain leverage, health systems are motivated to get larger. According to the consulting firm Deloitte, hospital deal volume increased 14 percent annually from 2009-2013.

In last year's CDR Pharmacy Outlook, we wrote about that "once unthinkable mergers, acquisitions and partnerships between companies or 'frenemies'—a combination of friends and enemies—will become even more common." That prediction came true and the same prediction holds true for 2016. Just when it seems like there are very few companies left to merge, it's very likely there will be even more merger and acquisition activity.

This growth through acquisition will contribute to the race for size but may not produce a corollary growth in quality measures that the government is using to shift some of its payments from fee for service to value. Industry giants may be a force that has to be reckoned with but their size will create opportunities for providers like community pharmacies who are able to capitalize on producing quality health care outcomes and managing costs.

In the year ahead, heightened economic pressure on health care costs, government-driven emphasis on quality and value, and the elections will be dominant topics affecting pharmacy. The agility of community pharmacy to adapt to the needs of the people in their community will be a differentiator.