The 800-Pound Gorilla is about to Enter the Pharmacy Business…
What are the Smart Players thinking?
by Karl Kipke-CEO, HealthGrowth Capital, LLC
Amazon recently announced its intent to enter the pharmacy industry. To say that this will be disruptive to community pharmacies is an understatement. A new report from Wells Fargo reveals details of a recent survey that shows half the respondents would likely use Amazon Pharmacy if the option were available.
Amazon has forever changed e-commerce, logistics and fulfillment, cloud computing and artificial-intelligence. If the company sets its sites on the prescription drugs, it will be disruptive to both the independent and large-chain pharmacies.
However, it won’t be easy. Amazon has never had to navigate regulatory waters with its products before. While mail-order pharmacies have been able to avoid compliance with many of these regulations, Amazon’s high profile will likely raise the regulatory bar for everyone delivering drugs through the mail.
A recent article written by Doug Hoey, CEO of the National Community Pharmacy Association states, “Getting into the retail pharmacy business is different than other lines of work because of the many regulations and laws with which pharmacies must comply. There are inefficiencies in the system, but most of those are created by the way the U.S. health system delivers care and not necessarily by the pharmacy. What’s more, pharmacy in the U.S. is unique in that PBM middlemen make the pricing decisions.”
Further, as community pharmacies know well, profit margins for prescription drug sales are razor thin, and the only way to change that is to cut the PBM model to ribbons.
So, what are the smart guys doing to prepare for Jeff Bezos?
Wal*Mart taught small retailers a painful lesson: Adapt or die. Sticking your head in the sand and praying for a miracle is not the answer. Mr. Hoey, whose NCPA represents more than 22,000 community pharmacies, is advising his members to, “Double down on the enhanced pharmacy services that differentiate you, like delivery, special packaging, compounding, and medication synchronization to name just a few.”
Investments in technology have been the mantra for years at pharmacy conferences and shows, although doubling your capacity to dispense low-margin prescriptions through automation will likely do little to put you in a more competitive position vis a vis Amazon.
I agree with Mr. Hoey. The best solution is to think out of the box of ways to offer new, differentiating, high margin healthcare services through your pharmacy. That is why HealthGrowth Capital has aligned itself with healthcare and pharmaceutical companies that are looking to introduce programs and services through independent pharmacies that can add hundreds of thousands of dollars of high-margin sales to a pharmacy’s income statement, annually — profits that can transform a struggling pharmacy into a thriving business.
More importantly, these are services that Amazon will never be able to deliver with Amazon Prime through the mail!
If Amazon enters the space, it will represent a formidable competitor to community pharmacies. That does not necessarily mean it is time to fold your tent and sell your pharmacy (although many will surely take that route). Change always brings both challenges and opportunities and, in this instance, there may be a winner for every loser. The question every pharmacist needs to be asking is, “What should I be doing to assure I am one of the winners?”