PharmExec Blog

National Chains Carefully Circle Obamacare

by Tom Norton

While US Pharma anxiously watches the initial roll out of Obamacare, there are those entities closely associated with the innovator Rx business that have a very different view on what Obamacare means to their concerns.  These firms are carefully circling the new law, thoughtfully observing its implementation, and, generally, viewing its startup as a tremendous business opportunity.

As one representative put it, the mood at his firm regarding Obamacare is one of “muted excitement.”

Who are these pharmaceutical colleagues?  They are the national chain drug stores like CVS, Rite Aid, Walgreens, Medicine Shoppe, etc.   And what makes the national chains so enthusiastic about Obamacare?  Many things, actually.

The Medical Home

To begin, many in this group see Obamacare as a defining moment for national chain drug stores — one which they believe will demonstrate that they are uniquely qualified to provide exactly what the law mandates. And what is that qualification?

A major tenet of the Obamacare primary care program is something called the “Medical Home” concept. In the law, it is a conceptual place where Obamacare patients will go to obtain all their prescriptions, vaccinations, and other primary care health needs.  And as the national chain drug stores see it, this is what they are – Medical Homes.  Their view is that via the Medical Home, the national chains will not only be able to provide more reimbursable pharmaceutical services to millions of new patients, but also additional reimbursable medical services to new Obamacare patients all over the nation.

In short, it appears their goal is to create in the mind of millions of new patients the belief that their Obamacare Medical Home is located in a national chain drug store, close to where they live.

New Fees

Additionally, the national chains hope Obamacare will take them into new areas of reimbursable professional service and potential profitability.  For example, given the law’s emphasis on primary care, and the well documented shortage of primary care physicians in the country, the national chains see a big opportunity in providing “primary care” services to the new Obamacare Medical Home patients.

How will this occur?  By professionally certifying pharmacists practicing in national chain stores as “primary care providers.”  This they hope will be accomplished through changes in either federal or state laws.

While changes at the federal level are expected to take time, at the state level, California just this past week passed a law making pharmacists full-fledged “primary care providers.” These changes allow California pharmacists to deliver primary medical services as described in the new law, including the prescribing of Rx drugs.  Currently, several other states are reviewing similar legislation.

Nationally, if more pharmacists are turned Medical Home “providers” under Obamacare, enormous, long term fee opportunities could be created for the national chain drug stores.

Sign Up Issues

Although the goal of the national chains is to “own” the Medical Home concept, are there issues obstructing these dreams from coming true? Yes, according to those national chain reps I spoke to over the past few weeks, there are problems.  The biggest they say is getting the right Obamacare information — into the hands of the right people — and eventually, getting them signed up in the program.

To deal with this challenge, several national chains including Rite Aid, CVS, Walgreens and others are reportedly using their stores as public information platforms for Obamacare.  In the stores, they are providing printed materials, multimedia kiosks, as well as “live” insurance representatives to explain and assist customers in understanding their new Obamacare options.

Since the onset of Obamacare on October 1st, some national chain companies have apparently authorized the in-store presence of state “navigators”, who, in addition to insurance representatives, guide potential patients through the Obamacare insurance options, and help them choose the plan that is best for them.  The goal is for the insurance reps to then conclude the discussion and assist the new patient in applying for enrollment there in the store.

Other national chain drug stores are said to be utilizing the medical professionals who work in their retail mini med centers to discuss insurance options with potential Obamacare patients.  Based on the patient’s specific medical issues, the medical professionals are guiding the patient to the Obamacare plans that might work for them.

Given this type of activity across the nation, the national chain drug stores are viewed by HHS as being among the leaders in providing information and actual signups for Obamacare.  Secretary Kathleen Sebelius has singled out the national chain industry as being particularly valuable in the Obamacare public education program, citing the “public’s high trust in pharmacy” as the reason so many people are seeking Obamacare information from these stores.  The national chains agree with HHS’s assessment.  A recent CVS survey showed that 68% of currently uninsured patients intend to use retail pharmacy as a primary source of information for their Obamacare prescriptions and healthcare needs.

The Future of Rx Drugs in National Chain Pharmacies

Due to the enhanced Medical Home professional opportunities, several national chain reps indicated that they believe the actual business of “pharmacy” is also about to go through an elemental change.  Currently, 61% of national chain sales are credited to Rx drug dispensing.  So it’s reasonable to assume the prescription business is still very much the center of profitability for most national chain stores. However, several reps I spoke with said the importance of dispensing drugs will be gradually reduced in comparison to the other Obamacare fees they anticipate receiving from various insured Medical Home services.

In particular, they believe the restricted access to Rxs in many of the lower metal (bronze, silver) insurance plans will gradually diminish their per capita Rx profit. These national chain drug stores seem to have no delusions about how this will work out long term for their businesses. With the implementation of Obamacare, “We are looking for pill profits to drop off,” was how one national chain spokesperson put it.  For the makers of brand name drugs, this is certainly a development to follow closely.

Biologics:  The Exception

However, there is one segment of brand name innovation that the national chains are apparently still very interested in.  This is the area of “specialty prescription products.”  They view the large molecule, brand name biomedical products, which must be delivered by injection, as multiple opportunities.

Why?  First, they say these drugs will deliver unique healthcare benefits to patients with unmet medical needs.  And because of their comparative effectiveness advantages, they feel these products are likely to be covered by the new state exchanges. This means they will produce additional dispensing fees for the national chains from the millions of newly insured Obamacare patients.

Secondly, and more importantly to them, as pharmacists do obtain the new “provider” status they are seeking, the companies see the day when these specialty drugs will be administered to Obamacare patients by pharmacists practicing in national chain drug stores. This they believe will lead to substantial, new professional service fees.

Ultimately, provider fees from this type of biomedical service, along with the other service associated with primary care, could far surpass the fees the national chains currently receive for dispensing Rx drugs. In the long term, I was told, this dynamic could dramatically change the elements of profitably within the national chain drug stores.

The Future Under Obamacare

So what do the national chains see for the future?  Looking out five years beyond the initial confusion that Obamacare is generating, several national chain reps I spoke to see nothing but “upside” from the new law.  While they acknowledge the difficulties of educating and enrolling people, they believe that like the Medicare Part D program, Obamacare will eventually be understood and managed well enough to begin to deliver significant medical service to millions of Americans who today do not have coverage.

As to concerns with the program, some do exist.  For example, national chain representatives did indicate uncertainty about Obamacare IT issues, while others worried about whether or not medical costs will actually be curtailed over the next decade.

However, at the present time, it’s clear the national chain drug stores are content to carefully circle around the law and watch it unfold.  As they do this, they will advance their Medical Home agenda, enhance their “primary care” offerings, and wait for things to settle down.

In the end, if all this goes as they anticipate their professional fees from Obamacare will increase greatly and they will be able to move away from the dispensing prescription drugs as their primary source of profit.  For the Rx industry, this development may or may not directly impact the broader business.  It will, however, likely change the industry’s relationship with a group of long time pharmaceutical colleagues, probably forever.

Tom Norton is principal at NHD Smart Communications. He can be reached at

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