Bill Roth, IntegriChain

On June 27, 2024, Walgreens announced that it was reviewing 2,100 of its 8,600 pharmacies in the US for performance and likely closing of 700 to 800 pharmacies. CVS—which reported that it had 9,939 stores in 2021—has closed almost 700 since then. The company now has 9,273 stores, and plans to close another 300 in 2024. Rite Aid, in 2021, had 2,447 stores and now has 1,704, according to the organization's latest reports.

While independents are holding on at 19,400 stores, according to the National Community Pharmacy Association, as many as a third of them are either planning to close their pharmacies or converting to non-insurance cash-pay pharmacies and focusing on generics.

Several factors have contributed to the wave of pharmacy store closings across the US.

. Reduced reimbursement rates from insurance companies—mixed with rising labor costs, store theft, rising cost of goods, and the high cost of maintaining a brick-and-mortar presence—have made it difficult for many pharmacies to stay afloat.

What’s bad for one may be good for another. Companies such as Amazon Pharmacy; Mark Cuban Cost Plus Drugs; Alto Pharmacy; Capsule; lifestyle pharmacies such as Hims, Hers, Roman, and Lemonaid; cash pharmacies including Blueberry and Eagle; and multi-model pharmacies such as OneroRx and others have come forward to disrupt the world of high-volume, low-cost generic brick-and-mortar pharmacy.

The rise of these new forms of pharmacies and prescription services have changed consumer behavior and reduced foot traffic to physical pharmacy stores. This shift has been accelerated by the COVID-19 pandemic, as more people turned to online options for their medication needs.

Retail pharmacies have become very lazy over the last 20 years as they have outsourced their interactions with payers to pharmacy services administrative organizations and outsourced their sourcing of product to wholesalers. They are told not to pay attention to the losses on individual products and instead, focus on the all-in number. But that’s not working anymore. Otherwise, we wouldn’t be seeing these store closures.

In recent years, the phenomenon of “pharmacy deserts” has gained increasing attention. A pharmacy desert is an area where residents have limited access to pharmaceutical services and medications due to the absence of nearby pharmacies. This issue has been exacerbated by the closure of numerous pharmacy stores, particularly in rural and low-income urban areas.

The closure of pharmacy stores and the resulting pharmacy deserts have profound implications for public health and community well-being.

Residents in pharmacy deserts often struggle to obtain necessary medications. This lack of access can lead to poor health outcomes, particularly for individuals with chronic conditions such as diabetes, hypertension, and asthma.

 Pharmacy deserts disproportionately affect low-income and minority communities, exacerbating existing health disparities. These populations are already at higher risk for certain health conditions and may have fewer resources to seek alternative sources of medication.

 Limited access to pharmacies can lead to increased healthcare costs. When people cannot access their medications, they are more likely to experience complications that require emergency department visits or hospitalizations, placing additional strain on the healthcare system.

 Pharmacies often provide essential health services beyond medication dispensing, such as immunizations, health screenings, and consultations. The loss of these services can leave significant gaps in community healthcare, particularly in areas with limited access to other healthcare providers.

While the problem of pharmacy deserts is already receiving attention in several states, it doesn’t appear that states can prop up a business model in decline, no matter how savvy it is or how involved policymakers, healthcare providers, and community organizations may get.

. Community organizations and local governments can play a crucial role in identifying and addressing pharmacy deserts. Initiatives such as mobile pharmacies, community health clinics, and partnerships with local businesses can help provide alternative sources of medication and healthcare services.

. It may not be enough to shore up new forms of pharmacy for these geographies. Therefore, battle lines are drawing between brick-and-mortar and mail order/home delivery models. And recall that rural and low-income patients who are likely to be disproportionately affected may not practically be able to access these.

. Sorry, this isn’t real. It’s just the No. 1 response we hear from pharmaceutical manufacturers. It seems logical, but recall that these are the entities that have swelled national drug code blocks from 30 to more than 750 in the last 10 years, the ones that added direct and indirect remunerations to non-Medicare volume and even lowered rates for 2025. With that said, pharmacies believe they won something when National Average Drug Acquisition Cost (NADAC) was implemented for Medicaid, but it hasn’t been the silver bullet they were hoping for. It stemmed some losses but didn’t save pharmacy. From research that Blue Fin Group has conducted in the market in 2023 and 2024, payers are promoting to retailers that unprofitable prescriptions can be sent to the payers’ mail order businesses. So why would the payers solve it? Why not let retail implode and vertically stack the business back to mail order, which is exactly what the payers have been doing in specialty pharmacy with their business, especially in the areas of immunology, neurology, dermatology, and respiratory.

If you look up polypharmacy, the actual definition is a patient who’s on five or more medications. The way I’ve used the word throughout my career is a patient who has access to multiple pharmacies for their medications. It wouldn’t be hard to argue that our industry did this to itself with the rise of specialty pharmacy over the last 20 or so years. In the late 1990s, specialty products didn’t fit retail pharmacy. The products were too expensive, unit demand too little, and they came with costly education, prior authorization support, step edits, reauthorization, and very challenging patient economics. It took a new model of pharmacy to support this. I wonder if that’s what we’re seeing here now in the retail space.

The retail pharmacy market is essentially generics and top-100 brands, but everything else is splintering into direct-to-patient models or one-offs thinking that non-specialty products can be forced to work like specialty.

In a custom analysis, our firm Blue Fin Group has done of all the drug launches since the beginning of 2023, and the verdict at the moment is that despite all the attempts at digital pharmacy or any model that is an end-around to the pharmacy benefits manager model, none prove to be successful. But it is clear that we’re going the wrong direction. We are splintering care. We are creating an environment of mixed insurance and cash business. We are risking contra-indications and drug interactions, let alone adherence to therapies.

In summary, I wish I had better news to share. The reality is that retail pharmacy doesn’t know a way out of this situation. My personal assumption is that pharmacies will seek to improve their cost of goods sold by going direct when and where it makes sense. My firm sees the pharmacies trading data and inventory guarantees and becoming part of limited brick-and-mortar and home delivery networks that operate in concert with tech-enabled hubs. The hope is that these pharmacies would then return to profitability, solve for pharmacy deserts with their own mail order or home delivery models, and strike a balance of working with cash pay pharmacy models to find that new model.

Stay tuned for the next and final column in this six-part series where I wrap it all up for 2024 and set our sights on the hottest topic of 2025.

Bill Roth is the SVP of IntegriChain’s consulting business, which includes Blue Fin Group, a strategy consulting company he started in 2001, and the IntegriChain advisory services business.

Articles

Making sense of the accelerating trends and challenges—including store closings, pharmacy deserts, and the rise of polypharmacy.

Who Moved My Prescription? Part V: The Many Layers of Pharmacy Crisis Point

 of this series, I covered what is happening; in 

, I introduced why it’s happening; and in 

 I unpacked why this is a hard problem for the pharmacy to solve on their own with pharmacy benefit managers (PBMs) and wholesalers bundling their reimbursement and cost of goods. In this installment, I open the door to what is likely to occur in the general medicine (non-specialty) part of the pharmacy market as a result of these challenges with pharmacy.

I presented at the National Community Pharmacy Association Multiple Locations meeting in March and was asked where I see retail pharmacy going. My answer was simple: it’s highly likely that it returns to what it looked like before the PBMs got involved—to a cash market. The answer received a standing ovation and even an “amen” from the back of the room.

Let me explain as I’m sure 99% of people will think that I’ve lost my marbles. As noted in prior columns, retail pharmacy has reached a breaking point due to sourcing and reimbursement pressures, with a third of community pharmacies poised to close by mid-year and reimbursement rates at all-time lows, pharmacy deserts on the rise, and stories of pharmacies struggling to service what business they have. 

I was told directly by community pharmacy leadership to tell our pharma clients that community pharmacy is walking away from brands, and we are moving our pharmacies to cash. Based on the hundreds of discussions I have with all flavors of retail pharmacy, I’m confident this is more than threats and conjecture. We see it play out in our primary research, and our manufacturers finally see it in the data. Pharmacies are actively moving away from brands and in many cases stop supporting 90-day fills and return to 30-day. The losses to pharmacy are simply too intense.

Cash pharmacy is nothing new. We’ve seen this since 2004 when Walmart announced the first $4 generics and see it today with Amazon Pharmacy and Mark Cuban's Cost Plus Drug Company. Pharmacies are selling product at their wholesale cost hoping for a $15 mark-up to cover the cost of operations and their professional services.

What is rapidly becoming new, though, is cash pay for brands. My consulting firm, Blue Fin Group, conducted a project for a manufacturer opening a direct-to-patient pharmacy, similar to the recently announced Lilly Direct. The impetus for this move was data reflecting that when the product was covered by the insurance plans, the market was more suppressed than anything. What was bizarre was that the demand for the molecule shot up to 3x the demand for the brand.

So the following notion was considered: As opposed to paying all these discounts to PBMs, great purchasing organizations, and distributors, and then hearing from pharmacies that they still lose money, why don’t we just sell through the cash vehicle? The product could rid itself of prior authorizations and step edits, no more suppressed pharmacy economics, and practically complete control of the price to the patient/consumer. Sounds lovely, doesn’t it?

In my opinion, we have been trying to put the proverbial genie back in the bottle for decades. While I personally think insurance works very well for orphan and rare disease products, we are seeing states push back by capping prices. We see cell and gene therapy products without medical policy being set. Specialty is set to go through its transformation for the balance of the decade, with roughly $240 billion at risk to conversion to biosimilars and specialty generics. But with general medicine already converted to generics for 92% of all prescriptions and pharmacies declining to fill brands due to profit loss, this last market is ripe for disruption back to cash.

PBMs are asking for all-time high rebates if generics are available in the drug class, and national drug code blocks have skyrocketed from about 50 in 2013 to more than 700 in 2024.

And for the novel science that tries their hand at the specialty lite price point, they can expect a rigorous prior authorization and likely relegation to a third- to fifth-line therapy. 

Where brands are not excluded, patient out-of-pocket (OOP) costs have grown alongside an expansion in high deductible plans, which now account for ~30% of commercial lives.

 Given the sharp increase in abandonment above $50 copays,

 manufacturers have been driven to spend ever more, driving down OOP through copay cards and patient assistance programs, while battling copay accumulators and maximizer programs.

Many products in the branded general medicine space are obsessing on how to get a $35 OOP to patients while charging $600 to $800. This game appears to be nearing its end. And with the Inflation Reduction Act and most favored pricing, wholesale acquisition cost reductions, and more on the way, the message from government, commercial payers, and plan sponsors is to stop pricing products high because that’s how you think the game is played. The PCSK9 class was the poster child of that. And it appeared when it came time to launch the CGRPs for migraine, the message was received.

As my wife likes to remind me, everything eventually comes back around. Cash pharmacy is not a new concept. It’s the original form of pharmacy and has continued to exist for at least some portion of patients. That portion is growing.

It’s good to remind ourselves that the presence of PBMs and pharmacy benefits is relatively recent in the scheme of things. The first entities appeared in the 1960s. These original PBMs were founded by pharmacists and initially focused on claims processing while reimbursing pharmacies at their usual and customary cash price; notable examples include PAID Prescriptions founded in 1965 and Pharmaceutical Card System (PCS) in 1969. 

The 1970s and 1980s saw significant shifts with vertical and horizontal integrations, driven by cost-containment strategies allowed by the Employee Retirement Income Security Act. In the 1990s, manufacturers began to acquire PBMs, such as Merck with Medco and Eli Lilly with PCS. However, this model was relatively short-lived with both spinning the PBM back out within 10 years, and with Eli Lilly recouping only a quarter of its purchase price.

The durable, impactful, and now-recognizable model borne out by the 1990s through the 2000s is the vertical integration of PBMs with national pharmacy chains and insurers, or consolidation among all three. This began with Rite Aid’s acquisition of PCS from Eli Lilly in 1998 and Express Scripts’ acquisition of DPS in 1999, but was most notably marked by consolidation a decade later of CVS and Caremark, and Express Scripts and Medco. These moves aligned two of the country’s largest pharmacies with two of the largest PBMs. Concurrently, UnitedHealth clawed back its $11 billion drug benefits business from Medco and consolidated pharmacy management into Optum.

Recall that Medicare was cash up until 2006 when we added Part D via the Medicare Modernization Act. But Medicare is now going through its evolution with a $2,000 OOP cap that comes in 2025. All that sounds great if that patient can find a pharmacy willing to dispense the brands that currently run at $50- to $200-a-month losses on a growing number of branded drugs. Reimbursement is going down and pharmacy costs of goods are going up.

I, and those in my firm, see the science, its value, and its demand being challenged. The GLP-1s are a great example. Great science. Great clinical profile. Benefits appear to be building by the day, and with limited coverage, patients are coming OOP for $900-$1000/month. A majority of patients are already willing to situationally pay cash when it results in short-term cost reduction,

 and pharmacies and manufacturers are realizing that the future of retail pharmacy, cash pay, insurance-based coverage for general medicine brands support is at a crossroads.


1. Performance Drug List - Standard Control for Clients with Advanced Control Specialty Formulary. CVS Caremark. January 2024. 

www.bsu.edu/-/media/www/departmentalcontent/payroll/pdfs/oe-2024/medical---prescirption-plans/p11---performance-drug-list-2024.pdf?sc_lang=en&hash=21B89DC77C0880F3E0224F0EF3291764427B7CF7


2. 2024 National Preferred Formulary Exclusions. Express Scripts. April 1, 2024. 

www.express-scripts.com/files/hub/pdf/formulary/NPF_Preferred_Formulary_Exclusions2024.pdf

3. 2024 Premium Standard Formulary. Optum Rx. January 1, 2024. 

www.optum.com/content/dam/o4-dam/resources/pdfs/guides/formularies/Jan2024_Premium_Standard_Abridged_508.pdf

4. 2023 Employer Health Benefits Survey, Section 5: Market Shares of Health Plans. KFF. December 8, 2023. 

www.kff.org/report-section/ehbs-2023-section-5-market-shares-of-health-plans/

5. The Use of Medicines in the US 2023. IQVIA. May 2, 2023. 

www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/the-use-of-medicines-in-the-us-2023

6. Cook, A.; Kornfield, T.; Gold, Marsha. The Role of PBMs in Managing Drug Costs: Implications for a Medicare Drug Benefit. January 2000. KFF. 

www.kff.org/wp-content/uploads/2013/01/the-role-of-pbms-in-managing-drug-costs-implications-for-a-medicare-drug-benefit.pdf

7. Overland, D. UnitedHealth Brings Back PBMs in House. Fierce Healthcare. June 10, 2011, 

www.fiercehealthcare.com/payer/unitedhealth-brings-back-pbms-house

8. Why 'Cash' Pharmacies are Booming—and What it Means for Health Care. August 24, 2022. 

www.advisory.com/daily-briefing/2022/08/24/cash-pharmacies

9. Rewriting the Script: Independent Pharmacy Trends. 2022 Research Report. Prescryptive, October 10, 2023. 

An analysis of the general medicine portion of the pharmacy market amid ensuing challenges.


Who Moved My Prescription? Part IV: The Rise of Cash Pharmacy

In this third installment of my “Who Moved My Prescription?” I provide the baseline framework to help manufacturers and pharmacies understand what is broken with retail pharmacy and what to do about it.

Just two months ago, we had several key indicators of the state-of-the-state of retail pharmacy and why it is struggling to support brands and keep their pharmacy doors open. On Feb. 21, Walgreens was removed from the Dow Jones Industrial average.

 Walgreens was added to the Dow in 2018, having been fueled by its “hedgehog strategy” that was called out in Jim Collin’s 2001 book 

. The strategy was simple: do one thing really well. For Walgreens, that was operating in the intersection of passion, talent, and the economic model. Clearly now, however, the economic model has been challenged.

Next, on Feb. 27, the National Community Pharmacists Association (NCPA), which supports almost 20,000 retail pharmacy stores, released a sobering report

 stating that a third of the nation’s community pharmacies are expected to either shutter their doors by mid-year 2024 or revert back to a cash-pay pharmacy model that resembles how retail pharmacies bought, operated, and dispensed drugs prior to the use of prescription benefit insurance that was materially introduced in the early to mid-1980s.

I keynoted the NCPA Multiple Locations meeting on March 2, sharing my thoughts on the situation and the views from the pharma manufacturer community on the problem and what is being done. At this meeting, it was apparent that retail pharmacy leaders do not understand how the reimbursement and cost of goods frameworks govern their businesses.

Let’s first review bundled reimbursement by the pharmacy benefit manager (PBM). Retail pharmacy has products on which it makes astronomical percentage margin and equally staggering losses at the product level. What frustrates pharmacies in this bundle is the inability to see the plan in its entirety and respond to the mix of business across the various commercial, Medicare, and Medicaid plans. When a PBM negotiates reimbursement with a pharmacy, there are a number of data points that drive pricing: brand rate, generic rate, and specialty rate. and how those rates vary across a 30- or 90-day fill; the pharmacy’s brand effectiveness rate (BER), requiring the pharmacy to dispense at least 15% of their dollars as generics; the unique product-level national drug code (NDC); and some quality metrics that concern medication therapy management (MTM). Trying to make sense of what the PBM is doing at the product level can be very confusing without stepping back and looking at the entire bundle. I’ve personally run the analysis for one PBM buying another and have witnessed the complexity first-hand.

The second issue is bundled purchasing and cost of goods from the wholesaler. The retail pharmacy community has shifted from buying direct in the late 1980s/early 1990s to buying through the wholesale distributor. The retail pharmacies moved this way because the wholesaler was able to mine a better cost of goods than the pharmacy, pass on enough margin to incent the pharmacy to buy and keep enough to operate, and make a targeted margin.

The bundle in wholesale is a little more straightforward than the PBM bundle. The wholesale bundle crosses generic and branded pharmaceuticals. Wholesalers typically make 10% to 20% margins on generics when selling to retail pharmacy and have gross margins on brands of roughly 3.8% to 3.9%, based on research my company IntegriChain/Blue Fin Group has tracked for decades. Wholesalers will sell brands to pharmacies between cost less 3.5% to 6%, depending on the mix of brands and generics of the pharmacy and volume/cost to serve the pharmacy.

Similar to PBMs, if a pharmacy buys more than 85% of its business in brands, the pharmacy pays a higher cost of goods on its brands. With 92% of the prescriptions leaving a pharmacy as generics, we would think that would be a realistic target, but it is not. It’s hard because our industry hasn’t seen material new generic volume since the end of the 2017 general medicine patent cliff, and brands have continued to increase price and launch at higher and higher price points to accommodate for large, mandated percentage rebates and fees from the PBMs and wholesalers. What this means to the pharmacy is that it currently has little to no control over its sourcing. Pharmacies have forgotten their old ways of buying—as opposed to changing reimbursement, the ability to change cost of goods is much more in the control of retail pharmacy.

Due to an inability to buy brands from wholesalers, many pharmacies, especially in mental health and HIV, have been going direct brand-by-brand for the last three to five years. These brands are being sold to pharmacies between wholesale acquisition cost (WAC) less 5% to 10%, which is really helpful against a reimbursement rate that is trending toward average wholesale price (AWP) less 20% to 23% now that direct and indirect renumeration (DIR) fees are being put on the front side of the prescription adjudication process.

At the moment, there are no good distribution alternatives to the full-line wholesaler, so manufacturers are working with third-party logistics (3PL) providers that are not owned by the wholesalers to enable this direct transformation. Companies like Medigi are coming to the aid as well to help manage the financials by offering a central place for pharmacies to order from multiple manufacturers, while providing a service for the manufacturers to credit check the pharmacy, and to manage the receivables and any bad debt scenarios that may occur. In addition, drugmakers are currently offering direct options for cell and gene therapy, orphan and rare, specialty, and specialty-lite products.

That brings us to the final issue and the proverbial “throwing a can of gas on the fire.” As of 2023, the market to launch brands into retail pharmacy has fundamentally shifted. The average price of a general medicine product was typically between $100 to $800 a month. With PBMs asking for an average rebate of 60% for basic coverage and wholesalers asking for 10% to 15% for distribution, manufacturers find themselves in a position where the WAC/list price of the product needs to be something like two times the high end of the range to cover the desired dollars from the intermediaries and achieve net in their revenue forecasts. This means that some products will likely launch at a price of $1,600 or more—going as high as $2000 a month.

This higher price point is hurting the pharmacies’ ability to buy these products at the right rate without suffering material losses on the price increase for the rest of their brands if that branded dollar percentage goes above the 85% level. This is evident in mental health in the last five to six years, as innovation now is returning to this area that operated in a sea of generics for the last 15 or so years.

So while the situation is frustrating, perhaps this is the inflection point the industry needed to realize that bundles are bad for a pharmacy, reimbursement will be hard to change in the short run, and changing the way a pharmacy sources product is the most controllable and timely way to resolve the situation and for manufacturers to ensure that they have a retail pharmacy market that is capable and willing to accept and dispense prescriptions for brands. 

1. Mishra, M.; Khandekar, A. Walgreens Drops After Losing Spot in Blue-Chip Dow Index. Investing.com. February 21, 2024. 

https://www.investing.com/news/stock-market-news/walgreens-shares-fall-after-losing-spot-in-bluechip-dow-index-3309566

2. Local Pharmacies on the Brink, New Survey Reveals. NCPA. February 27, 2024. 

https://ncpa.org/newsroom/news-releases/2024/02/27/local-pharmacies-brink-new-survey-reveals

A breakdown of the issues surrounding retail pharmacy—and what can be done to address these difficulties in a timely manner.

Who Moved My Prescription? Part III

In my last column, I described the macro environment and the drivers that are causing retail pharmacy to splinter into new models. This issue’s column will explore the models themselves, the momentum behind them, and how the patient, prescribers, legacy pharmacies, and payers think about them.

Out of the gate, it’s helpful to consider how a traditional retail pharmacy views its business by the units and dollars, as both provide insight as to how pharmacy looks at its own model operationally and financially.

By the dollars, roughly 85% of the revenue volume for a traditional retail pharmacy is branded dollars, while 15% is generics. As reimbursement values are somewhat standard across the retail pharmacy landscape, the relative profit of the business depends upon how the retailer buys its brands and generics.

Most retail pharmacies buy their brands and generics through pharmaceutical full-line wholesalers on a bundled model.

To achieve an aggressive cost-less—4.5% to 6% on brands, these pharmacies pay a 10% to 15% premium for generics. National chains that are members of the purchasing alliances, such as Red Oak, Walgreens Boots Alliance Development (WBAD), and Clarus One buy generics at an advantage of 10% to 15% below what smaller retailers buy but pay a higher cost-less—3.5% to 4% for brands. This exacerbates the frustration from large national chains, as they see a greater loss on brands than their smaller counterparts but have perhaps forgotten or don’t understand how advantageous their generic purchasing can be given the ultimate dollars. With the exception for Medicaid, retail pharmacies are reimbursed under a bundled model as well, with the basic concept of breaking even on brands while being strongly incented to favor generics over brands. So, when a pharmacy indicates they are losing on brands, that’s not entirely true because they’re being compensated in aggregate across the product mix.

By the units, the plot thickens. Ninety-two percent of the units/prescriptions are generics, and 8% are brands. Of the 8% that are brands, roughly 80% of these are driven by the top-50 prescription products. This leaves well over 2,000 branded prescription products accounting for less than 2% of the overall units flowing out of pharmacy. Given that these are slower moving, new, or somewhat novel brands with the relative low volume, the pharmacy is not structured to optimally service these products operationally. As a result, any issues with finding the product, helping the patient with access and affordability, and any patient services required result in too high of a cost to serve to offset the intended break-even on the brands.

This problem is of key concern to branded manufacturers launching ew products. And as mentioned in my 

, if a generic is available in the drug class, it is easier and more profitable for the pharmacy and patient, as it aligns to the pharmacies’ primary workflows and economics.

Enter the two main new models for pharmacy: unique direct, exclusive, limited distribution models for brands, and cash pay for generics.

Brand products that are suited for direct, exclusive, limited distribution models are likely to fall in the 2% of pharmacy units. This is the situation where connecting a prescription to a pharmacy that is capable and willing to properly process and dispense becomes necessary to ensure an optimal patient journey. Similar to how our industry has configured specialty pharmacy, our industry has been developing new options to work in exclusive and limited pharmacy models that work very well with tech-enabled hubs such as Asembia and PhilRx. This was how Biohaven launched Nurtec: it used this contemporary strategy to incubate early sales and then evolve to a more traditional model once demand was more established.

The direct model has been around for decades, but has experienced extremely limited uptake as new models for pharmacy—such as home delivery—hadn’t been fully built out or adopted by consumers. With the growth of the cash pay and lifestyle pharmacies, this is changing. Out of the gate on Jan. 4 of this year, Lilly launched its direct-to-consumer model, Lilly Direct, for its obesity drug, Zepbound. From articles related to the topic, the drivers appear to be three-fold:

The manufacturer feels it is competing with the contemporary models of the cash pharmacies such as Ro that manage the patient to choose the Lilly or Novo Nordisk options and even their own compounded semaglutide.

The patient may struggle with insurance coverage that can be both spotty and bring high out-of-pocket cost sharing.

The traditional retail pharmacies struggle to not lose money on these prescriptions for all the reasons described.

While Lilly’s program is not entirely new—as others such as Pfizer and AstraZeneca have deployed similar options for Lipitor and Nexium, respectively—what is different is that Lilly launched this model for a new and novel blockbuster therapy, and is directly competing with a payer-pharmacy-wholesale channel that struggles to support these types of products. In summary, it’s a great analog for how brands struggle to come to market and the degree to which innovation is being considered to ensure patients have both access to product and the proper support from their pharmacy.

This brings us back to the cash pay market, which has grown from 4% in 2018 to almost 10% by the end of 2023. The momentum has been so profound that CVS Health and Cigna announced and launched their own cash pay models, True Cost and Clear Network, respectively. To date, the products that the cash pharmacies have focused on are generics, but it appears more brands may be on the way. As traditional retail pharmacies struggle with brands economically and operationally, the manufacturer is left with little options to innovate.

Another example of the pursuit of a branded cash pay model in 2023 was for Yusimry by Coherus Pharmaceuticals. As a biosimilar to Humira (adalimumab), the company turned to Mark Cuban’s Cost Plus Drug Company. On the surface, most people we connected with in the industry didn’t understand the move. The product would price at approximately $4,500 annually, which seems high for a patient, but peeling back the onion on the state-of-the-state for high-deductible plans might offer some insight. It appears that Coherus may not have been able to secure product coverage and was forced to the cash market, but then turned and assumed that there are patients on a branded drug in the class that perhaps couldn’t meet their deductible. Thus, this cash option was cheaper than using insurance.

As these are just examples of what is transpiring, 2024 will be a landmark year to watch for sure. With each use of a new pharmacy channel comes another crack in what our industry considers the “traditional retail pharmacy model,” causing the patient to reconsider their pharmacy options.

An analysis of the two main new models for pharmacy—unique direct—to-consumer for brands and cash pay for generics—and what members of industry think about them.