It was reported this week that e-commerce giant, Amazon, was considering a move to potentially open brick-and-mortar pharmacies, to supplement its already-existing online pharmacy platforms. The news sent shares of the major pharmacy chains – CVS, Walgreens and Rite Aid – tumbling. With its acquisition of PillPack in 2018 and the expansion of its own pharmacy program this past year, a large question remains why the country’s largest e-commerce store would revert back to brick-and-mortar stores.
Amazon has indicated that its pharmacy is focused on “making at-home delivery pharmacy easier and more convenient for customers.” However, the real reason might be a little more complex. Within the pharmacy benefits landscape, many pharmacy benefits managers (“PBMs”) maintain contracts that are geared towards community, retail pharmacies. In these agreements, retail pharmacies are typically defined as a pharmacy that primarily fills and sells prescriptions via a retail storefront location. Importantly, however, PBMs typically exclude from the definition of retail pharmacy any pharmacy engaged in mail order operations, including through common carrier, local courier, third-party company/delivery service, or store-direct delivery outside a pharmacy’s reasonable, local service area.
When a pharmacy is engaged in mail order operations, PBMs typically either exclude these pharmacies from the network altogether or require that they enroll in mail order pharmacy networks. Mail order pharmacy networks typically come with higher credentialing and participating standards, and importantly, lower reimbursement rates. Thus, there are potential PBM participation benefits to being able to be properly classified as a “retail pharmacy.”
Likewise, a growing number of state Medicaid programs have instituted “brick-and-mortar” requirements for pharmacies wishing to participate in Medicaid networks. In these instances, mail order pharmacies (especially those located out-of-state) are excluded altogether from being able to participate in the network and service Medicaid patients for that state. By establishing brick-and-mortar stores within the different states, Amazon may be able to unlock broader network access and coverage, particularly in these programs.
How Frier Levitt Can Help
On the whole, this recent move highlights the fact that even the most complex and sophisticated business operations must have a multifaceted and multipronged strategy to successfully navigate an even more complex and mercurial PBM landscape. Frier Levitt counsels pharmacy clients – large and small – in crafting strategic growth plans that navigate this landscape and safe guard against risks. If your pharmacy venture is looking to grow, contact Frier Levitt today.
