Understanding the Impacts of a Global Pharmacy Invasion

Recently, i2P ran some articles postulating the expansion strategies of global supermarket and pharmacy groups.
It is a story of consolidation of the pharmacy industry, both horizontally and vertically to form up massive conglomerates that concentrate purchasing power and market share of retail pharmacy goods and services.
And it is a story that is mostly complete, with Australia and New Zealand yet to be absorbed (although New Zealand has allowed Woolworths a substantial interest in the ownership of its supermarket pharmacies).
The expansion has mostly followed a pattern of a UK pharmacy chain triggering off horizontally, by developing or acquiring community pharmacies.
The next step was a vertical one with the purchase and concentration of wholesalers to guarantee a best price and delivery time supply chain.

Then the expansion moved into Europe and when a critical mass had been created, a US major pharmacy chain merged with the UK pharmacy conglomerate, further concentrating market power.

Independents have been hurt, but there have been some hardy survivors both in the US and the UK.
It is,interesting that in the UK chain expansion was led by pharmacy retail walk-in clinics.
Walk-in clinics have featured in the US much longer and they too have increased pharmacy market share, currently to the level of being a lead part in “patient-centred neighboorhoods”.

There is no doubt that Australia is targeted and the Boots Alliance/Walgreen conglomerate is already in Australia (albeit under the radar).
Deloitte postulate in their white paper that consumerisation of health will increase with healthier consumer populations being the eventual result. (Read Deloitte paper here us-retail-health-and-wellness ). i2P does not agree with all of that.

An active alliance arrangement has been established with Sigma Pharmaceuticals and some Boots branded products – a basic strategy to raise the profile of Boots products through various Sigma franchised banner groups, has been in place for approximately two years.
The banners would be prime targets for Boots if ownership and location rules were eliminated, and both these items are under investigation by a government constituted committee already stacked 2:1 against pharmacy retaining existing rules.

The PGA expresses confidence that pharmacy has no concerns, but if the situation changes, they will fight.
No doubt they will, but what do they base that optimism on?
The world is changing dramatically in the delivery of pharmacy services and if the PGA really believes in its public stance, then all we can say is that they are “asleep at the wheel”.

The current government philosophy under the radar is to privatise government health systems such as Medicare and the PBS and this takes us into the world of Patient Benefit Managers (PBM’s).
This will be the level of competition that will decide which conglomerate will control the largest market share at community pharmacy level.

And this is why everyone is feeling the influence of the US model of healthcare gradually enveloping us, with a first step of privatising Medibank.
This entity has the ability to become a PBM.

Another potential PBM is CommInsure, and the recent events and exposure by a “whistleblowere” medical doctor has confirmed that all that is commonplace and basically bad policy in US insurance companies, is alive and well in Comminsure .

Each one of the three, and possibly four US owned conglomerates with Australian intentions, have PBM’s as part of their own individual conglomerate.
When they come to Australia they can bring their PBM’s with them or partner with Australian versions.
They should feel quite at home with entities like CommInsure.

Health care spending in the U.S. still remains the biggest spend by a large margin when compared with other advanced industrial economies.
The US spends approximately $7,662 per person, more than 2.6 times the OECD average per 2014 data devoting a 16.9% of its GDP to health care.

Despite the heavy spending, US ranks poorly on health outcomes and the healthcare costs continue to rise beyond reason even with the Affordable Care Act gaining momentum.
Global Pharma’s drive this agenda and you will find them hidden in PBM shareholdings.

And this is what Australia seems to be heading towards – exchanging its high quality government-led system to the mess of privatisation that will be controlled by the US pharmacy conglomerates, with Big Pharma orchestrating the direction to their ultimate advantage.

Health insurance has employed about 460000 in the U.S., and has had a growth rate that no other industry has experienced.

The expenditure on paperwork demanded by insurance companies (that makes hospitals run in the US), amounts to $218 billion per year.
The hospitals’ administrative costs consume a 1.43 percent of the entire American economy for the billing specialists and schedulers services.
Health insurers function more like intermediaries between the employers/government/individuals that pay for health and care providers that deliver the services.

It costs a lot of money for healthcare providers required to deal with various insurers, each following its own different regulations and protocols. 
The same process is the case for insurers that transact with multiple providers.
Spending time on learning rules and procedures of the organisations becomes a necessity, otherwise warfare breaks out and losses are incurred.
If, like CommInsure the insurance process is dishonest and deliberate, costs escalate for the patient and the stress involved is one of the factors causing ill health.

The accumulation of administrative overhead and the complexity in accessing timely care in such a model adds further to the woes, and the costs.
Quite a bit of it is deliberate to slow down, even avoid, payment of claims in all the insurers.

While health spending in America is reaching $3 trillion, there are not many changes with insurance delivery models in spite of the projections that the system is doing no good at all but adding to the woes of doctors, pharmacists and patients.
Is care efficient with such costs?

Not a good picture if we look at the mortality or life expectancy among other factors that determine US ranking in health outcomes.

There is widespread attention about news of insurance companies around rejected claims and coverage denial, exactly like the Comminsure debacle.

The Centre for Medicare and Medicaid services found that “in 61 percent of audits, insurers ‘inappropriately rejected claims’ for prescription drugs” according to a recent audit of plans with Medicare Advantage.
And it was observed that in more than half of all audits, the receivers and providers of care were not provided with the information about or adequate rationale for the denial of coverage by insurers.

This is what the Australian government is willing to do in an endeavour to eradicate the cost of health from its own bottom line.
In turn, they will provide taxpayer-funded grants and rebates to these conglomerates.
History proves that this type of arrangement will eventually become too expensive and will require government intervention and a “buy back” at some time into the future.

The pressure of market competition and the need to bring down costs will push health care systems to offer insurance by themselves looking at intermediaries as a disadvantage.
Australian health systems, including pharmacy, need to be looking at this process now as one means of avoiding a hijacking of the existing community pharmacy system.

The working model in delivering insurance and care at one go, increasing the ease of access while reducing costs, has already been demonstrated by few organisations like Kaiser, in the US.

Kaiser, by assuming the roles of health plan administrator and care provider, made sure that administrative costs with health care are brought down by doing away with insurance intermediaries.

So if Australia goes down the privatisation pathway US style or UK style, care will need to be exercised to ensure that a balanced business model with a reasonable level of government participation can be worked out.
The Kaiser system noted above requires its patients to patronise only Kaiser facilities, to gain cost benefits.
This means that independent health systems, like community pharmacies, would be completely shut out if too many Kaiser clones were competing for the same space.

The US health care system is going to witness major revolutions with growing take-up of private exchanges, another name for version two of Patient Benefit Managers

The approach of delivering a portable health insurance intending to serve groups and individuals alike, and aimed to bring down costs and improve health outcomes, is gaining importance not only in the US, but also in Australia.

I do not think there has been much open and quality debate for the Australian government to move towards a complete privatisation at this point in time.
But pharmacy could be sacrificed as a first step because the economic rationalists believe the existing pharmacy system is not competitive.
It’s only the pharmacists that know otherwise, sick and tired of government intervention in a health business they know nothing about – but think they are the experts.
This needs refuting – we pharmacists are the experts!
As government, through the PBS, really control the price of drugs in Australia (and do a reasonably efficient job), how can pharmacy improve on that?

However, working new models of pharmacy business that adapt to change quickly is the real need for our leadership bodies to actively be engaged in.
And they should encourage all channels and not suppress a model that may come from without their organisations.
They should encourage and build on each success, not squash, suppress or disrupt a model that is seen as competition.
That is the poor leadership we have been experiencing for the past 20 years.

And we should also plan for a change in delivering health insurance with reduced administrative cost overhead and eliminating the need of insurance intermediaries. This needs to be understood and planned for, because if the PBS disappears we will need a pharmacy-friendly health insurance provider/PBM system to fill the vacuum that such a shift would create.

These conversations have not yet begun in pharmacy circles, but need to occur so that a unified solution or a range of solutions can be rolled out with full agreement.
And because the impact is shared by all pharmacists no matter their workplace, they need to be involved and considered as well.

That takes time and planning.

Are our leaders up to it?

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