The Big Squeeze - Pharmaceutical Executive


The Big Squeeze

Pharmaceutical Executive

Three ways to respond

Narrow retail pharmacy networks are created by payers for payers, with the patient coming in second. Thus, pharmaceutical manufacturers have a very limited ability to influence the adoption of this new design. However, companies should take action to understand and prepare for the ongoing growth of these networks.

Build cross-organizational insight. Narrow networks challenge conventional organizational arrangements within most pharmaceutical manufacturers. This can make it harder to spot brand-specific sales implications of narrow networks. Usually, the trade function that manages pharmacy distribution channel relationships is organizationally separate from the managed markets function that interacts with payers. Functions that handle payer relationships, such as managed markets and payer marketing, must understand the product movement and payment functions, and vice versa. For instance, are copay offset programs being blocked with greater frequency in certain networks? Is patient access being compromised or affected by a payer's adoption of this new network model?

Be prepared to alter promotion plans. As new pharmacy network models proliferate, patients will begin moving prescriptions from one pharmacy to another. In some cases, these shifts will require changes to traditional geographic promotion planning activities. For example, membership-warehouse club retailer Costco operates Costco Health Solutions (CHS), a pharmacy benefit manager targeting self-insured employers located near Costco stores. These employers are encouraged to set up a preferred network model, in which the beneficiary has a financial incentive to choose a Costco pharmacy to reduce the employer's drug costs. This movement may or may not correspond to existing sales and marketing plans. Sales teams should understand managed care coverage and new retail provider networks so they can have meaningful discussions with practices and tailor messages accordingly.

Develop a coherent policy position. Manufacturers should be prepared to manage divergent opinions generated by the narrow network trend. Payers support narrow networks, while many pharmacies oppose them. For instance, the National Community Pharmacists Association (NCPA), which represents owners of independent pharmacies, has claimed that preferred network PDPs in Medicare Part D are being "deceptively marketed to patients and lack adequate pharmacy access for rural Americans." While no objective data yet support these assertions about patient access, the sentiment has already led to pharmacy-led lawsuits against CMS. In contrast, larger pharmacy chains are active participants in the new networks. Balancing these competing perspectives is difficult as payers and dispensing channel consolidate.

The narrow network revolution is accelerating—its time is now. Pharmaceutical manufacturers have no choice but to prepare for the coming changes in product and consumer access.

Adam J. Fein, PhD, is president of Pembroke Consulting, Inc., and CEO of Drug Channels Institute. This article is adapted from his new "2012–13 Economic Report on Retail, Mail, and Specialty Pharmacies," which is available at He can be reached at


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