Meeting changing consumer needs: The US retail pharmacy of the future

Ben H.

Ben H.

Jul 25, 20233 min read

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Meeting changing consumer needs: The US retail pharmacy of the future

The retail pharmacy landscape in the United States is facing various challenges, including saturated retail locations, labor shortages, inflationary pressure, and a plateau in generic drug penetration. To thrive in this environment, all types of retail pharmacies need to understand and adapt to changing consumer preferences. McKinsey conducted a consumer survey to gain insights into these preferences.

Over the past two decades, the retail pharmacy sector has evolved significantly. It can be categorized into four types: retail chains, regional pharmacies (mass retail and grocers), independent pharmacies, and mail-order and online pharmacies. Retail chains are the largest and most prevalent, representing a third of stores and prescription revenues in 2021. They dispense approximately 138,000 prescriptions per store annually, which is about 50 percent more than grocers.

On the other hand, mail-order and online pharmacies have a lower overall penetration for nonspecialty drugs compared to specialty drugs. While they accounted for less than 10 percent of total US prescriptions in 2021, they are gaining traction. In the past 15 years, direct-to-consumer online pharmacies have emerged, receiving significant funding. Traditional players like retail chains have also moved towards omnichannel options, including online and mail-order services.

Online pharmacies seeking to disrupt the market can focus on leveraging their natural benefits of speed and convenience. However, they should also address potential gaps in the consumer experience caused by their lower-touch approach. Personalization can be a key strategy, such as offering video telehealth visits with remote pharmacists to establish a personal connection and complement the convenience factor.

In addition to understanding consumer preferences, retail pharmacies should also consider the evolving landscape of value-based purchasing in healthcare. The Hospital Value-Based Purchasing (VBP) Program rewards acute care hospitals for the quality of care they provide. This program adjusts payments to hospitals based on their performance in delivering quality care.

The program withholds a percentage of participating hospitals' Medicare payments and uses the estimated total amount to fund value-based incentive payments. This adjustment is applied to the base operating Medicare payment for fee-for-service claims, taking into account factors like mortality, complications, healthcare-associated infections, patient safety, patient experience, and efficiency and cost reduction.

Hospitals are scored on these measures, and they can earn scores for achievement and improvement. The final score awarded to a hospital for each measure is the higher of the two scores. The total performance score reflects how well hospitals perform compared to others or how much they improve their own performance compared to a prior baseline period.

While the value-based purchasing program is complex, it raises important questions about its effectiveness and the possibility of increasing the percentage of withheld payments. Additionally, there is a debate about whether the current metrics used to measure hospital performance are the most appropriate.

To thrive in the future, retail pharmacies can consider the following actionable advice:

  • 1. Embrace omnichannel strategies: Retail pharmacies should explore offering a seamless experience across physical stores, online platforms, and mail-order services. This allows them to cater to different consumer preferences and maximize convenience.
  • 2. Invest in personalized experiences: Online pharmacies can differentiate themselves by focusing on creating personalized experiences for their customers. This can be achieved through video telehealth visits or other means to establish a personal connection and address the potential lack of face-to-face consultations.
  • 3. Continuously evaluate and improve performance metrics: Both retail pharmacies and hospitals should regularly assess the effectiveness of the metrics used to measure their performance. This ensures that the metrics align with the evolving needs and expectations of consumers and the healthcare industry as a whole.

In conclusion, the US retail pharmacy landscape is undergoing significant changes, driven by consumer preferences and the shift towards value-based purchasing in healthcare. Retail pharmacies need to adapt to these changes by understanding consumer needs, embracing omnichannel strategies, investing in personalization, and evaluating performance metrics. By doing so, they can position themselves for success in the future.

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