The existential threat to drug store pharmacies: the battle of price and quality

CVS recently announced its Pharmacy Savings Finder, a tool that promises to identify the cheapest version of a medication that a patient can buy. Essentially, they are promising to do comparison shopping for you. It seems to be a long awaited counter to a four front battle. Not only is CVS competing with other pharmacies, but also online Rx websites, startups and, more recently, large corporations.

Long before CVS’s Pharmacy Savings Finder, there was Walgreens’ Prescription Savings Club, Walmart’s generic prescription program, and various other brick-and-mortar players offering to find savings for consumers. So why the sudden urgency to take action and join the price wars? The rising cost of healthcare is not new news, and remains a chief concern for the poorest and the sickest. One possible catalyst appears to be the proactive industry invasion by mega-companies that are starting to feel the exposure to healthcare cost risk. I’m referring to the largest titan team-up in history, announced in January, with Amazon, Berkshire Hathaway and JPMorgan Chase. The three promised to form an independent healthcare company that will provide, among other things, cheaper drugs. Amazon’s acquisition of PillPack, a startup that mails prescriptions to people who take multiple medications, has further signaled that competitive pricing and industry-leading speed may be on the way to a historically manual and expensive service.

Up until this year drug store pharmacies had clear competition for each vector, quality of service and price. Launched in 2016, Capsule Pharmacy’s value proposition included consistent inventory, shortened wait times, and better access to medication information. And for years vertical search offerings online, such as WellRx or Q1Medicare.com, offered a quick scan by drug, category, or discount program to find the best price. These are classical positionings in the business world; low price, high volume, and basic service means thin margins but leads to larger market share. Distinctive services can allow companies to justify a higher price and be profitable but with fewer customers. Now, with mega corporate partnerships, traditional drug stores most compete more effectively on both service and price.

 Businesses are typically well positioned to succeed if they are in the bottom left (think Walmart) or the top right (think One Medical). In pharma there appears to be a shift towards the value-for-money segment, the bottom right.
Businesses are typically well positioned to succeed if they are in the bottom left (think Walmart) or the top right (think One Medical). In pharma there appears to be a shift towards the value-for-money segment, the bottom right.

Perhaps this is the shakeup that the Pharmaceutical industry has needed. Operating health services with a profit motive as the primary impetus can only lead to worse health outcomes for patients. With nontraditional industry actors motivated by the health of their employees shaking up the status quo, we can more easily hold traditional industry players to account.