Jim Danahy is CEO of retail consultancy CustomerLAB and a partner in pharmacy specialty firm AdhereRx Inc.
Last week's agreement by global health care distribution giant McKesson to acquire the 470-store Rexall pharmacy chain has the potential to instigate a healthy "space race" among big chains. This deal could accelerate lifesaving and profitable expansions to the scope and quality of care that pharmacies deliver to Canadian communities. And this race could be as beneficial for independent pharmacies as for the big chains that lead it.
Pharmacy's big opportunity is to solve the problem of medication adherence – 50 per cent of all prescriptions for chronic conditions aren't being taken after just six months. The World Health Organization has described it as a "rampant … worldwide problem of striking magnitude." Failure to take medication causes the unnecessary deaths of thousands of Canadians and untold suffering for millions more.
The resulting cost to our health care system is estimated at up to $20-billion of preventable remedial care every year. Meanwhile, the value of the drugs that would solve the problem is estimated at $10- to $12-billion annually, leaving huge savings for our cash-strapped health ministries.
There is no other source of revenue growth even remotely close to the value of solving this problem for any pharmacy of any size, anywhere. University of Waterloo professor Roderick Slavcev calls the solution the New Pharmacy Model because it virtually reverses the traditional flow of work by changing pharmacists' roles to engage much more closely with patients rather than pills. It reassigns production and clerical tasks to less-skilled staff and focuses pharmacists' expertise on solving the drug-therapy problems that cause people to stop taking their medicine in the first place.
Here are seven reasons why McKesson should use the Rexall acquisition to make the first large-scale move to implement the New Pharmacy Model:
1. Since McKesson was already Rexall's distributor, it needs to find a source of incremental revenue to make the investment accretive.
2. A new model of pharmacy is available and radically improving medication adherence at independent pharmacies on a small scale in Canada, the United States, Australia and Brazil. Now these methods need to be adapted for application on a wider scale. (Full disclosure: Our firm AdhereRx is among this group of pioneers.)
3. McKesson has deep pockets and expertise in Six Sigma process-improvement practices used in other health care sectors. The Rexall deal will give it direct control over 470 "community laboratories" to test and measure the key features of New Pharmacy.
4. It is in McKesson's interest to share the New Pharmacy recipe with its banner and independent-pharmacy customers as quickly as possible. Boosting adherence among thousands of pharmacies that buy supplies from McKesson will multiply the return on the $3-billion investment much faster than restricting it to 470 company stores.
5. Some of McKesson's pharmacy customers have already expressed concern their supplier has just become their competitor. While it's common for large retailers to do business through a blended portfolio of corporate stores, franchises and wholesale distribution , it will be important to demonstrate transparency and fair business practices to customers.
6. McKesson is unlikely to out-merchandise Canada's biggest retailer (Loblaw), steal beauty sales from Shopper's Drug Mart, poach consumer-electronics market share from London Drugs, or undercut pricing against Costco and Wal-Mart without a massive additional investment. Non-prescription retail sales are believed to account for less than a third of Rexall's revenue and closer to 15 per cent of the sales at most of the independent pharmacies McKesson supplies. So the opportunity isn't to out-retail bigger, better retailers. Rather it should be to offer better health care.
7. So where does the "space race" play into this proposition? I have seen the enthusiastic reaction of patients once they experience the better care of New Pharmacy. They never return to pharmacies that serve them the old way.
If McKesson starts this race, then Shoppers Drug Mart/Loblaw will respond vigorously and the two behemoths will accelerate access to this expanded form of community care and slipstream the rest of Canada's 10,000 pharmacies with them. And everybody wins.