Pharmacy’s new era—in the home (2024)

Customers of the $460 billion retail pharmacy sector are increasingly demanding a pharmacy experience that mirrors the rest of their retail experiences—omnichannel, convenient, and with home delivery at the center.1Adam J. Fein, “The 2021 economic report on U.S. pharmacies and pharmacy benefit managers,” Drug Channels Institute, March 2021, drugchannels.net; Victor Fabius, Sajal Kohli, Björn Timelin, and Sofia Moulvad Veranen, “Meet the next-normal consumer,” August 17, 2020, McKinsey.com; “The Update: How Walgreens’ customer-focused marketing is driving business growth,” Google, September 2020, thinkwithgoogle.com. While interests vary meaningfully across customer archetypes and can be segmented by various factors (for example, complexity of medical condition, digital experience preferences, and proximity to stores), our pharmacy market research has indicated that there are two key patient archetypes across the spectrum of experience. Making the experience right for these two groups will prepare pharmacies for a broader spectrum of customers.

Patients in one archetype, focused on convenience, are beginning to experiment with new, digital-first pharmacy entrants that facilitate in-home pharmacy experiences, especially during reflections on the COVID-19 crisis.2“The Update: How Walgreens’ customer-focused marketing is driving business growth,” Google, September 2020, thinkwithgoogle.com.

Customers in the other archetype—those with multiple chronic conditions—are seeking higher-touch clinical support models in the home and digitally, as well as wanting guidance from a trusted pharmacist in managing multiple medications.3Madison Como et al., “Pharmacist-led chronic care management for medically underserved rural populations in Florida during the COVID-19 pandemic,” Preventing Chronic Disease, July 30, 2020, Volume 17, cdc.gov. These developments put pressure on both pharmacy incumbents and new players attempting to define their future pharmacy value propositions. At the same time, these systemic changes present new focus areas for stakeholders across the value chain, giving players a chance to move quickly.

High-value patient archetypes

Two patient archetypes should be top priority for stakeholders: one that is primarily concerned with convenience, and one that desires an ongoing relationship with their pharmacist to support their chronic conditions and medication needs.

Convenience, convenience, convenience

The thought driving this archetype can be summed up as follows: “I want to spend as little time and energy as possible interacting with my pharmacy.” This tends to be the primary goal of young professionals, busy parents, active retirees, and others. Convenient, direct-to-consumernew pharmacy entrants are working to meet this need and, based on recent venture-funding rounds that value these players in the billions, are achieving early market traction.4Katie Jennings, “Digital health startup Ro raised $500 million at $5 billion valuation,” Forbes, March 22, 2021, forbes.com. A physician can prescribe a new prescription virtually, the customer pays online, and the prescription shows up a day later. In addition to providing convenience, delivery and medication synchronization (such as pharmacist coordination of refills) may improve medication adherence in certain use cases.5Alexis A. Krumme et al., “Medication synchronization programs improve adherence to cardiovascular medications and health care use,” Health Affairs, January 2018, Volume 37, Number 1, pp. 125–33, healthaffairs.org.

Clinical support for chronic conditions

Patients in the second archetype, in contrast, are looking for much-needed support from their pharmacy (and pharmacist) in managing and adhering to multiple medications. Their driving thought is “I have multiple medications, and I need support from a pharmacist I know and trust.” Polychronic and complex chronic homebound patients taking multiple medications often have adherence challenges and could benefit from a high-touch pharmacist model that includes, for example, adherence counseling and medication reconciliation.6Reyan Ghany et al., “High-touch care leads to better outcomes and lower costs in a senior population,” American Journal of Managed Care, August 28, 2018, Volume 24, Number 9, ajmc.com. In addition, complex chronic homebound patients are at a greater risk for high medical costs, including complications of chronic diseases.7Katherine A. Ornstein et al., “Epidemiology of the homebound population in the United States,” JAMA Internal Medicine, July 2015, Volume 175, Number 7, pp. 1180–6, pubmed.ncbi.nlm.nih.gov.

Why stakeholders may welcome the shift to home

The who, what, when, where, and how of pharmacy-care delivery is rapidly evolving: from traditional models to tech-enabled models, from in-person pickup to delivery, and from outpatient hospitals and clinics to the home. This shift may be welcomed by many stakeholders because e-commerce penetration in retail pharmacy is low relative to most other retail categories (exhibit).

A number of factors are driving the shift to in-home pharmacy care for convenience seekers:

• Demand tailwinds: The market has experienced a meaningful increase in consumer preference for home options during the COVID-19 crisis, with likely stickiness as normal activity resumes.8Victor Fabius, Sajal Kohli, Björn Timelin, and Sofia Moulvad Veranen, “Meet the next-normal consumer,” August 17, 2020, McKinsey.com.
• Tech-driven innovation: There has been substantial growth in tech-driven product and service-delivery models (for example, digital pharmacy and direct-to-consumer virtual care clinics) that are penetrating traditional channels and supporting the shift to home.9Heather Landi, “In a competitive digital health market, startups move to add new medication delivery services,” Fierce Healthcare, March 8, 2021, fiercehealthcare.com.

In addition to demand tailwinds, several major factors are driving the shift for those needing clinical support for their chronic conditions:

• Growth in homebound populations: The market has seen material growth in homebound populations, including those eligible for Medicare and those with intellectual and developmental disabilities (IDD), as well as an expansion of managed Medicaid and managed dual-eligible patients.10Katherine A. Ornstein et al., “Estimation of the incident homebound population in the US among older Medicare beneficiaries, 2012 to 2018,” JAMA Internal Medicine, May 26, 2020, Volume 180, Number 7, pp. 1022–1025, jamanetwork.com.
• Payer actions: Finally, there has been a rise in new medical-necessity and reimbursem*nt policies and innovative programs from payers (for example, the Centers for Medicare & Medicaid Services’ Acute Hospital Care at Home) that have shifted care from hospitals, facility-based settings (for example, long-term acute care hospitals and skilled nursing facilities), and doctor’s offices and clinics to the home.11“Acute Hospital Care at Home Program: Approved list of hospitals as of 4/5/2021,” Centers for Medicare & Medicaid Services (CMS), April 5, 2021, cms.gov.

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The challenges of moving the pharmacy into the home

Several challenges of serving the pharmacy market have delayed this move into the home:

1. Pharmacy is more than drug fulfillment and delivery. New entrants have quickly shown they can offer drug fulfillment and two-day delivery. However, many patients rely on clinical support from their pharmacists. This can manifest as medication review and reconciliation, as adherence counseling, as limited prescribing, and, even more broadly, as disease management.12Patti G. Manolakis and Jann B. Skelton, “Pharmacists’ contributions to primary care in the United States collaborating to address unmet patient care needs: The emerging role for pharmacists to address the shortage of primary care providers,” American Journal of Pharmaceutical Education, December 15, 2010, Volume 74, Number 10, ncbi.nlm.nih.gov. To offer these services at home requires a fleet of pharmacists who can meet patients where they are, telepharmacy systems, or both.
2. The unit economics of this sector are challenging.13Elizabeth Seeley and Surya Singh, “Competition, consolidation, and evolution in the pharmacy market: Implications for efforts to contain drug prices and spending,” Commonwealth Fund, August 12, 2021, commonwealthfund.org. Competitive cost of goods sold (COGS) and reimbursem*nt rates often come with scale, and it can take new entrants meaningful time to establish themselves.
3. Today’s in-home offerings from digital disrupters can be limited depending on the prescription need. For example, offerings may not include Schedule 2 narcotics, may only focus on one- or two-day delivery (for example, exclude difficult-to-deliver but immediately needed acute scripts), and may not always offer both traditional and specialty (low-volume but high-value) drugs simultaneously.

Implications for pharmacy incumbents and new entrants

The recent systemic changes in the market present risks for players across the pharmacy value chain. The new, consumer-focused digital disrupters have strong advantages given the newness of their systems, their speed and agility, and their customer-centric foundation.14Heather Landi, “NowRx, Medly Pharmacy land new funding as demand for digital pharmacies grows,” Fierce Healthcare, July 17, 2020, fiercehealthcare.com. However, incumbents are also well positioned given their existing platforms, high volumes, and large customer bases in a business that depends heavily on volume. Yet these same incumbents will likely need to do more to stay ahead of the competition. While national retail pharmacy chains have begun to offer home delivery (for example, free one- or two-day delivery with same-day delivery for an additional fee), it is not yet clear whether they will keep up with the delivery speed and experience of new e-commerce players.15“CVS Pharmacy prescription delivery now available from all locations nationwide,” CVS Health, June 19, 2018, cvshealth.com. To be successful in this market, incumbents will likely need to fundamentally rethink their existing processes, workflows, technologies, and systems so that they can engage the various customer archetypes in the settings and locations most important to them.

Potential actions in the next normal

Payers have an opportunity to build partnerships across the physical and virtual continuum to create a more coordinated healthcare ecosystem, to improve patient experience, and to drive down the cost of care. Partnerships with a direct-to-consumer pharmacy—likely an attractive offering for the highly convenience-oriented customer archetype—could create a differentiated experience that drives growth and retention. Payers also have an opportunity to improve ratings by partnering with digital pharmacies to close care gaps, improve adherence, and manage multiple medications.

Finally, payers have the opportunity to bundle intensive clinical-care models with mail-order pharmacy capabilities, meeting the needs of patients with chronic conditions. Payers are increasingly focused on chronic care and disease management—driven in part by the shift toward risk-bearing and integrated-care-delivery models—and are often willing to reimburse for in-home clinical services.16Christian Worstell, “Does Medicare cover home health care?,” MedicareAdvantage.com, February 23, 2021, medicareadvantage.com.

Success in this space will likely require core pharmacy assets (for example, the ability to sort and repackage medication, to deliver directly to patients at home, and to provide on-demand pharmacist consultations) coupled with direct-to-home assets and access to home health agencies and providers, for example.

Systemic changes have fueled new types of services for key patient archetypes and focus areas for stakeholders across the pharmacy value chain. While near-term pressures may exist for both incumbents and new entrants, those that move quickly will be able to make substantial progress in these focus areas.