Hospital-run retail pharmacies at risk of extinction

Intermountain Healthcare’s decision to shutter most of its outpatient pharmacies underscores the increasing reality that hospital-owned retail pharmacies are a dying breed.

Health systems have shown they’re increasingly willing to outsource outpatient pharmacy services to CVS Health or Walgreens and part ways with what’s often a money-losing endeavor. Only about one-quarter of health systems had a centralized retail or mail order pharmacy in 2019, according to the American Society of Health System Pharmacists.

“I haven’t seen too many of those left, to be honest,” said Brian Tanquilut, a healthcare services analyst with Jefferies.

For their part, the pharmacy giants are more than happy to oblige, buying the shops’ inventories and prescription records and ushering in a wave of new customers. CVS and Walgreens wouldn’t disclose how many similar agreements they have, but the chains have become ubiquitous across the country. CVS said almost 85% of Americans live within 10 miles of one of its 10,000 stores.

This is yet another area where convenience is king. Health system-owned retail pharmacies are typically located inside hospitals or primary care clinics. They only supply outpatient medications, unlike hospitals’ inpatient pharmacies, which dispense medications to hospitalized patients.

They’re simply not as easy to get to as a CVS or Walgreens. They also don’t have extended hours or drive-throughs and their shelves aren’t filled with Band-Aids, shampoo, cosmetics and snacks.

“They’re kind of losing their niche in terms of the convenience,” said Randy Seifert, associate dean for student and professional affairs in the University of Minnesota’s College of Pharmacy.

Stemming the losses

In Intermountain’s case, the health system sold the inventory and prescription files for 25 of its 26 retail pharmacies to CVS. It will close those pharmacies, which are located in outpatient clinics and hospitals, and send patients to nearby CVS stores. Neither party would say how much Intermountain made on the deal, but analysts who study the industry said it likely wasn’t much.

“For them it’s probably more about eliminating losses,” Tanquilut said.

Salt Lake City-based Intermountain said its retail pharmacy business, which it has run since the 1980s, lost $6 million between January and May 2021 and $11 million in 2020. Intermountain generated $743 million in operating income on more than $10 billion in revenue in 2020.

In closing its retail pharmacies, Intermountain is treading a well-worn path, although not all deals are widely publicized. HealthPartners, an eight-hospital system based in the Minneapolis area, closed 30 retail pharmacies last year.

Swedish Health Services, a Seattle system owned by Providence, sold five retail pharmacies to Walgreens in 2015. Walgreens has since closed four of those.

Health systems aren’t the only ones having a tough time with retail pharmacy. In 2015, CVS bought Target Corp.’s pharmacy and clinic business for $1.9 billion, adding Target’s almost 1,700 pharmacies to its portfolio. CVS now operates the CVS-branded pharmacies through a store-within-a-store format.

The COVID-19 pandemic likely hastened the demise of hospital-owned retail pharmacies by slowing the amount of traffic coming into the clinics and hospitals that house them and upping the use of telehealth for medication management, Seifert said. In Minnesota, a new law allows pharmacists to bill Medicaid for medication management via telehealth at the same rates as in-person visits.

CVS or Walgreens likely aren’t targeting a specific number of agreements like the one with Intermountain; the deals are more opportunistic than anything, said A.J. Rice, a healthcare services analyst with Credit Suisse. And since so few health systems still operate retail clinics, deals like this probably won’t happen often, he said.

CVS acquired health insurer Aetna in 2018 and this year, former Aetna executive Karen Lynch became its CEO. That shows the company wants to integrate the health plan into its retail pharmacies and pharmacy benefit manager, CVS Caremark, Rice said.

“But when you see deals like this, it also says they’re still going to look for opportunities to enhance the position on a standalone basis of the retail pharmacies as well,” he said.

Effects on patient care

Some experts have questioned whether outsourcing retail pharmacies could harm patient care if CVS pharmacists don’t have access to all the patient records that a health system pharmacy would.

For his part, University of Minnesota’s Seifert said he’s not concerned about that. Pharmacists, whether at a retail chain or a hospital, will have access to all the relevant information about those patients and will be able to help them manage their medications, he said.

Michael Ganio, ASHP’s senior director of pharmacy practice and quality, isn’t convinced. When Intermountain’s own pharmacists oversee those prescriptions, they can access medical records with details about patients’ health conditions or notes from inpatient pharmacists, he said.

“That’s not to say some of the non-health system run programs don’t have access to those, but it’s a barrier in many cases to making sure that transition is not as seamless as possible,” Ganio said.

In a statement on Intermountain’s decision, the Utah Society of Health System Pharmacists said such closures eliminate certain prescription delivery services for patients who have just been discharged, which included medication counseling aimed at preventing readmissions.

“As a health-system focused organization, we cannot hide our apprehension regarding the trend of closures of community pharmacies,” the group said, noting that Intermountain’s decision also affected 250 pharmacy employees.

Providence, a 52-hospital system based in Renton, Wash., is expanding its retail pharmacy operation, and the system’s chief pharmacy officer said preventing readmissions and ensuring patients get the right drugs at the right dosages are the main drivers.

Providence operates 20 retail pharmacies—mostly in hospital lobbies but also in clinics—in five states under its wholly owned subsidiary, Credena Health. Elie Bahou, the health system’s chief pharmacy officer, said Providence plans to add up to two more retail pharmacies per year under the Credena brand over the next few years.

The health system used to run its retail pharmacies like many of its peers: under the leadership of an inpatient pharmacy executive and focused less on retail and more on acute care, Bahou said. That’s why several years ago it created Credena, which also offers specialty pharmacy.

Bahou said Credena is profitable, but more importantly, it’s working toward better outcomes.

“There are other reasons besides financial ones,” he said. “It’s about delivering great outcomes for your patients.”

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