Pharmaceutical Executive Europe IMS Supplement - October 2008 - (Page 7) PHARMACEUTICAL DISTRIBUTION The paradigm shift in pharmaceutical distribution heralds a significant turning point for all key stakeholders involved. moving from a fixed percentage pharmacy margin to a regressive margin or even flat dispensing fee. Although a basically sound and necessary development when low-cost generics have an increased share, it is also a challenge when dispensing moves from 30-day packs to a threemonth supply. Potential blocking of discounts. There is growing debate around the ability of pharmacies to receive additional discounts, especially in relation to generics which in countries like the UK and the Netherlands are essential to pharmacy profitably. The payer will allow certain discounts but will take them into consideration when setting pharmacy remuneration, and “claw back” a substantial portion. In the Netherlands, dramatic price cuts which are planned for July 2008 are likely to trigger the complete elimination of pharmacy discounts, causing significant loss of revenue. In other countries, like France, the government allows the pharmacy to keep a 20% discount to both compensate for a lower dispensing fee and as an incentive to help drive patient acceptance of generic medicines. Growth of mail order. Although still in its infancy in Europe compared to the US, where 22% of prescription sales are filled via this route, mail order is starting to build up in the region, currently accounting for 2–3% of sales in Switzerland and Germany, 1–2% in the Netherlands and around 1% in Sweden. Mail order offers a range of benefits to all parties: patients enjoy cost savings and the convenience of home delivery; payers gain from a package price; and manufacturers have the potential to add value to their product and retain control of its distribution. A turning point The paradigm shift in pharmaceutical distribution heralds a significant turning point for all key stakeholders involved. For wholesalers, it means that business as usual is no longer a viable option in some countries. Opportunities remain but in the new value chain they must find and adjust to a different role in the market. All three of Europe’s leading wholesalers — AllianceBoots, Celesio and the Phoenix group — are already actively modifying their business structures to better meet the demands of the changing sector. Celesio, for example, has added nearly 400 new pharmacies to its holdings over the last four years and now generates more than 50% of its profit from pharmacy activities. This compares to just 44% in 2003, clearly indicating a much reduced emphasis on its distribution services Figure 5). For pharmacies, the prospect of competition from mail order providers, home healthcare delivery and other dispensing outlets drives the need for an expanded business model addressing new service areas to balance losses from traditional growth areas. For some independents in certain countries, gaining strength through size via buying consortia and other alliances can offer a means of consolidating negotiating power and competitive stance in the market. In Germany, for example, where the pharmacy market is expected to become more liberal, wholesalers currently secure very poor margins from their wholesaling units, making forward integration essential to maintaining their position in the market. Astute pharmacists, who can already own up to four subsidiaries, are now preparing for the future by forming larger groups, making purchase deals for a fixed low price. When the market opens, the price for prospective buyers will be much higher. Since large wholesalers are under heavy scrutiny by the Bundeskartellamt, which oversees the protection of competition, they are powerless to prevent this activity or follow suit themselves and in an open market will face major investment to secure their future business. In this complex and fast-moving environment, understanding the nuances of local dynamics is critical. The tremendous variation in contracting incentives, for example, means that a larger presence does not necessarily drive a position of strength in the market. The experience of a large European wholesaler in the Netherlands is a clear case in point. At a time of increasing consolidation in the Dutch health insurance industry, which saw 80 smaller companies reduced to eight key players, this leading pharmaceutical distributor set itself the target of owning a pharmacy in every city in the Netherlands — with a view to strengthening its national position and minimizing the risk of being forced into a contract by an insurance company. This goal coincided with the anticipated demise of local sick funds, heralded by a new healthcare law replacing the old system with a single basic insurance executed by nongovernment organisations. As it happened, and contrary to expectations, an old law (the “Ziekenkostenwet”) stipulating that anyone below a certain income level must be insured via the local sick fund, prevented mass switching to other insurance companies, allowing local monopolies of the sick funds to remain in situ. Since these organisations negotiate with healthcare providers at an individual local level — making their www.pharmexeceurope.com 7 http://www.pharmexeceurope.com
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