2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies

by Adam J. Fein, Ph.D.
(204 page downloadable PDF file; Released January 2014) ON SALE 

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Over the past year, the $287 billion pharmacy industry has continued to evolve. For anyone who wants to understand and benefit from the forces reshaping the highly competitive U.S. pharmacy industry, the 2013–14 Economic Report on Retail, Mail, and Specialty Pharmacies is an invaluable tool.

The completely updated, revised, and expanded 2013–14 Economic Report on Retail, Mail, and Specialty Pharmacies provides an up-to-date, fact-based analysis of the latest industry developments. It thoroughly dissects the pharmacy channel and its interactions with other participants in our healthcare system. The report contains the latest financial and industry data, along with detailed information about the strategies and market position of the largest public companies—CVS Caremark, Express Scripts, Rite Aid, Walgreens, Walmart, and others.

The report was researched and written by Adam J. Fein, Ph.D., one of the world’s leading experts on the industry and author of the influential Drug Channels website. Dr. Fein has synthesized a wealth of statistical data, research studies, financial information, and his own unique business consulting experience into a definitive, nonpartisan resource.

This report is an essential tool for pharmaceutical manufacturers, wholesalers, pharmacists, pharmacy owners, benefit managers, managed care executives, healthcare policy analysts, consultants, and investors. After reading the 2013–14 Economic Report on Retail, Mail, and Specialty Pharmacies, you will be able to:

  • Describe the U.S. pharmacy industry’s overarching structure
  • Identify the largest participants in the pharmacy industry
  • Distinguish the different dispensing formats for prescription pharmaceuticals
  • Identify key participants in the specialty pharmacy market
  • Explain the services specialty pharmacies provide to patients, manufacturers, and payers
  • Explain the factors influencing the pharmacy industry’s growth
  • Compare growth trends among different dispensing formats
  • Describe the relationship between Pharmacy Benefit Managers (PBMs) and pharmacies that participate in a PBM’s network
  • Explain how third-party payers affect a pharmacy’s economics
  • Summarize the four primary methods of estimating a pharmacy’s ingredient costs
  • Distinguish among services that pharmaceutical wholesalers provide to larger and smaller pharmacies
  • Identify typical per-prescription profit margins of generic vs. brand-name prescriptions
  • Explain why and how pharmacy profitability from a generic drug varies over its lifecycle
  • Distinguish between the profitability levels of retail vs. mail pharmacies
  • Define key trends affecting the pharmacy industry’s future

Beyond updating all data and information from previous editions, the 2013-14 report includes many new elements, such as:

  • Additional quantitative comparisons of alternative dispensing formats
  • New analysis of emerging global generic purchasing organizations
  • Expanded information about retail clinics
  • Expanded competitive analysis of pharmacies that dispense specialty drugs
  • New information on manufacturer copayment offset programs
  • New estimates for PBMs’ profitability for handling different prescription types
  • Revised discussion of pharmacies’ growing role in the 340B discount program
  • A list of acronyms and abbreviations used throughout the report

No other report on the market today offers the depth, insight and analysis of the 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies. Download your copy today!

Please note that purchase of the 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies indicates agreement with the terms and conditions of the End User License Agreement (EULA). License terms, purchaser’s name/email, and a unique transaction ID will be added to the secure PDF file upon checkout. You must purchase a Department/Team or Corporate License if you want to share the report with other people in your company. Upon request, we will refund duplicate purchases of a Corporate License from the same organization.

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LICENSE TERMS

Pembroke Consulting, Inc., grants to Purchaser, and Purchaser hereby accepts, a limited, terminable, revocable, nontransferable, nonexclusive, nonsublicenseable license to access and use the 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies only in accordance with the End User License Agreement. License terms, purchaser’s name/email, and a unique transaction ID will be added to the secure PDF file upon checkout. We offer three License Options:

  • Single User License: This license allows for use of this report by one individual person. This person may use the report on any computer, and may print out the report, but may not share the report with any other person or persons. Unless a Department/Team License is purchased, a Single User License must be purchased for every person who wishes to use the report within the same organization or enterprise. Buyers who infringe upon these license terms are liable for a Department/Team or Corporate License fee.
  • Department/Team License: This license allows for use of this report by up to 10 (ten) employees within the same organization or enterprise. Each of these employees may use the report on any computer, and may print out the report, but may not share the report with any other person or persons unless a Corporate License is purchased. Buyers who infringe upon these license terms are liable for a Corporate License fee.
  • Corporate License: This license allows for use of the report by an unlimited number of employees within the same organization or enterprise worldwide. Each of the employees within this organization or enterprise may use the report on any computer, and may print out the report, but may not share the report with any other person or persons outside the enterprise or organization.

The 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies is protected by copyright law. Unauthorized reproduction or distribution of this report, or any portion of it, may result in severe civil and criminal penalties, and will be prosecuted to the maximum extent of the law. This report may be cited in commercial documents with full and appropriate attribution. Nothing in this license is intended to reduce, limit, or restrict any rights arising from fair use under copyright law or other applicable laws.

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TABLE OF CONTENTS

Report Summary

Chapter 1: Industry Overview

  • Defining the Practice of Pharmacy
  • Products Dispensed by Pharmacies
    • Brand-name vs. Generic Drugs
    • Traditional vs. Specialty Drugs
  • Pharmacy Industry Participants
    • Outpatient Pharmacy Dispensing Formats
    • Other Outpatient Dispensing Formats
    • Controversy Over Specialty Pharmacy Definition
    • Differences Between Dispensing Formats
  • Market Size and Share
    • Revenues and Number of Pharmacies
    • National Market Share by Company
    • Regional Market Share and Smaller Drugstore Chains
    • National Market Share for Specialty Pharmaceuticals

Chapter 2: Changes in Pharmacy Industry Structure

  • Prescription Drugs and Healthcare Spending
  • Overall Industry Growth
  • Growth by Dispensing Format
    • Long-Term Trends
    • 2012 Growth Trends
    • Independent Drugstores
    • Mail Pharmacies
  • Growth of Clinics and Medication Therapy Management
    • Retail Clinics
    • Medication Therapy Management (MTM)

Chapter 3: Prescription Prices and Pharmacy Benefits

  • Payment for Prescription Drugs
  • Average Prescription Prices
  • Consumer Copayments and Coinsurance
  • Manufacturer Copayment Offset Programs

Chapter 4: Relationships with Pharmacy Benefit Managers

  • PBM Industry Overview
    • Market Share by PBM
    • Relationships with Plan Sponsors
  • Services PBMs Provide for Plan Sponsors
    • Plan Administration
    • Formulary Development and Management
    • Generic Substitution
    • Rebate Negotiation with Manufacturers
    • Clinical Management Services and Mail Pharmacies
  • Retail Pharmacy Participation in PBM Networks
    • Pharmacy Networks
    • PBM-Pharmacy Relationships
    • The Efficiencies of Pharmacy Networks
  • PBM Compensation By Plan Sponsors
    • Spread Pricing
    • Pass-Through Pricing
  • Pharmacy Services Administration Organizations

Chapter 5: Prescription Reimbursement by Third-Party Payers

  • The Basics of Prescription Reimbursement
    • Reimbursement Methodologies for Drug Costs
    • Service and Data Fees
  • Reimbursement for Brand-Name and Specialty Prescriptions
    • Wholesale Acquisition Cost (WAC) and Average Wholesale Price (AWP) List Prices
    • Why List Prices Are Used For Brand-Name Prescription Reimbursement
    • Average AWP Discounts for Pharmacy Reimbursement
    • The AWP Rollback
  • Reimbursement for Generic Prescriptions
    • Maximum Allowable Cost (MAC) Limits
    • Medicaid and Federal Upper Limits
  • Reimbursement of Mail Pharmacies
    • Average AWP Discounts for Mail Pharmacies
    • Why Mail Pharmacies Can Accept Lower Reimbursements
    • Limitations of Mail Pharmacies
    • State Laws Regarding Mail Pharmacies
  • Acquisition Cost Reimbursement
    • Average Acquisition Cost (AAC) in State Medicaid Programs
    • National Average Drug Acquisition Cost (NADAC)
    • Direct-to-Payer Acquisition Cost
  • Manufacturer Sales Price Methods
    • Average Manufacturer Price (AMP)
    • Average Sales Price (ASP)
  • How Prescription Reimbursement, Formulary Rebates, and Consumer Copayments Affect Plan Sponsor Costs

Chapter 6: Relationships with Pharmaceutical Wholesalers

  • Wholesalers’ Channel Role
    • Overview of Pharmacy Purchasing Strategies
    • Influence on Pharmacy Reimbursement
  • Largest Wholesale Suppliers
    • Full-Line Wholesalers
    • Specialty Distributors
  • Relationships with Independent Drugstores
    • Wholesaler Services for Independent Pharmacies
    • Wholesaler Relationships with Pharmacy Buying Groups
    • Wholesaler Generic Programs for Retail Pharmacies
  • Role in Specialty Pharmacy Channel
  • Self-Warehousing Chains and Mail Pharmacies
    • Wholesale Suppliers to Largest U.S. Pharmacies
    • Why Large Customers Buy Brand-Name Drugs from Wholesalers
    • New Relationships Between Wholesalers and Large Pharmacies
    • Walgreens-AmerisourceBergen Relationship

Chapter 7: Pharmacy and Prescription Profitability

  • Overall Drugstore Gross Margins
  • Pharmacy Per-Prescription Profits
    • Sources of Per-Prescription Profits
    • Average Prescription Gross Margins
  • Lifecycle Profits for Generic Drugs
    • Single Source, Brand Only Period
    • Exclusivity Period
    • Post-Exclusivity Period
    • Maturity Period
  • PBM Profits from Network and Mail Pharmacies

Chapter 8: Economic Trends and Outlook

  • Healthcare Reform and Prescription Demand
    • Summary
    • The Outlook for U.S. Outpatient Pharmaceutical Spending
    • The Impact of Healthcare Reform
    • Payment for Prescription Drugs Under Healthcare Reform
    • Projected Growth in Drug Trend
  • The Changing Generic Marketplace
    • Summary
    • The Generic Wave
    • Retail Pharmacy Generic Price War
    • Medicaid and AMP-Based Federal Upper Limits
    • Global Generic Purchasing Organizations
    • Acquisition Cost-Based Reimbursement and Generic Prescriptions
  • The Narrow Network Revolution
    • Summary
    • Pharmacy Benefit Network Models
    • Cost Savings from Narrow Networks
    • Other Factors Supporting Narrow Networks
    • Preferred Networks in Medicare Part D
    • Limited Networks for Specialty Drugs
  • Capturing the Specialty Opportunity
    • Summary
    • The Shift to Specialty Drugs
    • Growing Competition for Specialty Dispensing
    • Specialty at Retail Drugstores
    • Specialty Pharmacy Fulfillment to Healthcare Providers
  • Pharmacy Participation in the 340B Discount Program
    • Summary
    • Overview of the 340B Program
    • The Role of Contract Pharmacies
    • Flow of Funds with a Contract Pharmacy
    • Controversy Over Contract Pharmacies in the 340B Program

Acronyms and Abbreviations

Endnotes

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LIST OF EXHIBITS

Exhibit 1: Unbranded Generics, Share of U.S. Prescriptions, 2003-2017
Exhibit 2: Factors Determining Health Plan Classification as Specialty Therapy
Exhibit 3: Average Annual Number of Prescriptions per Pharmacy, 2012
Exhibit 4: Average Annual Prescription Revenue per Pharmacy Outlet, 2012
Exhibit 5: Median Wait Time to Fill a Prescription, by Dispensing Format, 2012
Exhibit 6: Customer Satisfaction with Pharmacies, by Dispensing Format, 2013
Exhibit 7: Pharmacist Employment and Salary, by Dispensing Format, 2012
Exhibit 8: Overview of U.S. Pharmacy Market
Exhibit 9: Largest U.S. Pharmacies Ranked by Total Prescription Revenues, 2013
Exhibit 10: CVS Retail Pharmacies’ Share of CVS Caremark’s PBM Retail Network Claims, 2007-2012
Exhibit 11: Year-Over-Year Change in Same-Store Prescription Count, January 2012 to December 2013
Exhibit 12: Market Share by Chain, Top 20 U.S. Metropolitan Areas, 2012
Exhibit 13: Top 10 Regional Chain Drugstores, by Total Prescription Revenues, 2012
Exhibit 14: Pharmacy Revenues from Specialty Pharmaceuticals, by Company, 2013
Exhibit 15: Share of U.S. National Health Expenditures, by Major Spending Category, 1972-2022
Exhibit 16: U.S. Prescriptions, Annual Total and Growth, 2001-2013E
Exhibit 17: U.S. Drugstore Revenues, Year-Over-Year Change in Total Revenues, 1999-2013
Exhibit 18: Drugstore Revenues vs. U.S. Retail Sales, 2002-2013:Q3
Exhibit 19: Share of Revenue Growth by Dispensing Pharmacy Format, 2002 vs. 2012
Exhibit 20: Change in Total Prescriptions Dispensed, by Pharmacy Format, 2008-2012
Exhibit 21: Number of Pharmacies by Dispensing Format, 2002 vs. 2012
Exhibit 22: Average Number of Prescriptions Dispensed per Location, by Dispensing Format, 1992-2012
Exhibit 23: Number of Prescriptions by Dispensing Format, 2011 vs. 2012
Exhibit 24: Prescription Revenues by Dispensing Format, 2011 vs. 2012
Exhibit 25: Number of Independent Pharmacies, 1990-2012
Exhibit 26: Equivalent Mail Prescriptions, Annual Total and Growth, 2002-2012
Exhibit 27: Number of U.S. Retail Clinics, 2004-2016
Exhibit 28: Providers of Medication Therapy Management Services, 2013
Exhibit 29: Source of Payment for Outpatient Prescription Drugs, 2012
Exhibit 30: Consumers’ Out-of-Pocket Spending Share of Outpatient Prescription Drug Expenditures, 1962-2012
Exhibit 31: Change in Expenditures for Outpatient Prescription Drugs, by Payer, 2011 vs. 2012
Exhibit 32: Average Revenue per Equivalent Outpatient Prescription, 1998-2012
Exhibit 33: Top 10 Brand Drugs and Average Retail Prescription Price, by Payer, 2013
Exhibit 34: Top 10 Generic Drugs and Average Retail Prescription Price, by Payer, 2013
Exhibit 35: Drug Trend, Traditional vs. Specialty Drugs, 2002-2012
Exhibit 36: Common Pharmacy Benefit Plan Designs
Exhibit 37: Distribution of Cost-Sharing Formulas for Prescription Drug Benefits in Employer-Sponsored Plans, 2004 vs. 2013
Exhibit 38: Average Copayments by Prescription Drug Tier, 2002 vs. 2013
Exhibit 39: Cost-Sharing Arrangements for Prescription Drug Benefits in Employer-Sponsored Plans, 2013
Exhibit 40: Manufacturer Copay Offset Programs for Brand-Name Drugs, 2009 vs. 2012
Exhibit 41: Medicare Part D PDP Enrollment, by Parent Organization, 2013
Exhibit 42: PBM Customer Mix for CVS Caremark and Express Scripts, 2013
Exhibit 43: PBM Market Share, by Covered Lives Managed, 2013
Exhibit 44: Type of Rebate Arrangement for Traditional Brand Medications, by Employer Size, 2013
Exhibit 45: Average Flat Guaranteed Rebate Amount per 30-Day Equivalent Brand-Name Prescription Type, by Dispensing Format, 2013
Exhibit 46: Key Components of PBM Compensation
Exhibit 47: Largest Pharmacy Services Administration Organizations, by Membership
Exhibit 48: Payer Methodologies for Computing a Pharmacy’s Estimated Acquisition Cost (EAC)
Exhibit 49: Methodology Used to Compute Average Wholesale Price, by Publisher
Exhibit 50: Reimbursement of Brand-Name Prescriptions, Percentage of Average Wholesale Price, by Dispensing Format, 2013
Exhibit 51: Benchmark Drug Price vs. Pharmacy Invoice Price, 2010
Exhibit 52: Percentage of AWP Billed to Employers for Brand-Name Prescriptions, Retail vs. Mail, 1999 to 2013
Exhibit 53: Reimbursement of Generic Prescriptions, Percentage of Average Wholesale Price, by Dispensing Format, 2013
Exhibit 54: Average Acquisition Cost Methodologies for Pharmacy Reimbursement Used by State Medicaid Programs, 2013
Exhibit 55: Medicare Part B Spending on Provider-Administered Drugs, 1997-2011
Exhibit 56: Commercial Health Plan Reimbursement Methodology for Provider-Administered Drugs, 2013
Exhibit 57: Example of Prescription Economics for Payer
Exhibit 58: Drug Distribution and Related Revenues at Big Three Wholesalers, CY2012
Exhibit 59: Full-Line Wholesaler Sales, by Type of Customer, 2012
Exhibit 60: Average Full-Line Wholesaler Inventory Levels, by Product Type, 2011
Exhibit 61: Estimated Market Share with Independent Pharmacies, by Wholesaler, 2012
Exhibit 62: Pharmacy Franchise and Marketing Programs of Large Drug Wholesalers
Exhibit 63: Pharmacy Buying Groups and Primary/Preferred Wholesaler Relationship
Exhibit 64: Alternative Distribution Channels to Specialty Pharmacies
Exhibit 65: Largest U.S. Pharmacies and Their Primary Wholesale Suppliers
Exhibit 66: Overall Gross Margins for Chain and Independent Drugstores, 1993-2011
Exhibit 67: Total Gross Profits for Chain and Independent Drugstores, 2001-2011
Exhibit 68: Overall Gross Margins for Drugstores, by Company, 2012
Exhibit 69: Average Prescription Gross Margins at Independent Drugstores, 2006-2012
Exhibit 70: Average Retail Pharmacy Gross Margin per Prescription, Brand-Name vs. Generic Drugs, 2012
Exhibit 71: Lifecycle of Per-Prescription Gross Profits, Brand vs. Multi-Source Generic
Exhibit 72: Lexapro (10 mg tablet), Pharmacy Acquisition Cost per Pill, Brand-Name vs. Generic, July 2012 to April 2013
Exhibit 73: PBM Gross Margin per Equivalent Script, by Channel and Drug Type, 2012
Exhibit 74: Projected Growth in National Health and Outpatient Prescription Drug Expenditures, 2011-2022
Exhibit 75: Median Prescription Expenses per Person, by Age, 2010
Exhibit 76: Impact of Healthcare Reform on U.S. Spending on Outpatient Prescription Drugs, 2009-2022
Exhibit 77: Source of Payment for Outpatient Prescription Drug Expenditures, 2002-2022
Exhibit 78: Drug Trend Forecasts, 2013-2015
Exhibit 79: Projected Brand Revenues Lost to Generic Launches, 2010-2016
Exhibit 80: Top Brand-Name Drugs Facing Generic Competition, 2014-2016
Exhibit 81: Difference Between AMP-Based FULs and SMACs, by State, 2013
Exhibit 82: Estimated Generics Purchasing Power, by Entity
Exhibit 83: Summary of Pharmacy Benefit Network Design Options
Exhibit 84: Covered Lives Enrolled in CVS Caremark’s Maintenance Choice Program, 2009-2014
Exhibit 85: Express Scripts’ Client Savings from Alternative Pharmacy Network Designs
Exhibit 86: 10 Largest Medicare Part D PDPs with Preferred Pharmacy Networks, 2014
Exhibit 87: Retail Pharmacy Participation in Major Medicare Part D PDPs with Preferred Networks, 2014
Exhibit 88: Top 10 U.S. Drugs, 2012 vs. 2018E
Exhibit 89: Total Spending on Specialty Drugs, by Benefit Type, 2012-2018
Exhibit 90: Examples of Pharmacies Dispensing Specialty Pharmaceuticals
Exhibit 91: Fastest-Growing Private Specialty Pharmacies, 2012
Exhibit 92: Companies and Locations with URAC Specialty Pharmacy Accreditation, 2008-2014
Exhibit 93: Infused Therapy Sourcing at Oncology Practices, by Distribution Channel, 2013
Exhibit 94: 340B Covered Entity Sites, by Facility Type, 2011
Exhibit 95: Total Number of 340B Contract Pharmacies, 2000-2014
Exhibit 96: 340B Contract Pharmacy Locations, by Chain, January 2014
Exhibit 97: Flow of Funds and Product for 340B Contract Pharmacy Network
Exhibit 98: Hypothetical Profits to a 340B Entity for a Third-Party Prescription Dispensed by a 340B Contract Pharmacy

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