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Online Pharmacies: Evolution, Not Revolution
Online Pharmacies: Evolution, Not Revolution
Pharmaceutical Commerce
By Suzanne Shelley
Dec 22,2006
Despite the explosion of rogue sites, legitimate online channels provide benefits to both drug distributors and consumers, and establish pathways for market analysis.
Legitimate online-pharmacy development has two drivers: a desire to match the ease and convenience of online ordering of books, movies or consumer goods; and a goal of better managing the medical and financial aspects of prescribing medications. For pharma marketers, a more prevalent use of online pharmacies provides opportunities for gathering better survey data, and the potential for improving medication management, and, indirectly, lowering distribution costs.
The online pharmacy business is less a distinct distribution channel than an alternative way to interact with customers. According to reports from several leading online pharmacies, they differ from traditional bricks-and-mortar outlets in several fundamental ways, being:
• tailormade for completing refills, because once the initial doctor’s scrip is handled, re-ordering becomes simply a matter of clicking on a screen button. Some services are adding patient-adherence programs to the online-ordering experience for this reason.
• attractive to cash customers or those who lack or want to sidestep benefit plans. Drugstore.com (Bellevue, WA), one of the leading Internet-only pharmacies, reports that the majority of its customers pay with cash.
• an enhanced way to do price comparisons: Medco Health Solutions, a Franklin Lakes, NJ, PBM, is having considerable success with a Savings Advisor function that not only compares the same drug from different sources, but also recommends suitable alternatives or generics.
• a fast track toward e-prescribing, once the link is strengthened between the physician’s office, where the prescription is written, and the pharmacy where it is dispensed.
The fact that online pharmacies need to be qualified as “legitimate,” however, highlights one of the near-intractable problems of online pharmacies: the existence of illicit, rogue operations that offer fake or diverted products, often without the oversight of licensed pharmacists, to an unsuspecting public. Actions have been taken: FDA is policing rogue pharmacies more aggressively; state regulators are insisting on the use of the Verified Internet Pharmacy Practice Sites (VIPPS) accreditation program of the National Assn. of Boards of Pharmacy (NABP), and other public and private efforts (see related story).
Industry surveys give evidence of increasing Internet-based activity for consumers seeking pharmaceutical information, although to date there has been no surge toward online prescription fulfillment. A 2005 Harris Interactive (Rochester, NY) survey indicated that 117 million U.S. adults went online to research health or medical information, up from 111 million the year before. And, the share of online Americans who said the Internet had greatly improved their ability to shop doubled — from 16% in March 2001, to 32% in December 2005, according to the Pew Internet & American Life Project (Washington, DC). All of this bodes well for online pharmacies, since online window shoppers often become online buyers.
Online business
“When it comes to the online purchase of prescription drugs, we’re on the early part of the adoption curve, so there’s tremendous upside potential for this,” says Matthew Stepka, vice president of pharmacy for the VIPPS-certified, online-only pharmacy Drugstore.com. That company, along with others like Familymeds.com, DrugSource, Inc. and a handful of other Internet-only pharmacies started up in the early days of the Internet commerce surge, have hung on through the intervening lean years, and now are finding steady if unspectacular growth in today’s wired environment.
While reliable estimates of the number of people who have purchased prescription drugs over the Internet are hard to come by, industry observers agree that the numbers are in the single digits. However, the acceptance and use of online pharmacies seems to be mirroring the earlier adoption of online banking or travel services. “What we’ve found with early adopters is that they start by using the Internet to gather information on prescription drugs, access clinical data and research disease states. Then, as they feel more safe with it, they begin making transactions, and eventually, the cost and convenience advantages makes it a primary source for purchasing medications,” says Stepka.
Much of the current Internet pharmacy growth arises from the online offerings of mail-order pharmacies, or chains or mass merchandisers, and mostly for ordering refills. Medco, Caremark and Omnicare have such online portals. Drugstore.com is in Year 7 of a 10-year agreement with Rite-Aid; CVS and Walgreen’s have their own websites. One drag on aggressively pursuing this business: when the order is completed through mail delivery, retailers lose out on the foot traffic to their stores, the source of ancillary sales of non-prescription products. According to the National Assn. of Chain Drug Stores (NACDS; Alexandria, VA), as of June 2006, there were 276 main home pages affiliated with U.S. chain pharmacy companies, and 66 of these sites included an online pharmacy that offered at least the ability to order prescription refills online. Citing a 2005 study by Boehringer-Ingelheim, NACDS says that 8% of prescription refills were ordered online in 2004.
For consumers, the use of an online pharmacy offers many benefits. The ability to order or renew drugs online (either having the products mailed to them at home, or picking them put a designated pharmacy), saves time and is especially appealing for people who are shut-in, or live in rural areas far away from the nearest pharmacy. “The ability to automate the purchase and refill process is particularly well-suited for customers who take medicines continuously to manage chronic conditions (such as arthritis, high blood pressure, thyroid problems, and so on), and those taking birth control pills,” says Peter Pitts, president of the Center for Medicine in the Public Interest (Briarcliff Manor, NY). Such patients benefit from the ability to regularly, automatically renew their medications, and they are less likely than patients with acute care needs to need face time with a pharmacist at a neighborhood drugstore. Meanwhile, the ability to comparison-shop for the lowest price among legitimate online pharmacies helps cost-conscious consumers to save money and stretch their out-of-pocket healthcare dollar further.
Age matters
The pace of adoption of Web-based drug purchasing is both helped and hindered by the conflicting characteristics of certain age-related demographic sectors. For instance, the Internet tends to be a natural playground for younger people who grew up with computers and online shopping. However, senior citizens, who tend to be the largest consumers of prescription drugs and face the most severe budget constraints (made worse, for many, by Medicare Part D’s doughnut hole), tend to have less access to computers, and greater antipathy for the potentially overwhelming netherworld of the Internet.
According to Internet-focused research company comScore Networks (Reston, VA), just 5.3% of today’s Internet users are 65 and older. However, this paradox may be short-lived, and have time as its natural remedy, as the computer-savvy baby boomers of today will become the senior citizens of tomorrow.
“Initially, our customer base was primarily younger people, who have a certain comfort level with the technology, but that’s changing,” says Stepka of Drugstore.com. “We have a pretty large population of over-65 patients among our members, and would like to encourage them to use the online order-renewal capabilities,” says Jennifer Luddy, manager of public affairs at PBM Medco Health Solutions. “So we’ve put a lot of thought into redesigning our site to make the online experience more satisfying for them, by adding, for instance, the ability to increase the text size, and by using crisp, clear logical navigation and search capabilities.” Roughly 20% of Medco.com’s 4.5 million active registered users are aged 65 or older, according to the latest count.
Bells and whistles
While many online pharmacies boast lower drug prices compared to their bricks-and-mortar counterparts — thanks mainly to reduced costs associated with the avoidance of retail outlets, and economies of scale that come from high-volume sales — such price advantages may not ultimately be the main driver for the majority of people, says Kevin Nicholson, vice president of pharmacy regulatory affairs for the NACDS. “Most people don’t pay full price for prescription drugs, because their out-of-pocket outlays are ultimately dictated by their insurance, Medicare or Medicaid co-payment arrangements,” he says, noting that for these consumers, the decision to use online pharmacies is often driven more by convenience factors, and the various value-added functionality that today’s legitimate online pharmacies continue to integrate into their sites.
For instance, in addition to 24/7 ordering capabilities, and access to licensed pharmacists by phone or email, some online pharmacies allow users to quickly and easily access detailed information about medications and disease states, review their prescription order history and medical expense summary, and request that discreet refill reminders be sent automatically via email. “When these reminders are sent, it’s just two clicks and you get your refill,” says Drugstore.com’s Stepka. In fact, roughly 84% of online drug purchasers cite convenience as a key factor in their decision to buy online for the first time, according the Pew Internet & American Life Project. Drugstore.com currently offers about 5,000 prescription drugs and 25,000 over-the-counter items for sale.
While convenience may be an important driver for consumers whose out-of-pocket pharmacy outlays are limited by insurance co-pays, the use of Web-based storefronts to search for and identify the lowest-cost sources for prescription drugs is also becoming increasingly important for the growing number of uninsured Americans — 46.6 million in 2005, by the last U.S. Census Bureau. “The vast majority of our prescription drugs are paid for by cash, not by insurance,” says Stepka. “These customers include not just the uninsured, but also those needing drugs (such as mental illness medications, and those classified as lifestyle drugs) that are often excluded, as drug-plan formularies become increasingly restricted.”
Drugstore.com prices many of its drugs aggressively: “As patient co-pays for many prescription drugs climb higher and higher, many of our customers find it cheaper to simply buy their medications directly from our site for cash, bypassing insurance involvement altogether. This is especially true for our low-priced generics,” he says.
Medco Health Solutions, processed 19 million prescriptions online in 2005, out of 540 million total. “That number consistently increases year over year,” says Medco’s Luddy. To help its plan beneficiaries search for cost-saving opportunities, Medco’s online pharmacy launched the Savings Advisor feature last summer. The online tool allows users not just to search for clinically appropriate, low-cost alternatives for target medications, but to receive the results in a highly customized format, based on the member’s specific drug-benefits coverage.
For instance, the search engine will identify the lowest-cost, clinically appropriate alternatives for the cited drug (including both generics and branded products), provide mail-order versus retail price comparisons, identify the patient co-pay and the net cost of each drug (per the applicable insurance plans), and indicate whether the identified drugs are on the insurance plan’s formulary. “While many online pharmacies allow customers to compare drug prices, the search results are often only estimates, Savings Advisor has personalized the system, and clearly identifies the lowest-cost alternative based on the individual plan design, to provide accurate, actionable results,” says Tom Feitel, Medco’s chief web officer. Members can also print the results, to make it easier to discuss the options with their physician.
Medco also recently partnered with Consumer Reports (in a relationship that involves no exchange of money) to incorporate links to the magazine’s unbiased, independent reviews of cost- effective prescription drugs (Consumer Reports’ so-called “Best Buy Drugs”), so that when those drugs come up among the list of low-cost alternatives, members can click through to access the profile that was featured in the magazine.
Luddy notes that since the Savings Advisor functionality was launched earlier this year, more than 85% of the transaction queries have been able to identify a lower-cost alternative to the medication in question. “While this search engine is not available to the general public, Medco has more than 60 million members, so in essence, one in five Americans now has access to this Web-based tool, which has a chance to significantly improve the efficiency of prescription drug spending for both patients and their employers.”
The upside for sellers
For operators of legitimate online pharmacies, reduced (or eliminated) dependence on costly retail outlets, and ability to move toward a just-in-time delivery model with significantly reduced warehouse requirements can bring tremendous savings, which can then be passed through to customers as lower drug prices, says Bryan Liang, M.D., J.D., Ph.D, and executive director and professor of law for the Institute of Health Law Studies at California Western School of Law (San Diego). Meanwhile, once patients opt in to satisfy HIPAA-compliance privacy rules, operators of these sites also have the ability to gather and analyze unprecedented amounts of marketing and demographic data about their customers. “The online shopping experience provides an extremely efficient way for sellers to analyze trends and patterns related to customers’ buying preferences, thought processes, drug needs, reported side effects, and even drug compliance and adherence,” adds Drugstore.com’s Stepka.
However, for traditional bricks-and-mortar pharmacies and mass merchandise stores, the growing use of online purchasing for prescription drugs may have an unintended consequence. It’s no accident that these establishments place their pharmacies in the back of the store, so that customers have an opportunity to load up on everything from toothpaste to snow tires when they come to order or pick up there prescriptions. By comparison, when consumers order their medications online, the purchase becomes much more of a laser-focused undertaking, and brick- and-mortar pharmacies lose the opportunity to make those additional sales, says Liang of California Western School of Law.
Connecting the dots with e-prescribing
Advanced capabilities to transmit prescription information electronically from doctors to pharmacies is expected to become a key enabling technology in the projected expansion in online pharmacy use.
SureScripts (Alexandra, VA), which was developed by NACDS and the National Community Pharmacists Assn. (Alexandria, VA), has built a neutral, electronic network and offers the needed service capabilities to support the online transmission of prescriptions between doctors and pharmacies. “We are not in the business of selling software — rather, we have created an open, neutral network using a standard gateway that connects to many of the software applications that are most commonly used by doctors and pharmacies,” says Rob Cronin, SureScripts’ senior director of corporate communications.
Currently, SureScripts has connected 30,000 pharmacies to the network, and has enabled about 50 different software applications — mostly those related to electronic medical records (EMR) and e-prescribing — to be linked in.
The remaining challenge is to change the thinking and overhaul the practices of physicians, who remain the missing link. “Today, just 10-35% of U.S. physicians are using software that has been certified to connect to the SureScripts network,” says Bob Beckley, SVP, pharmacy relations and product strategy for SureScripts. The organization, as well as numerous health plans or providers, is pushing for broader e-prescribing practices.
One obvious advantage is that e-prescribing capabilities provide a de facto way to reduce all-too-frequent prescription errors that are associated with the notoriously bad handwriting that seems to be a right of passage for graduation from medical school. In addition, a centralized data repository can be an asset in reviewing drug history, potential drug interactions and other valuable data. “Bad handwriting is not the only problem in prescribing,” says Cronin of SureScripts. “Too often, doctors just don’t have all of the information available.”
The central repository, accessible from the Web, provides other, less tangible benefits. Patients who are traveling, or who have been transferred from one hospital to another, will be able to have prescriptions checked and then filled by any doctors, pharmacists or facilities that are linked into the network. |
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