Chains in 2010: Winning

Last week, IMS Health released its official public 2010 data in The Use of Medicines in the United States: Review of 2010. This free downloadable report provides lots of useful info about the state of the pharmaceutical industry.

My slice-and-dice of the data appear in the tables below. A few highlights:

• The total number of retail prescriptions dispensed grew by a paltry 1.2%.

• Chain drugstores gained market share of prescriptions again in 2010. All other retail formats—independents, supermarkets with pharmacies, and mail-order pharmacies—lost share.

• Independents filled 6.3 million fewer prescriptions in 2010, making it the only pharmacy format to shrink last year.

Note that my analysis below only focuses on prescription data. IMS inaccurately claimed to report data on “spending on medicines,” although they actually were reporting manufacturer revenues. Unfortunately, most press articles mindlessly lifted IMS’ language about spending. Oh well. Data wonks can savor my clarification at the end.

WINNERS AND LOSERS IN 2010

The chart below was created from IMS Health’s 2010 Channel Distribution by U.S. Dispensed Prescriptions. Note that I present the data differently than IMS to facilitate insights into pharmacy industry dynamics. To retain comparability with previous years, the table excludes Long-Term Care. Click the table to enlarge it.

Key takeaways:

Chains keep winning. The three largest chains—CVS Caremark (NYSE:CVS), Walgreen (NYSE:WAG), and Walmart (NYSE:WMT)—are winning the battle for prescriptions with above-market growth. The chain figures got a boost in the past few years because of CVS Caremark’s Maintenance Choice program, which cannibalizes the Caremark mail pharmacy in favor of CVS stores. I estimate that 2010 is also the year when Walmart’s prescription business equaled (or surpassed) Rite-Aid’s business. See 2010 Market Share of Top Retail and Specialty Pharmacies. The Humana Walmart Preferred Rx Plan in Medicare Part D will boost Walmart in 2011. More on this topic in a future post.

Independents keep losing. In 2010, independent pharmacies lost both absolute number of prescriptions (down 0.8%) as well as market share (-36 basis points). As a result, independents’ share of prescriptions has declined from 37.1% in 1992 to 17.8% in 2010—a drop of nearly 20 percentage points. Recent estimates suggest that the rate of decline in the number of independent pharmacies has slowed, which means that the average independent is getting smaller and less productive. Ouch. See Surprise! Independents Not Vanishing. I take no pleasure in bringing you this news.

Mail order slowdown continues. Total mail volume increased by 1.1%, but this was a bit lower than overall market growth of 1.2%, so share of scripts declined slightly. This pattern continues the multi-year slowdown in the growth of prescriptions dispensed via mail-order pharmacy. The big chains are all pursuing strategies that eliminate the traditional out-of-pocket cost difference for consumers between a mail-order vs. a store-based pharmacy. The growth of Medicare Part D, which has much lower mail penetration, is also hurting mail. For more on the factors behind the mail slowdown, see Walgreens Joins the Attack on PBM Mail Profits.

Supermarket's share was flat for the fourth year in a row. Supermarkets continue to lose ground to Walmart and chain pharmacies. The supermarket industry is also consolidating—the number of pharmacy supermarkets declined from 10,163 in 2006 to 9,197 in 2009 (per the 2010-11 NACDS Chain Pharmacy Profile).

WHAT ABOUT LONG-TERM CARE?

Here is another look at the data that includes long-term care in the analysis. This is relevant because so many retail pharmacies now sell into the LTC market. Long-term care was the only format besides chains to gain market share of prescription purchases. Click the table to enlarge it.

NO, IMS DID NOT REPORT DRUG SPENDING

Both the IMS report and its accompanying press release refer to the dollar data as “spending on medicines.” However, this is inaccurate and misleading.

The IMS data on sales come from IMS National Sales Perspectives™ (NSP), which reports sales *into* the various distribution channels tracked by IMS. Note that NSP reports sales at invoice pricing, not sales at a list price such as Wholesale Acquisition Cost (WAC) or Average Wholesale Price (AWP). Contract pricing, such as a discounts processed via a wholesaler chargeback transaction, are apparently reflected in the IMS NSP measures of price and sales. Off-invoice discounts and rebates, such as rebates paid directly by the manufacturer to a third-party PBM, are not reflected in IMS’ NSP data.

Thus, the IMS dollar figures data represent product purchases from wholesalers or manufacturers, not pharmacy revenues or spending.

In contrast, “spending” by third-party payers or consumer corresponds to the reimbursements paid to pharmacies and providers. For example, pharmacy revenues are the basis for "expenditures" in the National Health Accounts. See my comments at the bottom of Who Paid for Prescription Drugs in 2009?

I'm sure only a handful of people actually noticed (or perhaps even care) about this distinction, but I want all Drug Channels readers to be properly informed. Must be the tiger blood.