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ABSTRACT
U.S.-based on-site, retail pharmacy chains, such as CVS and Walgreens, and regional pharmacy chains, including Rite Aid, experience intense competition for their core pharmaceutical business from grocery chain pharmacies, major retailer-owned systems, independent pharmacies, and mail order pharmacies. The article first reviews the components of the pharmaceutical industry supply chain, thus establishing the structure of the U.S. pharmaceutical industry; second, it reviews emerging business factors relevant to present and future competition in the retail drug sector; third, analyzes the business and economic factors composing the proposed business models developed by the CVS and Walgreens corporations; and fourth, discusses existing industry strategic behavior and offers recommendations for future retail drug chain business and operating model development. These latter recommendations include developing health care product and service hubs; strategically integrating with provider networks of pharmacy benefit managers and health care insurers; and adopting the latest digital technologies to improve operational effectiveness and efficiency.
Keywords: artificial intelligence, business model, pharmacy benefit managers, strategic behavior, U.S retail pharmacy industry, value creation
INTRODUCTION
In 2018, U.S. health care spending reached $3.6 trillion, or $11,172 per person, according to the Centers for Medicare & Medicaid Services (CMS) (2019a), U.S. Department of Health and Human Services. The consumer cost of retail prescription drugs accounted for 9% of 2018 U.S. health care spending, increasing 2.5% (from 2017) to $335.0 billion annually (Centers for Medicare & Medicaid Services (2019a). For 2018, faster growth in non-price factors helped to drive the increase in total retail prescription drug spending growth - although retail prescription drug prices declined by 1%, as compared to pricing data for 2017 (Centers for Medicare & Medicaid Services, 2019a).
Moreover, the CMS Office of the Actuary predicts that prices for overall outpatient prescription drug spending will increase annually by 5.6% from 2018 through 2027, mostly attributable to increased growth in the utilization of prescription drugs (Centers for Medicare & Medicaid Service, 2019b). Factors responsible for this faster growth over the decade include greater efforts on the part of employers and health care insurers to incentivize better medication adherence among those with chronic health conditions; changing pharmacotherapy guidelines; accelerated projected private health insurance spending growth; and an expected influx of new, expensive "breakthrough" drug treatments commercialized toward the latter part of...