American Drug Stores: Managed Care Leader

By Ukens, Carol | Drug Topics, April 22, 1996 | Go to article overview

American Drug Stores: Managed Care Leader


Ukens, Carol, Drug Topics


As managed care continues to dramatically redraw the healthcare landscape, Drug Topics decided it was time to single out as its Pharmacy Chain of the Year a company that has responded to these challenges. While several chains fit the category, the winner is American Drug Stores, which has quietly gone about the business of learning to live with managed care.

American Drug Stores, which operates out of Salt Lake City under the American Stores Co. umbrella, has 832 outlets under the banners of Osco Drug and Sav-On, as well as Osco outlets combined with Jewel and Lucky food stores. Plans call for an additional 60 to 75 outlets in the next two years, entry into new markets in 1998, and another 100 stores in the year 2000.

Repositioned in the early 1990s as health-care pharmacies, American has been meeting managed care on several fronts. In addition to working closely with major payers to make their programs work, the company collects internal data and participates in demonstration projects to convince third parties of the value of its pharmaceutical care services. Officials also are hanging tough with third-party contracts that offer unacceptable reimbursement levels, while a sister company, RxAmerica, has earned a reputation as one of the best pharmacy benefit managers (PBMs) in the game.

Generic utilization that makes economic sense for American is also a top priority, and pharmacists are being trained in disease state management to fill a growing managed care need.

"It's obvious that managed care has a big job ahead of it, because in the past 10 years, the low-hanging fruit has been picked off the tree," said Kevin Tripp, R.Ph., American Drug Stores senior v.p. of pharmacy sales and operations. "The real issue going forward is not so much in terms of reimbursement but in true management of health care. That's where the big dollar savings are. The best providers have already arrived at that conclusion, and we are working hard to find areas where we can truly help them."

American, like several other super chains, has put its foot down when it comes to third-party reimbursement rates that cut too close to the bottomline bone. Company officials believe that taking every stingy contract that comes along will eventually lead to corporate hara-kiri. The problem is that when other pharmacy providers accept such terms, they contribute to a downward spiral, as the next third party has to promise its clients even lower reimbursements.

"We've seen, time and time again, the good solvent players understand clearly where they are and what it means to their business to take a reimbursement cut," said Tripp. "The players that are less pharmacy-driven may not understand exactly where they are in terms of taking AWP minus 100%. The first step is to truly understand the economics behind third-party reimbursement, not only in terms of reimbursement but also cash flow. Once you understand that and bring it into your business as a matter of practice, it's very easy to say No to those third parties. Some players who don't understand the business agree to some ridiculous terms, and the marketplace continues to cascade down."

American Drug Stores works closely with RxAmerica as part of the pharmacy benefit management firm's provider network. Spun off by American Stores as a separate business entity, RxAmerica operates two mail-service facilities and provides claims processing, drug use review, a formulary, and outcomes management. "About six years ago, we really struggled with the decision to be in or out of mail order," said Tripp. "It became very clear that mail order would be an element of service. We thought that with our network and our technology for interfacing back and forth, it was something we ought to be in. RxAmerica has some very talented folks, most of whom came from our operation. With that background, they understand the need to provide service to their payers and to their network to make the equation work. …

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