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U.S. Department of Health and Human Services

Regulatory Information

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2.3 Retailers

Prescription Drug Marketing Act Report to Congress (2001): Back to Table of Contents 

Previous Section: 2.2 Pharmacy Benefit Management Companies (PBMs)

The retailers, which include independent drug stores, retail chains pharmacies, and mail-order pharmacies, are the major customers of wholesalers with total prescription purchases of $76.4 billion in 1998 (NWDA, 1999).


Independent drug stores are defined as companies having three or fewer stores. There are currently an estimated 22,000 independent drug stores in the United States (ERG, 2000). Independent drug stores purchased $19 billion in prescription drug products in 1998, with the majority (96 percent) purchased from wholesalers (NWDA, 1999). Over the years, independent drug stores have joined group purchasing organizations (GPOs) in increasing numbers to gain greater leveraging power with wholesalers and manufacturers.

 

Table 2-1
Data on Selected Pharmacy Benefit Management Companies (PBMs)
PCS Health Systems
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
Rite Aid Corp. 56.0 million $14,500 77,258 5912
Additional Information: Operates retail drug stores which sell health and beauty aids, proprietary drugs, housewares, tobacco products, sundries, and prescription medicines
Merck-Medco Managed Care
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
Merck & Co. 51.0 million $35,500 62,300   2834, 2833, 2836, 2835
Additional Information: Develops, produces, and markets human health care products, including therapeutic and preventive agents generally sold by prescription; produces animal health products; provides pharmaceutical benefit services
Diversified Pharmaceutical Services
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
SmithKline Beecham 23.9 million $12,300 47,200   2834, 2844, 8071
Additional Information: Researches, develops, manufactures, and markets a wide range of health and personal care products, including pharmaceuticals; provides disease management and pharmaceutical benefit management services; performs clinical laboratory testing services
Express Scripts Value R/X
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
Express Scripts 22.7 million $5,520 4,606 5912, 8099, 8093
Additional Information: Provides broad range of pharmacy benefit management services to health benefit plan sponsors including pharmacy network administration, drug utilization review, and mail pharmacy service; and offers infusion therapy services and managed vision care programs
WellPoint Pharmacy Management
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
WellPoint Health Networks 15.5 million $8,290 10,600 6324, 6719
Additional Information: Holding company with subsidiaries that offer managed healthcare plans through health maintenance and preferred provider organizations
Integrated Pharmaceutical Services
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
Foundation Health Pharm. 14.0 million $8,790 12,000 6324, 6719
Additional Information: Holding company with subsidiaries that operate health maintenance organizations and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs
Advance Paradigm
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
Advance Paradigm, Inc. 13.0 million $21,50 1,370 8099
Additional Information: Provides pharmacy benefit management services including clinical and benefit design consultation services to health plan sponsors
Caremark - Prescription Service Div.
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
Caremark Rx Inc. 10.0 million $3,860 4,373 6324, 8099
Additional Information: Develops, organizes and manages integrated health care delivery systems that provide primary and specialty health care services to prepaid managed care enrollees and fee-for-service patients; performs prescription benefit management and therapeutic pharmaceutical services
First Health Services
Ownership Lives Covered (1999) Sales
($ millions)
(2000)
Employment (2000) SIC's Reported
First Health 8.0 million $.474 3,600 6324, 8742, 8099
Additional Information: Develops and manages payer-based PPO networls that incorporate both group health and workers' compensation medical providers; provides prescription drug beneft plan administration, drug utilization review, and a nationwide network of nearly 50,000 pharmacies; provides centralized clinical management programs and other medical consulting services
Source: Yahoo Business, 2000, Disclosure, 2000, and NWDA, 1999

 

 

Retail chains, defined as having four or more stores, include chain drug stores, mass merchandisers, and food stores. In 1998, retail chains purchased around $46 billion in prescription drugs (NWDA, 1999). While retail chains rely on wholesalers to deliver a certain percentage of their drug needs, the largest retail chains also maintain their own internal distribution system. Like wholesalers, self-warehousing chains receive the drugs from manufacturers in large quantities, store the drugs in their own warehouses, and deliver the drugs to their retail outlets through their own distribution systems. Retail chains are the only dispensers of prescription drugs that self-warehouse to any significant extent. Large chains, such as Rite-Aid and Eckerd, have the capacity to self-warehouse up to 90 percent or so of the prescription drugs that are sold in their stores. Over the years, retail chains have steadily decreased their reliance on wholesalers. At the same time, drug manufacturers, that used to sell exclusively or principally to wholesalers, sell increasing shares of their production directly to the chains. In 1998, over 63.3 percent of purchases by retail chains were for self-warehousing (NWDA, 1999).

 

Mail-order pharmacies are a hybrid between the distribution and retail ends of the pharmaceutical industry. Mail-order pharmacies receive prescriptions by fax or through the mail and dispense the drugs directly to consumers anywhere in the United States. Mail-order is often used to dispense "maintenance" drugs regularly used by patients over an extended period of time. Mail-order pharmacies often use the services of a wholesaler to buy their prescription drug inventories. They then store their inventories in one or more of their warehouses. There are approximately 63 mail-order pharmacies and 32 retail companies with mail-order pharmacy operations in the U.S. (NWDA, 1999).

Prescription Drug Marketing Act Report to Congress (2001): Back to Table of Contents 

Next Section: 2.4 The Influence of Pharmacy Benefit Management Companies (PBMs) and Health Maintenance Organizations (HMOs) on Prescription Drug Prices