The value of a preferred pharmacy network, part 1

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A preferred pharmacy network (also known as a preferred pharmacy provider or PPN) can be made up of members of a specific pharmacy group (chain or banner) or a network of pharmacies within a given geographic region.

In each case, the PPN offers an employer some kind of preferred deal on employee prescriptions and/or enhanced pharmacy services.

According to Chris von Heymann, senior vice–president, Cubic Health Inc., an independent drug plan management and analytics company based in Toronto, PPNs can range widely in what is offered your small business client.

Why might pharmacies want to set up a PPN?

In addition to prescription revenues, there's the likelihood for increased foot traffic throughout their store. While plan members and/or their families are waiting for their prescription to be filled, they may well purchase cosmetics, household goods, or even, in some cases, groceries.

For small business advisors thinking about setting up a PPN, they need to make sure there is benefit for both the employer and its employees. The skill set to surmount this challenge, and turn a PPN into an opportunity for the employer and employee, is where the small business advisor can add real value.

The key is that the employer's plan design needs to provide enough incentive for its members—greater coverage, waived copays or deductibles—so that they actually patronize the PPN member pharmacies to realize the benefit of the PPN's lower pricing for prescriptions and additional services.

While PPNs are not new, historically and presently, there are not a lot of companies with these plans in place in Canada.

On the flip side, recently, the pharmacy sector has not been actively going after this kind of relationship. Legislative reforms across the country have impacted pharmacy business models, for example, their compensation for generic drugs and/or rebates from manufacturers.

"The business model is in a state of transition. For example, generic drug prices for private sector claims in Ontario are going down on April 1, 2012, to 25% of the brand comparator price, down from 35% this past year," says von Heymann. "Pharmacy groups that may have been contemplating PPNs as a way to differentiate themselves, are currently in a bit of suspended animation right now, as they rethink their business models."

Read Part 2 for how advisors can create a valuable PPN.

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