French Pharmacies
and why economies of scale might not be the end-all-be-all
There’s not a single CVS in Paris.
No Boots, Walgreens, or Rite Aid either.
Instead, practically every single block, I’ll see these:
French pharmacies represent a completely different approach to community healthcare. They’re run by, essentially, primary care docs with 6 years of training, who can prescribe you meds. But must interestingly, by law, each pharmacy must be independently owned by a licensed pharmacist. Each pharmacist, however, can own only one pharmacy. This no chains; no PBMs, no vertical consolidation; instead, just 20,000 independent pharmacies across France.
Maybe I’m far too deep in the healthcare hole, but this seems…shocking?
In the US, most of our independent pharmacies are out of business. It’s the classic argument made by private equity: economies of scale force consolidation in highly regulated industries. A pharmacy needs to order and offer thousands of medications, receive prescriptions from hundreds of providers, and make insurance claims to dozens of payors.
American pharmacy chains have merged not only with each other but with insurance companies and pharmacy benefit managers, creating massive conglomerates that can, essentially, set drug prices. CVS, in addition to running 10k pharmacies in the US, now owns Aetna, while also managing pharmacy benefits thru CVS Caremark – a level of vertical integration that would be impossible under French law.
Yet, despite (or perhaps because of) this fragmented ownership structure, French pharmacies sell prescription and OTC meds for far cheaper than in the US. The average French citizen spends roughly half as much on prescription drugs as the average American.
Sure, there’s a TON of reasons why drugs in the US are horrendously overpriced, but isn’t it interesting that North Dakota, the only U.S. state requiring pharmacies to be majority-owned by pharmacists, has lower drug costs than most other states?
And, as an aside, here’s a quote from that study: “As of early October, Walmart had already contributed $2.7 million to the campaign to overturn North Dakota's Pharmacy Ownership Law — more per resident than Barack Obama and Mitt Romney each spent during the entire 2012 presidential race.”
Long story short, there are certainly economies of scale, but I’m curious to what extent economies of scale are self-fulfilling prophecies: i.e. large companies design environments (through lobbying) to increase compliance burden, barriers to entry, etc, which create artificial economies of scale compared to a system designed from scratch.
Small pharmacies in the US can’t negotiate advantageous contracts with PBMs to receive larger rebates on drugs, because of their low volume. But do we really need an industry of PBMs to manage legal kickbacks from pharmaceutical conglomerates, inherited from a legacy of pay-to-prescribe practices?
The French pharmacy system suggests, at the very least, that regulated prevention of consolidation – when properly designed – can create better market conditions, lower prices, and better service.
So much for economies of scale.