New York, NY (PRWEB) March 22, 2014
Due to the nondiscretionary nature of most of the products and services offered, the $13.6 billion Institutional Pharmacies industry is relatively immune to fluctuations in the macroeconomic climate. However, the industry has some experienced declines in recent years, due to receding Medicare and insurance reimbursement rates. According to IBISWorld Industry Analyst Jocelyn Phillips, “Recent healthcare reform via the Patient Protection and Affordable Care Act (PPACA) changed the upper price limit that insurers or health plans can reimburse for generically available or multiple source medications.” Generic drugs have accounted for an increasingly large portion of prescriptions filled over the past five years, so this reimbursement limit has slowed growth and reduced industry revenue. Moreover, the industry's high dependency on Medicare reimbursements has raised concerns about operators' long-term profitability and stability.
IBISWorld estimates that revenue will decline at an average annual rate of 1.5%, over the five years to 2014. Nevertheless, despite this slight drop, demand for institutional pharmacies has grown as a result of demographic trends and PPACA-related increases in public and private health spending. As a result, industry revenue is expected to increase 4.5% in 2014. This is because the aging US population contributes significantly to demand for pharmacy services, as the occurrence of health issues that require hospitalization and long-term care is higher in the elderly. Accordingly, the aging population is forecast to expand as a percentage of the total population during the five years to 2019, which IBISWorld expects to boost revenue growth over the same period.
This industry is dominated by two major players, namely Omnicare Inc. and PharMerica Corporation. In 2014, these two companies alone will account for nearly half of industry revenue. “Correspondingly, the total number of industry companies is expected to decrease at an average annual rate of 3.3% to 1,519 operators over the five years to 2014,” says Phillips. This decline not only indicates the pressure Omnicare and PharMerica place on smaller industry operators, but also illustrates the healthcare sector-wide trend toward consolidation, as large, consolidated institutional pharmacies are better able to negotiate contracts with large, consolidated hospitals and other healthcare institutions.
The Institutional Pharmacies industry has a medium level of concentration. However, the majority of the industry is highly fragmented. As firms in the industry continue to consolidate operations over the next five years, industry concentration is expected to increase. However, the industry will always likely remain at a moderately concentrated level due to regulator antitrust concerns. For example, Omnicare's 2011 attempt to require rival PharMerica was blocked by the Federal Trade Commission over concerns that the combined firm would have too much bargaining power when negotiating reimbursement rates with Medicare Part D sponsors.
For more information, visit IBISWorld’s Institutional Pharmacies in the US industry report page.
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IBISWorld industry Report Key Topics
The Institutional Pharmacies industry comprises pharmacies that provide a range of services to residents of nursing homes, hospitals or hospice environments that do not have an on-site pharmacy. In addition to providing pharmaceuticals, institutional pharmacies also provide consulting services, which include monitoring the control, distribution and administration of drugs and assisting with regulation compliance.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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