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Is Pharmacy Expansion an Effective Rx for Health Systems?

Analysis  |  By Eric Wicklund  
   January 02, 2024

Faced with competition from disruptors, health systems are expanding their pharmacy services to capture additional income and improve clinical care

Amid increased competition from disruptors and retail chains, health systems are expanding their pharmacy operations beyond the hospital, in some cases building stand-alone community pharmacies or co-locating them with clinics to compete directly with the likes of Walgreens, Rite Aid, and CVS.

“It’s a huge opportunity,” says Rebecca Taylor, vice president of the pharmacy service line at UPMC, which now has 17 pharmacies within its network, some located inside clinics. “Ambulatory pharmacies have been around for a long time, but there are a lot of factors that are driving this new opportunity” for health systems to expand their reach.

With intense competition in the healthcare space, health systems are seizing on the opportunity to expand pharmacy services as a means of improving the scope of services they provide to patients. Many want to keep the patient within the hospital’s network, integrating all healthcare services through the medical record, a strategy that segues into the concept of value-based care and the medical home.

Others see the pharmacy as an attractive business line. Through the 340B Drug Pricing Program, health systems can be reimbursed through Medicaid for outpatient drugs sold to uninsured and low-income patients. They’re also looking to capture more specialty pharmacy services and prescriptions lost to neighborhood and community pharmacies, not to mention the profits from other goods and services sold through a retail location.

And while neighborhood and community pharmacies are looking to adopt more healthcare services and become community health centers, they’re also struggling. Rite Aid has filed for bankruptcy, while Walgreens and CVS are closing hundreds of stores, leaving communities without that resource for filling prescriptions. Health systems can fill that gap with their own pharmacies.

Making an Argument for Pharmacy Expansion

Nicole Faucher, MS, president of Clearway Health, a Massachusetts-based company spun out of Boston Medical Center that partners with health systems and hospitals to strengthen their specialty pharmacy programs, says health systems have three primary reasons for expanding their pharmacy services:

  1. Creating a new service line. When patients fill their prescriptions at a local pharmacy, they’re taking business away from the hospital. A health system can keep that business in-house with its own pharmacy service, as well as influencing the patient to consider more health and wellness services and products.
  2. Improving clinical outcomes. By keeping pharmacy services in-house, a health system can link all of those services through the medical record, ensuring continuity of care and reducing gaps in care or siloed services. In addition, the pharmacist becomes an integral part of the care team and the care management plan, improving medication adherence and helping patients with any medication-based issues that might otherwise be delayed or go unanswered.
  3. Improving patient loyalty and engagement. Health systems that include pharmacy services are seen by patients as being more attentive to and involved in care management and coordination. That patient will be more likely to stay with the health system, listen to advice on other services and resources within the health system, and recommend that health system to family and friends.


The decision to expand pharmacy services can’t be taken lightly. These projects are expensive, and they require plenty of research and planning. One look at how Walgreens, Rite Aid, and CVS are doing right now with the healthcare ambitions would be enough to scare anyone away.

“This isn’t just ‘Build it and they will come,’” warns Faucher, who says health system leadership needs to think long and hard about whether to take this on.

Among the considerations that go into planning a pharmacy expansion:

  • Understanding the patient population and community. Will patients shift their allegiance from local pharmacies to a hospital-run pharmacy?
  • Site selection and staffing. Will a stand-alone pharmacy work, or should these services be co-located with a clinic, medical offices, or other programs? Building and/or rental costs will figure prominently in this strategy, as will costs for staffing a stand-alone pharmacy.
  • Delivery. Will this be a traditional pharmacy that handles over-the-counter and walk-in traffic, or will it be strictly mail-order? If the latter, how will deliveries be handled? If the former, will the pharmacy handle prescriptions only or offer other goods and services?
  • Contract negotiations. A health system will need to handle contracts with pharmacy benefit managers (PBMs), payers, and health plans, along with any delivery services. In addition, there will be contracts with drug distributors to consider.
  • Sustainability. How much business will a pharmacy need to generate to be sustainable? This will determine what other services or products are offered.

Alongside managing the aspects of a 340B program, Faucher says a health system must also decide how to manage business with other pharmacies. Some 15% of all prescriptions involve medications that are handled by specialty pharmacies.

“There really isn’t a one size that fits” for every health system, she says.

Addressing Both Clinical and Business Goals

At Signature Healthcare, based in southeastern Massachusetts, the decision to expand pharmacy services addressed both clinical and business goals. A significant percentage of the health system’s patient base are members of government health plans, making the 340B program an attractive addition to their bottom line.

“We make a little more of a margin on that,” says Stephen Borges, Signature’s vice president of financial operations.

But the health system also wants to create a more connected health experience for its patients, many of whom are underserved, he says. That means adding pharmacy techs in critical care units, medical offices, and clinics to be part of the care team, and locating a retail pharmacy in their largest physician office building near the hospital.

“We’re reinventing care for our patients,” Borges says.

Signature Health had partnered with the local Walgreens chain prior to this change in strategy, even enabling Walgreens pharmacists to come into the hospital to meet with patients before they were discharged. But there were still gaps in care, he says, that comes with having two separate organizations try to care for the same patient.

“We want our pharmacists to have the ability to do more with our patients,” Borges says. That includes creating a patient assistance program to work with patients who struggle to pay their bills and find other ways of meeting prescription costs.

One of the challenges to implementing this new strategy was getting buy-in from physicians who might not see the pharmacist as a member of the care team. Borges says it took some time and effort to get everyone comfortable with each other; he credits the successful integration to the work of physician champions identified ahead of time by the health system.

Another challenge was getting support from patients who have always gotten their prescriptions filled at the local pharmacy.

“We didn’t anticipate that it would be so hard to convince people to move away from CVS and Walgreens,” Borges says.

Addressing the Patient’s Needs

At UPMC, Taylor says expanding the health system’s footprint to include more pharmacy services gives them the chance to have a greater impact on clinical outcomes.

Pharmacists who are part of the health system and the care team, she says, can work with providers and patients to fine-tune medication management, identifying potential drug reactions and alternatives to costly medications. They can answer patient questions that might not be asked in a separate pharmacy, work with patients who have trouble paying for medications, and collaborate with doctors when a patient struggles with medication adherence or displays adverse effects to taking a certain medication. They can also help the health system with vaccinations and other public and community health outreach programs.

Taylor says the additional service line also enables UPMC to attract and hire skilled pharmacists, especially those who’d prefer to work with a health system rather than a retail pharmacy.

Studies back up the idea that the pharmacist—regardless of whether he/she is employed by the hospital or another company--should be part of the care team. Recent research done at Virginia Commonwealth University found that pharmacists could prevent more than 15 million heart attacks and nearly 8 million strokes and save $1.1 trillion in healthcare costs over 30 years if they were allowed to be more active in managing care for patients.

Taylor sees an improvement in reduced rehospitalizations. Pharmacists who are part of the care team can spot problems before they become serious, she notes, alerting physicians and enabling them to intervene while the patient is at home.

The Impact of Technology

One reason for heightened interest in the pharmacy space is the availability of new technology. Telehealth and digital health tools make it easier for clinicians and pharmacists to communicate with each other and with patients, creating or modifying care plans on the go and prescribing and filling prescriptions virtually. And with the popularity of online and mail-order prescriptions surging, health systems can also take advantage of online platforms to handle prescriptions in bulk and mail them to patients.

“That certainly makes it easier,” says Taylor. “And in the future, there will be other technologies that will make it feasible to do a hub-and-spoke model,” enabling health systems to manage distant pharmacy sites from one central location.

“Internet prescription fills have gone through the roof,” adds Borges.

A report recently issued by the Center for Connected Medicine finds that more than half of health systems with their own ambulatory pharmacies “believe retailers and technology companies are having either a moderate or strong influence on their hospital’s pharmacy strategy.”

According to the report, many health systems are planning to invest in digital health technology to improve their pharmacy services. Among the more popular platforms are integrated patient portals, prescription fills and refills and payments through an app, and medication adherence services (such as reminders).

Faucher, of Clearway Health, says the integration of patient portals and EHRs with pharmacy services gives health systems an opportunity to play a more active role in care management. Doctors can check in with both pharmacists and patients online to make sure prescribed medications are being taken and are effective, while pharmacists and patients can respond more quickly if something isn’t working.

Faucher says health systems have an opportunity to grow their business by single digits with a more aggressive pharmacy strategy, and by double digits if they adopt specialty pharmacy services. Beyond the profit margins, they have an opportunity to improve care by being more of a healthcare partner with patients who are demanding more collaboration with their care teams.

“Health systems need to have a pharmacy strategy,” she says. “This will be a continuing trend.”

“We want our pharmacists to have the ability to do more with our patients.”

Eric Wicklund is the associate content manager and senior editor for Innovation, Technology, and Pharma for HealthLeaders.


Health systems are facing competition from retail giants and pharmacies looking to become one-stop community healthcare centers.

Many are expanding services beyond the in-hospital pharmacy, either building their own community pharmacies or locating them alongside clinics or other medical offices.

Aside from creating a new business line, this strategy aims to keep the patient within the healthcare loop, making the pharmacists a member of the care team and connecting the patient to more services and resources within the organization.

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