{"id":7485,"date":"2015-12-09T23:29:11","date_gmt":"2015-12-10T04:29:11","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/pillpack-the-new-kid-on-the-block-in-the-world-of-pharmacy\/"},"modified":"2015-12-09T23:32:36","modified_gmt":"2015-12-10T04:32:36","slug":"pillpack-the-new-kid-on-the-block-in-the-world-of-pharmacy","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pillpack-the-new-kid-on-the-block-in-the-world-of-pharmacy\/","title":{"rendered":"PillPack: the new kid on the block in the world of pharmacy"},"content":{"rendered":"

PillPack is a Somerville, MA-based an independent online pharmacy start-up founded in February 2014, with $62.5M raised to date (valuation unknown). In less than two years, PillPack has distributed over a million individual dose packets, acquired licenses to serve patients across 47 states, and is estimated to generate $15-$20M in revenue this year.<\/p>\n

Business model<\/strong><\/p>\n

The business model of PillPack is not dramatically different from traditional pharmacies. The easiest comparison is a mail-order pharmacy, which most retail pharmacies and health plans already have. The company buys \"Capture\"medications from wholesalers and delivers the goods straight to patients every two weeks. The packaging can be considered unique, with patient\u2019s medications pre-sorted into personalized small packets in a dispenser (with detailed instructions) and patient can manage its medications entirely through its website. While having no physical stores, they offer 24\/7 patient support through e-mail, phone, and webchat. PillPack also perform all of typical back-end pharmacy tasks such as refill management, prior authorization, etc. Patients can sign-up easily online, manage their prescriptions through the website and its mobile app.<\/p>\n

For the first few months, PillPack charged a $20 fee for its \u201cadditional\u201d services to patients; however, soon after, PillPack dropped the fees and let patients pay only their usual co-pay that they would pay in any other pharmacies. Its primary source of revenues is reimbursement (minus cost) from health plans and a small dispensing fee, with average gross profit per 30-day prescription at $10-$15.<\/p>\n

 <\/p>\n

Operating model<\/strong><\/p>\n

You can argue that nothing that PillPack offers is new to the pharmacy world; however, PillPack\u2019s innovative operating model is what enables this 60-person company to pose a substantial threat to pharmacy giants like CVS and Walgreens in such a short time period.<\/p>\n

PillPack\u2019s operation is centralized to one team in one office. In an industry where margins are thin, ability to centralize operations is a huge advantage. While it may also have less scale compared to other pharmacy giants, it allows the company to be flexible and adapt easily along the rapidly changing industry. For example, PillPack has a central prescription filling system, in which their robots are heavily leveraged in filling and quality assurance, freeing up pharmacists to focus on patient service. Because much of retail pharmacies\u2019 operations are reliant on individual retail stores, investing in robots would be quite capital-intensive. PillPack can centralizes its investment, which allows the company to sustain the business without changing the business model drastically.<\/p>\n

Technology is the centerpiece of its operations. Its online-based platform enables PillPack to reach many patients across various geographies in a short period of time. The fact that it cannot serve patients with urgent prescription needs is less of a concern as much of the dollars in the pharmacy business come from dispensing maintenance medications. Its emphasis on technology and centralized model also gives the company a huge competitive advantage. While retail pharmacies have to go through considerable alignment across labor force or invest heavily in capital across all stores to rollout a new service or product, PillPack can easily change a feature or two in its website or mobile app that can have a huge impact on patient experience. It allows the company to fail fast, and fail cheap. PillPack to be flexible in its staffing model, increasing accessibility of care for patients.<\/p>\n

Concluding thoughts<\/strong><\/p>\n

Pharmacy is a tough business. It is a heavily regulated industry and a lot of restrictions due to pressures from high power partners such as health plans. PillPack is an interesting example of a company that leverages its innovative operating model to enable a traditional, constrained business model in the industry. While arguably each component of PillPack\u2019s products and services is nothing new to the industry, its true secret is appropriately aligning all components of the business.<\/p>\n

This does not mean PillPack will face no challenges. The combination of this business and operating model is not impossible to replicate. While it may take a lot longer, larger pharmacy chains with more resources can easily invest in this capability. In addition, traditional pharmacies are very much focused on expanding beyond pharmacy services (e.g., retail clinics), leveraging its accessibility and low cost in delivering simple health care advice via pharmacists. Can PillPack offer anything beyond prescription delivery, given its limitations in opportunities for face-to-face interactions? With broader health care industry rapidly moving towards consumerization, PillPack definitely is still at an advantage due to its operating model; however, it will be interesting to observe how it can sustain and expand its business.<\/p>\n

 <\/p>\n

Sources:<\/p>\n

https:\/\/www.ideo.com\/work\/disrupting-the-drugstore<\/a><\/p>\n

http:\/\/pillpack.com<\/a><\/p>\n

http:\/\/www.forbes.com\/sites\/sarahhedgecock\/2015\/04\/15\/this-pharmacy-startup-wants-to-change-the-way-you-take-your-medicine\/<\/a><\/p>\n

http:\/\/www.betaboston.com\/news\/2015\/06\/03\/pillpack-raises-50m-to-help-open-storefronts-and-launch-mobile-app\/<\/a><\/p>\n

http:\/\/www.usatoday.com\/story\/money\/business\/small%20business\/2015\/09\/29\/pillpack-makes-juggling-multiple-prescriptions-easy\/72968940\/<\/a><\/p>\n

center\/assets\/files\/WEGOHealth_PillPack_FAQs_2014-09-23.pdf?1411555834<\/a><\/p>\n

http:\/\/www.betaboston.com\/news\/2014\/05\/30\/pillpack-gets-rid-of-20-subscription-fee\/<\/a><\/p>\n

http:\/\/www.drugchannels.net\/2012\/12\/surprise-cms-computes-and-publishes.html<\/a><\/p>\n

http:\/\/bostinno.streetwise.co\/2015\/10\/27\/medication-management-insightfil-startup-takes-on-pillpack\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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