Can Health Care's Redbox Make Pharmacies Obsolete?

Could pharmacies go the way of Blockbuster? 

The downfall of the former video store chain came largely from wounds inflicted by Outerwall's Redbox and Netflix. Now a sort of health care version of Redbox is gaining steam thanks to Canadian firm MedAvail Technologies. This latest advance could prove to be just as much of a game-changer in health care as Redbox was in video.

Source: MedAvail

Take a pill
MedAvail's MedCenter kiosks aren't complicated in principle. They bring the vending machine concept to prescription drugs.Customers feed their prescription form into a scanner on the kiosk. Payment can be made using credit or debit card. Within minutes, the needed prescription drugs are dispensed.

When you use Redbox, sometimes the video you want is out of stock or maybe not listed at all. The same scenario can occur with MedAvail's system. Not every prescription drug can be stored in the kiosk -- and quantities of drugs that are included can run out. MedAvail, however, stocks the kiosks with medications appropriate to the setting where the kiosks are located. If you take a commonly used prescription drug, it's likely to be available.

There's one big difference between a Redbox and MedCenter, though. A pharmacist is remotely involved with the prescription-filling process through two-way video. If the customer wants more privacy, a telephone handset is available to talk directly with the pharmacist.

Pharmacist involvement is a critical component. Drugs can't be legally given without a pharmacist present to ensure the appropriate medication is dispensed.

That's a challenge for MedAvail, because each state has its own pharmacy regulations. So far, the company has gained approval for use of its remote dispensing technology in the Canadian province of Ontario and in Illinois. California, Texas, New Mexico, Florida, New Jersey, Kansas, Nevada and Arizona allow MedAvail's technology in certain settings such as hospitals, long-term care facilities, and prisons. 

Revolutionizing Rx
It's not hard to see how MedAvail's technology could be disruptive. The capital expenditure required for the system is 10 times less than that of a traditional pharmacy. On-going operating costs are just a fraction of brick-and-mortar pharmacies.

Also, the MedCenter kiosks can be located virtually anywhere. Retail stores that haven't had pharmacies in the past could easily house a MedCenter. Physician clinics could offer the kiosks to make filling of common prescriptions more convenient for patients.

This convenience factor could help with another huge problem with health care in the U.S. today -- non-adherence in taking prescribed medications. A study conducted in 2010 found that a whopping 28% of prescriptions weren't even filled. Non-adherence was most common for serious conditions including diabetes and hypertension. 

Giant pharmacy benefits manager Express Scripts says that non-adherence is the most expensive "health condition" faced by the U.S. Over $317 billion was spent in 2012 treating health problems for which treatment wouldn't have been necessary if Americans took their prescribed medications.

Blockbuster?
Redbox perhaps isn't the best comparison for MedAvail. Don't look for the small company's kiosks to put pharmacy chains out of business anytime soon, if ever. 

Actually, the big three pharmacy chains are (mostly) expanding their number of stores. CVS Caremark added 15 net new stores last quarter, while Rite Aid decreased by six stores. Walgreen (NYSE: WAG  ) expects to expand its store count by as many as 75 in fiscal year 2014.

Remote dispensing technology just might radically change their business models, though. Kiosks could have an impact on pharmacies akin to what ATMs did for banks -- making them more efficient and customer-friendly. MedAvail notes that its technology can help pharmacy retailers provide 24-hour service in more locations while helping use staff more effectively.

For now, however, only one of the major pharmacies stands in position to benefit in an obvious way. Walgreen, along with with its European partner Alliance Boots, have invested an undisclosed sum in MedAvail. If the small Canadian company secures approval in more states and countries, look for Walgreen to exploit its potential leg up over its rivals.

While Rite Aid's incredible turnaround has rewarded investors the most over the past year, Walgreen's 45% stock gain isn't too shabby. The company's eye toward the future, illustrated by its forging relationships with up-and-comers like MedAvail and lab diagnostics innovator Theranos, could very well pay off big.

It's unlikely that pharmacies will go the way of Blockbuster because of remote dispensing technology. But those that take advantage of the technology -- like Walgreen -- could produce blockbuster returns for long-term investors. 

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