Developments in Israel's Drug Distribution System

With Israel's health care cost containment and reform policies, cracks are appearing in the divisions between elements of the drug distribution system. Traditionally, the market consisted of a higher-priced retail pharmacy sector, serving the prescription needs of the smaller sick funds, and a highly-discounted institutional sector, including the General Sick Fund with its own clinic-based hospitals and the Ministry of Health hospitals. Some recent developments:

- GSF members can now have their prescriptions dispensed at Israel's largest pharmacy chain, Superpharm. The patients get the same GSF packs and pay the same copayment, but the move gives the GSF a competitive advantage over other funds, especially for service, enabling it to transplant elements of its system into a modern retail distribution setup. The pharmacies do not buy the drugs; they receive a consignment of identifiable GSF drug packs, stored separately. The pharmacies are linked to the GSF computer network system and collect the copayments, retaining about two-thirds as a handling fee.

For Superpharm the potential is in building customer traffic and loyalty with GSF members, which represent 65% of the population and about 75%-80% of Israel's prescription drug trade. Also, items out of stock from the GSF supply will be given to patients out of the usual pharmacy stock at the higher retail price. The Association of Pharmacy Owners, representing independent private pharmacies, is interested in a similar deal, but probably not at the terms agreed by Superpharm.