Did anyone else notice the recent move by Walgreens caved into Wal-Mart last June when it reversed course and started promoting the Walgreens Prescription Savings Club. See my post Walgreens’ $4.33 Surrender to Wal-Mart.
Now it’s
A barrier has been breached with
WHAT CVS SAYS
On Monday,
OK, let’s assume that he includes all types of retail pharmacy within the definition of “competitor.” So we can conclude that the generic programs of Wal-Mart (WMT), Walgreens (WAG), Kroger (KR), et al are apparently not having a material effect on
Why give up the generic margin? Mr. Ryan offered the following explanation, which I have parsed into two separate components:
- “We’re in the middle of an understated [sic] difficult economic crisis to say the least. People are struggling with healthcare costs more than ever before especially the under and un-insured. We felt it was the right time to offer a differentiated affordable option.”
- “Given the enrollment fee and the fact that we expect some share gain and increased foot traffic we think the RX
Sorry, but I don’t follow the logic about market share gains with the uninsured and under-insured in the first statement. Third-party payers represented 95.3% of
The second statement is more telling. Sure, the enrollment fee will help maintain loyalty as consumers try to amortize the fixed annual cost over their scripts. The $10 per customer will also provide some (non-reimbursement related) cash flow to cushion their loss of generic margin.
CVS VS. CVS
Frankly, I’m puzzled by the fit between the new generic program and the legacy Caremark mail order business. Mail order becomes less attractive if a 90-day mail script is the same (or more than!) three 30-day retail scripts. Perhaps
I’m curious to hear from Drug Channels readers. What’s happens next in the retail pharmacy industry?
What happens when CVS Caremark customers start comparing the new discount generic pricing at retail with charges by Caremark for retail and mail order generic claims? Will the costs be identical? Will they be higher, given that generics represent a significant source of PBM profit? Will CVS Caremark charge the same claim cost at retail and mail to avoid any comparison issues? Adam, you are right on about the impact on margins in the pharmacy and PBMN industry.
ReplyDeleteI'm afraid that you are right. I work at a smaller chain in the midwest. We do not have a $4 generics program but offer price-matching when a customer asks. So far, there has been only minimal slippage due to Wal-Mart because our locations are much more convenient. But I'm paying much closer attention now that CVS has a program. I worry that we'll have to give up our already small generic profits just to keep customers.
ReplyDeleteI always read the comments on your blog and have seen many independent pharmacists complain about how the chains are degrading the value of their service. When will this end? Wish I knew.
Do chains degrade service? I've tried to shop at independents for years...they close early, shelves not stocked well and often just don't have the drugs when I've gone in. Chains, and I've tried them all, have given good service consistently.
ReplyDeleteI've been mystified for years why I can't get 90 days supply from my pharmacy for one co-pay. Counting 30 or 90 pills is not much different especially if a tech is doing it and the pharmacist is just checking the script, which happens at my local chain pharmacy.
It seems the chains are responding to the demands of the customer. Imagine that in a free market economy!
Chains (pharmacy or retail) don't put independents or small guys out of business. Customers choices on where they shop put businesses out of business.
I read today that CA is paying pharmacists $120K a year to start because of the shortage. Market forces!
-A
I have to respectfully disagree with the comment above stating that chains don't put independents out of business. Chains and mass merchandisers view their pharmacies as nothing more than a means to get people into the store, and they have commoditized the profession of pharmacy to its breaking point. These stores don’t worry about pharmacy margins as long as the patients are buying from the front end while they are waiting for their prescription. This business model certainly does not help those pharmacists who did not go to school for 6 years to sell groceries or electronics.
ReplyDeletePharmacy must be one of the only fields where the knowledge and intellectual property of the professional are quite literally worthless. Is there any other profession where the general public can walk into the store/office/etc. and regularly expect to obtain professional counsel and advice, that the professional may later be sued over if wrong, for free? The latest contracts I have received from PBMs actually have a zero dollar dispensing fee for professional services on their 90 day fill option. A September contract offer from one of the big 3 would have resulted in an average loss of more than $9 (before overhead) on every 90 day prescription I dispensed (for the top 25 brand medications the plan was currently paying for). Generics are MAC'd and I would have been lucky to make $3 (before overhead). I attempted to “negotiate" better terms with the PBM via the given email address and have yet to receive a response. I guess I can always make it up on volume. In the end the PBM will probably successfully drive more of my patients to mail order and I will be seen as greedy, stubborn, and/or selfish for refusing the contract. I would challenge those who feel that way stand at the door of their job, open their wallet, and hand out $10 bills all day, everyday. If you can do that and still afford to pay your bills, please post your contact information so I can forward my resume.
While economies of scale play a role in margins, my store is a rather large independent that is heavily invested in technology and pretty efficient. That being said, I value the 6 years I spent obtaining my degree too much to even consider a contract offer like the one I received. If anyone was capable of dealing with prescription medication, there would not be legend class to begin with, so as far as the California market is concerned I believe that $120,000 is still too low given the education, licensure, continuing education, and insurance requirements of the profession. Unfortunately, I doubt that current salaries are sustainable given the erosion of margins and wonder how long is it going to take for chains/mass merchandisers/etc. to look at their income statements and realize that since they have already destroyed margins, pharmacist salaries are the next item to be cut. Probably right around the time we build enough pharmacy schools to stop the shortage and allow for pharmacists to supervise more than 1 store remotely. Thanks for all the years of loyal service, but we've got a kid right of school willing to work for less...
Pharmacists have a lot to offer our patients and it is a truly rewarding profession, the trust that our patients place in us to safeguard their health is remarkable and humbling. Unfortunately medication costs money, sometimes a lot of money, to make, to ship, to store, and even to dispense. However, appropriate use of prescription medication, and even OTC medication (despite the fact insurances don’t pay for it), saves lives as well as health care dollars. No matter where pharmacists work, they deserve to be paid appropriately for the time and effort spent on behalf of their patients regardless of both the cost of the actual medication and whether or not the patient is also interested in buying laundry detergent from aisle 7.
Steve Moore
Condo Pharmacy
The reality is that the great majority of patients do not ever use pharmacist advice. I respect the hard work and professional standing earned, etc., but the fact is that oversight is all the marketplace demands. Bottom line - salaries will drop, and remote oversight will replace direct supervision.
ReplyDeleteRite-Aid just joined the price war!
ReplyDeleteSee Rite Aid Expands List Of Generic Medications Available At Significant Cost Savings With Free Rite Aid Rx Savings Card.
Note that their RX Savings card is free, while CVS and Walgreens charge a fee for their discount cards.
Adam
Welcome all to the "Mad Hatter Tea Party".
ReplyDeleteRite Aid closes at $0.37 on the news. CVS down to $29.21 on the news of its new program and walgree at $24.55. It is apparent that Wall Street thinks these are incredibly bad moves, business wise. Time will tell...
ReplyDeleteThe long diatribe above is interesting given that members of the profession work at the chains and work at the PBM's as well. Again, chains don't put independents out of business. People choose where to go and buy! It is called free market. This is like arguing that carriage makers should be kept in business because the car makers are taking their customers. People are making these choices. They vote with their pocketbooks. And before you rant again, get your own colleagues to stop working there. A chain can NOT operate with out a pharmacist. Your profession is selling out and enabling this. To thine ownself be true.
ReplyDeleteKnowing this business well, your assumptions of decreased PBM margins is dead on. WMT is having a substantial impact on PBMs that CVS is not commenting on.
ReplyDeleteI am not surprised by Tom's comments, however actions speak louder than words. If I was a PBM consultant I would work to have costs reduced on the items on their respective list and maybe add more items based on other lists out there. Obviously, since CVS has greatest purchasing power they have more to give than others.
Keep on eye on WMT and watch the impact they eventually have in healthcare.
Adam you put great information out there and I know many people who follow your blog. Good luck to you and many thanks.
Is the business of pharmacy truly a free market? Who is the ultimate buyer, the insurance company or the patient? I had to look up the defintion to be sure (not too many economic courses in pharmacy school), but free markets were defined are ones where "property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers. By definition, buyers and sellers do not coerce each other, in the sense that they obtain each other's property without the use of physical force, threat of physical force, or fraud, nor is the transfer coerced by a third party." Probably over simplistic, but it is a start.
ReplyDeleteIt is hard to view the provision of pharmaceuticals as falling into the free market category based upon the above definition. Even if the third party is paying, I would have a hard time believing that any entity other than the patient to be the ultimate buyer.
As far far as pharmacists working for chains such as Walmart, it would be interesting to see how they feel about the policies of their employers. A chain pharmacist on this thread implied that price wars are degrading service. The real question is what are chain pharmacists willing to do about it?
Not intended to be a rant, rather a different perspective. If pharmacists don't advocate for the profession who will?
Steve Moore
Condo Pharmacy
Well, now that EVERY major chain and superstore has their own Generic Giveaway program, it would be interesting to see how many people will use their brain and stop going to Walmart. After all, if they can get that $4 price at the CVS/Walgreen/whoever down the street, there should be no reason to drive 10 or more miles to the closest Walmart. I am anxiously waiting to see what will happen to the prescription volume at Walmart. Will this be reflected in the next quarterly report, or will it take a while for people to switch back to the local drugstore.
ReplyDeleteOr will this mean that Walmart will keep fighting the war and start giving away some generics for FREE?!?!
The decision to PURCHASE pharmaceuticals is a free market, not the drugs themselves. I have choices as do you. We get to choose and thus the "free" in free market. While many plans are forced on us, the debate here is over the $4/month price for generics and the impact on the "profession" of a pharmacist. I expect a pharmacist to dispense my products correctly, advise me of side effects and interactions. If I have questions that is what I call service.
ReplyDeleteI know of many independents that have techs spill and fill the drugs and the pharmacist just checks them and virtually never interacts with patients. Now that is good service! I have seen chains where the pharmacist does the spill and fill and is open to the patient at all times and answers questions. Painting either as "good" or "bad" is a gross over statement and generalization.
What is this- a chain pharmacist against an small business owner of a pharmacist. These blogs are to stimulate intelligent thought processes.
ReplyDeleteJust like Walgreens, CVS and Rite-Aid are obviously feeling the pressures of lost volume due to $4 generics. One smart thing that each of these companies have done, however, is to set up this discounted pricing structure as part of a "special program." By doing so, these pharmacies actually aren't changing their usual and customary. Thus, they can continue to charge higher amounts for prescriptions filled on insurance. I'm surprised that all the other chains like Wal-Mart, Target, and Kroger aren't doing this.
ReplyDeleteOh, as far as independent vs. chain, a well-run independent can squash a well-run chain (if there is such thing) any day of the week.
Dispensers get bigger/consolidated, wholesalers are already consolidated and yet the manufacturers remain fragmented... gotta make you wonder!
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soham
SEO
This program works mainly for illegal aliens. If you have insurance you still pay for the medication and your insurance. So the insured customers are paying for this "benefit" for the aliens. It is not fair.
ReplyDelete