The complete article naturally offers a much more nuanced perspective than either the Executive Summary or NCPA’s press release. However, the authors and NCPA overreach by drawing conclusions that are not supported by the study. Their attempts to shift blame to payers, customers, and wholesalers are designed to influence health care policy in a way that benefits pharmacies at the expense of everyone else.
Thus, my primary critique remains valid – the results of this study are being marketed in a misleading way to the public and to Congress. The evidence in this study certainly does not warrant having Congress interfere in the working of a competitive free market.
What the Study Really Says
The actual paper is well-reasoned and carefully worded. The researchers – Dr. Shepard, Dr. Richards, and Ms. Winegar –present detailed statistical summaries information broken out by month, by year, and by Part D plan.
One hidden bias comes in the aggregation of time frames for analysis. The authors show us only four points in the distribution: less than 15 days; 15-30 days; 31-60 days; 60 days or more. Thus, a claim paid on day 32 is treated the same for the purposes of their analyses as a claim paid on day 60. The impact of this choice is not readily apparent, but would be quite significant for concluding anything about the cash flow impact on a pharmacy.
As I correctly deduced from the Executive Summary, the median number of days to payment after adjudication dropped below 30 days for the last five months of 2006. Amazingly, one of the headline conclusions of the summary – “50.0% of claims were paid more than 30 days after adjudication” – is actually false for the last five months of 2006! (See Table 1 in the paper.)
The academic tone stands in sharp contrast to the summary and NCPA press release that I wrote about on Tuesday. The Executive Summary is attributed to the same researchers and presented on the letterhead of the Center for Pharmacoeconomic Studies. My critique of the summary remains valid, especially with regard to changes over time throughout 2006.
Strategy #1: Blame Payers
NCPA desperately wants to conclude that PBMs and third-party payers are guilty of “destroying” independent pharmacies. NCPA even goes so far as to make the following claim: “This study presents strong evidence that PBMs are ‘gaming the system’, making interest on the ‘float’ they get by not paying pharmacies in a timely manner.”
The actual research paper provides no support (strong or otherwise) for such a conclusion. NCPA appears unwilling to consider possible alternative explanations for declining numbers of independent pharmacies. As I noted on Tuesday, the amount of financial hardship facing an average independent pharmacy may not be enough to tip a healthy, well-run business into bankruptcy. It’s a stretch to blame payers based on the paper.
Strategy #2: Blame the Customer
What if the decline of independent pharmacy is really part of a larger shift in consumer preferences? Many U.S. consumers prefer to shop at larger stores. As a result, retailing is become more concentrated and increasingly dominated by chain stores, warehouse clubs, home centers, and big box superstores. (I discuss these issues in more depth in Chapter 8 of my new book Facing the Forces of Change®: Lead the Way in the Supply Chain.)
As the table below shows, pharmacy is on par with other retail sectors dominated by large chains, at least judging by the decline in the number of small companies (less than 20 employees. (Source: Statistics of U.S. Businesses.)
Note that the most recent data are from 2004, well before Part D.
Here’s an even more controversial explanation—maybe independents are upset at losing cash pay customers who now have access to a comprehensive drug benefit. As pharmacist Tom Connelly pointed out in his comment on Tuesday’s post: “Our biggest problem with Medicare Part D was seeing a minor, but not insignificant, portion of our prescription revenue going from immediate pay--cash on the barrel head--to 30 to 40 days out.”
Would pharmacists really prefer that seniors reach into to their own pocket simply to alleviate their cash flow problem? (No, of course not.)
Strategy #3: Blame the Wholesaler
It also defies economic logic to point the finger at the wholesalers for their payment terms. Smaller retail customers rely on wholesalers for many services—delivery, credit, generic sourcing, retail management. As a result, an independent pharmacy provides higher profits for a wholesaler than a large, powerful, self-distributing pharmacy chain such as CVS Corp or Walgreen (WAG).
Why would wholesalers want to kill their most profitable customers? In reality, wholesalers are working hard to help independent pharmacies survive in an increasingly competitive industry. (See Trouble Ahead for Independent Pharmacies for more background.)
Making Policy
Based on an objective look at the available evidence, there seems to be little compelling reason for Congress to interfere in a free market that will ultimately arrive at a reasonable solution for all parties. The marketplace reality is that third-party has overtaken cash pay at the pharmacy. We can’t rewind the world to make it more convenient for operators of independent pharmacies.
Perhaps I am too skeptical, but I wonder how many policymakers will venture beyond the Executive Summary and NCPA’s press release on this issue. The high level talking points are likely to crowd out an appropriate discussion of the costs and benefits to consumers and our health care system. Hopefully, my blog posts can make a small contribution to a more fact-based debate.
