At long last, we can finally see the Order granting the injunction against CMS’ implementation of the Average Manufacture Price (AMP) Final Rule.
Order in Civil Action No. 1:07cv02017 (I’m pretty confident that this is the final version because it says “Signed by Royce C. Lamberth, United States District Judge, on December 19, 2007.”)
Fans of legal wrangling will enjoy the back and forth between CMS and NACDS/NCPA over the wording of the final version. See these documents on the NCPA site. (The final version above was not on NCPA's site as of 8:30 PM EST on Wednesday night.)
The Order is two pages and contains only a few provisions. Here’s my plain English translation:
CMS can not use AMP Final Rule to compute retail pharmacy reimbursements under Medicaid. Obviously, this was the primary goal of the lawsuit.
CMS can continue to require drug manufacturers to make AMP and best price calculations under the AMP Final Rule. As I speculated on Monday, manufacturers faced the prospect of maintaining dual AMP calculations until the lawsuit got resolved. PhRMA explained this reality to the court in its letter on Tuesday. The Order clears up the uncertainty.
No AMP data can be disclosed on a public web site or to any individuals or states. NACDS and NCPA fought for this provision because of a recent survey indicating that nine states were considering AMP as the basis for brand reimbursement. (See page 5 of 2007 State Perspectives Medicaid Pharmacy Policies and Practices.)
Well, I hope this post satisfies the AMP fanatics. Now I've got to go back to packing for my vacation!
Drug Channels delivers timely analysis and provocative opinions from Adam J. Fein, Ph.D., the country's foremost expert on pharmaceutical economics and the drug distribution system. Drug Channels reaches an engaged, loyal and growing audience of more than 100,000 subscribers and followers. Learn more...
Wednesday, December 19, 2007
Drug Channels: 2007 Year in Review
Believe it or not, it’s time for my final post for 2007.
In the spirit of the season, I want to highlight the major themes of 2007 along with my good calls and near misses. I also want to give you some insights about the Drug Channels blog and its future.
There were 114 posts on Drug Channels in 2007, so this is a very long post. However, you will be rewarded with a hilarious video from now-bankrupt drug wholesaler FoxMeyer if you make it to the bottom.
Shining Light on Pharmacy Economics and the Pharmaceutical Supply Chain
My philosophy in writing this blog can be summed up with a quote from the late Senator Patrick Moniyhan: “Everyone is entitled to his own opinion, but not his own facts.” In my own way, I want to bring facts and balance to subjects that don't get sufficient or accurate coverage from traditional media outlets.
I was proud to break the story about CVS’ lawsuit with Prasco over generic pricing in CVS' Channel Power. Following coverage on Drug Channels, the story was picked up by Pharmalot, Drug Topics, The Pink Sheet, and a few Wall Street analysts. This was my big scoop of the year, even though information about the lawsuit was already in the public domain.
Retail pharmacy proved to be extremely effective at defining the legislative agenda and terms of debate, as I pointed out in Retail Pharmacy's New Power and correctly predicted in January's Lobbying for Pharmacy Profits. While an unprecedented number of pro-pharmacy bills were introduced in Congress, none of the major bills passed despite a Last Ditch Effort for the Senate’s AMP bill S.1951.
I also made some new enemies this year by analyzing how research results were misrepresented to score political points in A Misleading Study on Pharmacy Reimbursement and Hype vs. Research. See the comments beneath each post for a taste of the vitriol. I added insult to injury by pointing out how Part D is proving the value of consumer-directed healthcare.
Drug Channels was also one of the few places to read about the real economics and impact of Wal-Mart’s $4 generics program in Wal-Mart's Gain is not Walgreen's Pain and Wal-Mart adds some $4 generics (yawn).
I also tried to write about channel management from the manufacturer’s perspective. We should never forget there would be no pharmacy or pharmaceutical supply chain without the innovative therapeutics developed by pharmaceutical manufacturers. For example, I followed Pfizer’s new UK distribution model throughout 2007. Pfizer beat back the legal challenges, but then faced an investigation by the Office of Fair Trading (OFT). I overestimated the likelihood of an unfavorable OFT report in Pfizer's UK Plan in Trouble, but hopefully redeemed myself by going Behind the Scenes of Pfizer UK and then explaining what the OFT’s toothless report could mean for the U.S. marketplace.
Average Manufacturer Price (not)
Average Manufacturer Price (AMP) was one of the most popular topics on Drug Channels. We will undoubtedly be hearing much more about AMP, despite the recent injunction covered in No AMP for You!
I worked hard to give you an independent, non-partisan perspective on the impact of AMP. I provided my Comments on the AMP Final Rule just two (weekend) days after it was released and followed up a few days later by analyzing Reactions to AMP from the pharmacy industry. (They didn’t like it.) I explained Why AMP will not be Independents' day, calculated AMP's Impact on Pharmacy Profits, described why PBMs are not worried about AMP, and told you why AMP is Unloved and Unwanted (sniff) by manufacturers. I correctly predicted in May that CMS would exclude PBM rebates from the Final Rule (AMP will exclude PBM Rebates).
I also used Drug Channels to balance the doomsday visions put forth by certain pharmacy in Heretical Questions about the AMP War. Alas, this post did not win me friends at retail pharmacy trade associations, although the many comments from pharmacists indicate a grudging respect and even occasional agreement among actual pharmacists. The Illinois Pharmacist Association even conceded that Drug Channels is “thoughtful and in a lot of ways hard to argue with.”
I even managed to slip in some AMP humor in Death by AMP – an especially popular post in 2007!
The post-AWP Future
Anyone interested in the future of pharmacy reimbursement had plenty to read on Drug Channels this year.
I reviewed the Judge’s original ruling in the Average Wholesale Price (AWP) litigation last June in Comments on the AWP Decision and then followed it up by looking at the damages ruling and Judge Saris’ comments on fictitious AWPs. In my opinion, these decisions will effectively end the consideration of alternate "list price" pharmacy reimbursement models as replacements for current AWP minus models.
As I noted in ASP History Lessons, the introduction of Average Sales Price (ASP) reimbursement for Medicare Part B did not signal disaster for community oncologists or their patients. In fact, The ASP Future is Here because private health plans are already using Medicare’s ASP data for reimbursement, making me think that AMP (if ever published) will become the new pricing benchmark for retail scripts.
On January 1, 2008, CMS will pay for most Part B outpatient drugs at ASP+5%, which is a 1 percentage point drop from the current ASP+6%. It’s one more reason for pharmacies and providers to be anxious about the post-AWP future.
Counterfeiting and Security
Supply chain security was another hot topic at Drug Channels.
California’s looming 2009 e-pedigree deadline has manufacturers, wholesalers, and pharmacies scrambling to comply while also lobbying for a full or partial extension. In one particularly well-clicked post, I highlighted Virginia Herold’s trial balloon regarding a CA e-pedigree delay to 2011. Of course, she quickly backtracked from these comments, but I think a two-year delay or a phased implementation (per California Dreamin') is still very likely.
I generated some controversy by exploring the facts and myths behind much-hyped RFID solutions in RFID Un-Hype and More RFID Un-Hype. Check out the comments to those posts for some intriguing back-and-forth with DC readers.
I also attempted to present a unique supply chain spin on a few big media stories. PDUFA & Supply-Chain Security was one of very few resources to highlight the serialization requirements buried inside the Food and Drug Administration Amendments Act of 2007 (FDAAA). I even wrote about Presidential candidate John Edwards’ surprising embrace of track-and-trace technology in John Edwards and ... Pedigree?
Importation and Diversion
I am convinced that importation (a.k.a. legalized diversion) is risky due to my knowledge and experience about pharmacy supply methods. Unfortunately, mainstream media coverage does a poor job of connecting pharmacy and consumer behaviors to the patient safety dangers posed by importation. That’s why I explained the channel impacts behind importation and the fact that importation won’t really save much money.
My snarky posts about Senator Byron Dorgan – especially Consistent Inconsistency – generated fan mail from Washington, DC. (Sorry, only via private e-mail.)
I rounded out my coverage by writing about the fallacy of safe Canadian sourcing (Canadian Dreamin' and Diversion from Canada via China), how and why internet pharmacies Import Chinese Counterfeits, and why you should not buy Fosamax from Tony Soprano. Hey, never say that I don’t provide real-world tips!
Unfortunately, two of the three big drug wholesalers (AmerisourceBergen (ABC) and Cardinal Health (CAH)) faced DEA suspensions for supplying controlled substances to diverting pharmacies. Cardinal has now had suspensions at facilities in Washington, Florida, and New Jersey despite its December 2006 agreement to monitor pharmacies more carefully. I’m sure we’ll learn much more about this story in 2008.
And now a word from your host
I make Drug Channels freely available as part of my mission to educate, inform, and challenge people. I feel fortunate to have been similarly educated in many private emails and conversations that were sparked by the blog. So please keep emailing me with topics, questions, or news articles. I respond personally to all emails.
I am also gratified that readership of Drug Channels soared in 2007. Each week, there are a few thousand visitors on the site compared to only a few hundred in January. Drug Channels is frequently cited by many bloggers and reporters.
Your Reward: FoxMeyer Nostalgia
Congratulations for making it to the bottom of my 2007 review!
Enjoy this jaw dropping clip of a “motivational” meeting led by the senior executives from once-mighty FoxMeyer, which was acquired by McKesson through bankruptcy court proceedings in 1996. The hilarity starts at 1:23. Ah yes, the glory days when top execs would lip sync and dance on stage. I particularly enjoyed “Tim Beauchamp, Distribution Man” at 4:03, although he was a bit pitchy.
Hat tip to On Pharma.
------
I'll be back during the week of January 8. Until then, I wish you a healthly and happy new year!
All the best,
Adam
In the spirit of the season, I want to highlight the major themes of 2007 along with my good calls and near misses. I also want to give you some insights about the Drug Channels blog and its future.
There were 114 posts on Drug Channels in 2007, so this is a very long post. However, you will be rewarded with a hilarious video from now-bankrupt drug wholesaler FoxMeyer if you make it to the bottom.
Shining Light on Pharmacy Economics and the Pharmaceutical Supply Chain
My philosophy in writing this blog can be summed up with a quote from the late Senator Patrick Moniyhan: “Everyone is entitled to his own opinion, but not his own facts.” In my own way, I want to bring facts and balance to subjects that don't get sufficient or accurate coverage from traditional media outlets.
I was proud to break the story about CVS’ lawsuit with Prasco over generic pricing in CVS' Channel Power. Following coverage on Drug Channels, the story was picked up by Pharmalot, Drug Topics, The Pink Sheet, and a few Wall Street analysts. This was my big scoop of the year, even though information about the lawsuit was already in the public domain.
Retail pharmacy proved to be extremely effective at defining the legislative agenda and terms of debate, as I pointed out in Retail Pharmacy's New Power and correctly predicted in January's Lobbying for Pharmacy Profits. While an unprecedented number of pro-pharmacy bills were introduced in Congress, none of the major bills passed despite a Last Ditch Effort for the Senate’s AMP bill S.1951.
I also made some new enemies this year by analyzing how research results were misrepresented to score political points in A Misleading Study on Pharmacy Reimbursement and Hype vs. Research. See the comments beneath each post for a taste of the vitriol. I added insult to injury by pointing out how Part D is proving the value of consumer-directed healthcare.
Drug Channels was also one of the few places to read about the real economics and impact of Wal-Mart’s $4 generics program in Wal-Mart's Gain is not Walgreen's Pain and Wal-Mart adds some $4 generics (yawn).
I also tried to write about channel management from the manufacturer’s perspective. We should never forget there would be no pharmacy or pharmaceutical supply chain without the innovative therapeutics developed by pharmaceutical manufacturers. For example, I followed Pfizer’s new UK distribution model throughout 2007. Pfizer beat back the legal challenges, but then faced an investigation by the Office of Fair Trading (OFT). I overestimated the likelihood of an unfavorable OFT report in Pfizer's UK Plan in Trouble, but hopefully redeemed myself by going Behind the Scenes of Pfizer UK and then explaining what the OFT’s toothless report could mean for the U.S. marketplace.
Average Manufacturer Price (not)
Average Manufacturer Price (AMP) was one of the most popular topics on Drug Channels. We will undoubtedly be hearing much more about AMP, despite the recent injunction covered in No AMP for You!
I worked hard to give you an independent, non-partisan perspective on the impact of AMP. I provided my Comments on the AMP Final Rule just two (weekend) days after it was released and followed up a few days later by analyzing Reactions to AMP from the pharmacy industry. (They didn’t like it.) I explained Why AMP will not be Independents' day, calculated AMP's Impact on Pharmacy Profits, described why PBMs are not worried about AMP, and told you why AMP is Unloved and Unwanted (sniff) by manufacturers. I correctly predicted in May that CMS would exclude PBM rebates from the Final Rule (AMP will exclude PBM Rebates).
I also used Drug Channels to balance the doomsday visions put forth by certain pharmacy in Heretical Questions about the AMP War. Alas, this post did not win me friends at retail pharmacy trade associations, although the many comments from pharmacists indicate a grudging respect and even occasional agreement among actual pharmacists. The Illinois Pharmacist Association even conceded that Drug Channels is “thoughtful and in a lot of ways hard to argue with.”
I even managed to slip in some AMP humor in Death by AMP – an especially popular post in 2007!
The post-AWP Future
Anyone interested in the future of pharmacy reimbursement had plenty to read on Drug Channels this year.
I reviewed the Judge’s original ruling in the Average Wholesale Price (AWP) litigation last June in Comments on the AWP Decision and then followed it up by looking at the damages ruling and Judge Saris’ comments on fictitious AWPs. In my opinion, these decisions will effectively end the consideration of alternate "list price" pharmacy reimbursement models as replacements for current AWP minus models.
As I noted in ASP History Lessons, the introduction of Average Sales Price (ASP) reimbursement for Medicare Part B did not signal disaster for community oncologists or their patients. In fact, The ASP Future is Here because private health plans are already using Medicare’s ASP data for reimbursement, making me think that AMP (if ever published) will become the new pricing benchmark for retail scripts.
On January 1, 2008, CMS will pay for most Part B outpatient drugs at ASP+5%, which is a 1 percentage point drop from the current ASP+6%. It’s one more reason for pharmacies and providers to be anxious about the post-AWP future.
Counterfeiting and Security
Supply chain security was another hot topic at Drug Channels.
California’s looming 2009 e-pedigree deadline has manufacturers, wholesalers, and pharmacies scrambling to comply while also lobbying for a full or partial extension. In one particularly well-clicked post, I highlighted Virginia Herold’s trial balloon regarding a CA e-pedigree delay to 2011. Of course, she quickly backtracked from these comments, but I think a two-year delay or a phased implementation (per California Dreamin') is still very likely.
I generated some controversy by exploring the facts and myths behind much-hyped RFID solutions in RFID Un-Hype and More RFID Un-Hype. Check out the comments to those posts for some intriguing back-and-forth with DC readers.
I also attempted to present a unique supply chain spin on a few big media stories. PDUFA & Supply-Chain Security was one of very few resources to highlight the serialization requirements buried inside the Food and Drug Administration Amendments Act of 2007 (FDAAA). I even wrote about Presidential candidate John Edwards’ surprising embrace of track-and-trace technology in John Edwards and ... Pedigree?
Importation and Diversion
I am convinced that importation (a.k.a. legalized diversion) is risky due to my knowledge and experience about pharmacy supply methods. Unfortunately, mainstream media coverage does a poor job of connecting pharmacy and consumer behaviors to the patient safety dangers posed by importation. That’s why I explained the channel impacts behind importation and the fact that importation won’t really save much money.
My snarky posts about Senator Byron Dorgan – especially Consistent Inconsistency – generated fan mail from Washington, DC. (Sorry, only via private e-mail.)
I rounded out my coverage by writing about the fallacy of safe Canadian sourcing (Canadian Dreamin' and Diversion from Canada via China), how and why internet pharmacies Import Chinese Counterfeits, and why you should not buy Fosamax from Tony Soprano. Hey, never say that I don’t provide real-world tips!
Unfortunately, two of the three big drug wholesalers (AmerisourceBergen (ABC) and Cardinal Health (CAH)) faced DEA suspensions for supplying controlled substances to diverting pharmacies. Cardinal has now had suspensions at facilities in Washington, Florida, and New Jersey despite its December 2006 agreement to monitor pharmacies more carefully. I’m sure we’ll learn much more about this story in 2008.
And now a word from your host
I make Drug Channels freely available as part of my mission to educate, inform, and challenge people. I feel fortunate to have been similarly educated in many private emails and conversations that were sparked by the blog. So please keep emailing me with topics, questions, or news articles. I respond personally to all emails.
I am also gratified that readership of Drug Channels soared in 2007. Each week, there are a few thousand visitors on the site compared to only a few hundred in January. Drug Channels is frequently cited by many bloggers and reporters.
Your Reward: FoxMeyer Nostalgia
Congratulations for making it to the bottom of my 2007 review!
Enjoy this jaw dropping clip of a “motivational” meeting led by the senior executives from once-mighty FoxMeyer, which was acquired by McKesson through bankruptcy court proceedings in 1996. The hilarity starts at 1:23. Ah yes, the glory days when top execs would lip sync and dance on stage. I particularly enjoyed “Tim Beauchamp, Distribution Man” at 4:03, although he was a bit pitchy.
Hat tip to On Pharma.
------
I'll be back during the week of January 8. Until then, I wish you a healthly and happy new year!
All the best,
Adam
Monday, December 17, 2007
No AMP for You!
Well, pierce my ears, and call me drafty!On Friday, U.S. District Court Judge Royce Lamberth granted an injunction that will prevent CMS from adopting the AMP-based reimbursement formula for generic prescriptions in Medicaid until he has reportedly “had an opportunity to fully review the new payment plan.” CMS will also not be permitted to post Average Manufacturer Price (AMP) data on the Internet as planned.
The injunction stemmed from a lawsuit brought by NACDS and NCPA against CMS. (See the NCPA’s Legal Proceedings page for links to the case documents.) In Analysis of AMP Lawsuit Odds last month, I incorrectly predicted that the injunction would not be granted. (Thanks a lot, Arnie Becker!) Naturally, I will be happy to refund your subscription fee to Drug Channels.
Here are some initial reactions to the injunction:
CMS was over confident. One interesting revelation from this lawsuit was the fact that CMS intended to publish the AMP data in “mid-December.” The comment period for a related portion of the AMP rule closes on January 2, 2008, leaving very limited time for detailed challenges or data analyses. Last week, I attended a conference in which one speaker (a DC lawyer) said: “CMS feels very strongly that what they’ve done is correct.” Their Memorandum of Opposition did not even bother to rebut the marketplace impacts outlined in the expert report submitted by NACDS and NCPA.
Pharmacy lobbyists won the PR battle. NACDS and (especially) NCPA repeatedly claimed that AMP was only about “access for low-income patients.” They currently claim that the DRA (by itself) will lead to the closure of 10,000 to 12,000 pharmacies. These claims have been asserted and repeated without evidence even when objective reality provides factual reasons to doubt the claims. It helps that AMP is unloved and unwanted by almost everyone. I honestly wonder whether pharmacy advocates genuinely believe their own claims. There’s a useful lesson in doublethink propaganda here.
Pharmacies get a (small) profit reprieve. The larger chains, such as CVS and Walgreens (WAG), have not publicly quantified the impact of AMP, although the effect would not have been very large. Keep in mind that the DRA will only reduce retail pharmacy revenue by half of one percent annually – hardly the difference between poverty and riches (and hardly enough to sink 12,000 pharmacies).
Manufacturers will incur higher short term costs. Based on the latest timeline, manufacturers have already reported October 2007 AMPs using the new definition. If so, then manufacturers may need to run two parallel systems (Old AMP and Final Rule AMP) until the lawsuit is resolved. Manufacturers may even need to recalculate and resubmit their recent AMP data based on the old calculations.
The post-AWP future looks hazier. Average Wholesale Price (AWP) is still the primary benchmark for determining pharmacy reimbursement despite its well-known shortcomings and the short lifespan. I have previously suggested that AMP seemed to be a likely candidate for a replacement benchmark, especially for Part D plans. Payers and PBMs will be keeping a close eye on this case.
The government gets beaten (again). Last December, the FDA was successfully blocked from implementing the pedigree requirements of the Prescription Drug Marketing Act. (See No PDMA for you!) I wonder if these successes will increase the chances of a December 2008 injunction against the California Board of Pharmacy regarding e-pedigree.
------
I'll post again after I've digested the Injunction. In the meantime, I now need to revise my 2007 Year in Review!
Friday, December 14, 2007
And Swedesboro makes three...
Sometimes I don't like making accurate predictions.
In More Monkey Business From Cardinal, I joked about Cardinal Health's (CAH) DEA suspensions by saying "Two down; 26 warehouses to go."
Unfortunately, Swedesboro, NJ, now makes three down. You can read Cardinal's letter to its customers for yourself.
According to a story in the Columbus Dispatch, Cardinal did not make a formal announcement about the latest license suspension because it is part of the same investigation as the other two centers. I suppose that makes sense, especially if there are more to come.
An anonymous Dec. 12 Drug Channels blog comment from someone claiming to be "from one of the big three" wholesalers purports to provide an insider's perspective on this situation. (Page down to see the comment.) It's anonymous, so you'll have to evaluate the comment for yourself.
====
Stay tuned next week for my 2007 Year in Review post, which will wrap up the year.
In More Monkey Business From Cardinal, I joked about Cardinal Health's (CAH) DEA suspensions by saying "Two down; 26 warehouses to go."
Unfortunately, Swedesboro, NJ, now makes three down. You can read Cardinal's letter to its customers for yourself.
According to a story in the Columbus Dispatch, Cardinal did not make a formal announcement about the latest license suspension because it is part of the same investigation as the other two centers. I suppose that makes sense, especially if there are more to come.
An anonymous Dec. 12 Drug Channels blog comment from someone claiming to be "from one of the big three" wholesalers purports to provide an insider's perspective on this situation. (Page down to see the comment.) It's anonymous, so you'll have to evaluate the comment for yourself.
====
Stay tuned next week for my 2007 Year in Review post, which will wrap up the year.
Wednesday, December 12, 2007
U.S. Lessons from Pfizer UK
The UK Office of Fair Trading (OFT) just released its report on the new direct-to-pharmacy (DTP) distribution model being used by Pfizer and Alliance Unichem.
Their bottom line: Control of distribution could allow Pfizer to profit at the expense of the UK government, which might end up paying “hundreds of millions of pounds a year.” The headlines have predictably focused on this rather theoretical conclusion. (Example: OFT says new drug deals could cost NHS millions in the Times of London)
The more intriguing story are the reasons *why* the British government (a single payer) dislikes Pfizer’s plan. As I explain below, I think that the OFT report gives us fresh insight into why U.S. payers will care more about U.S. manufacturer channel strategies in a world of cost plus, Average Manufacturer Price (AMP) based pharmacy reimbursement.
Nudge Nudge
I’ve been covering Pfizer’s plan since it was announced 15 months ago and recently gave you some behind-the-scenes insights from the Director of Commercial Operations at Pfizer UK. You can read Pfizer’s description of the program on their UK web page.
Here’s some brief background to help you understand the following OFT report materials:
- OFT makes recommendations to Government on UK medicines distribution – Press Release
- Medicines distribution: an OFT market study – Full report (Warning: It’s verbose, repetitive, redundant, and repetitive)
In the UK, manufacturers give wholesalers a discount of 12.5 percent off list price. Competition between wholesalers means that wholesalers pass 10.5 percent of their discount (84%) to retail pharmacies. Wholesalers get reimbursed for dispensing by the UK government’s National Health Service (NHS) based on list price.
However, the National Health Service (NHS), which is the UK government payer, gets to clawback any “excess profits” that a pharmacy earns from high discounts. This mechanism allows the single government payer to pay below list price because it shares in the financial gains of savvy purchasing by pharmacies.
The Ministry of Silly Reports
The OFT fears that the DTP model will reduce wholesaler competition, thereby shrinking the discount off list offered to pharmacies. The NHS would end up paying “hundreds of millions of pounds a year” because there will be less for the government to clawback from pharmacies. The OFT is also concerned that manufacturers will try to save money by reducing service levels to pharmacies and ultimately patients.
The core reasoning behind OFT’s anti-competitive fears appears in section 5 (pages 73-83) of the full report. It’s somewhat slow going, especially because the arguments are made without specific data or quantification.
Critically, the OFT does not recommend anything stronger than “monitoring the situation.” Translation: These (so far) theoretical concerns do not merit any formal actions.
And Now For Something Completely Different
The UK discounting dynamics will sound familiar to U.S. market participants. Here in the U.S., drug makers give certain discounts or fees only to wholesalers. The large buyers play the wholesalers off against each other and extract most of these discounts and fees. Just look at the recent negotiations between Cardinal Health (CAH) and CVS for an example.
But unlike the UK, U.S. pharmacies get to keep any extra profits gained from squeezing the wholesaler. “AWP minus” reimbursement creates powerful incentives for pharmacies to seek lower drug prices from their wholesale suppliers. Medicare and Medicaid do not financially benefit from higher spreads at the pharmacy level.
In contrast, an “AMP Plus” model would create a very different dynamic for a payer, who would share in the financial benefit from any reduction in Average Manufacturer Price (AMP). Thus, any manufacturer-led distribution changes that reduced competition for manufacturer discounts from direct buyers (wholesalers or pharmacies) would be opposed by payers.
Here in the U.S., payers have shown a willingness to alter drug distribution as a means to reduce costs. (Just look the growth of mail order.) I’m not suggesting that payers will suddenly care about a manufacturer's fee-for-service agreements or the number of authorized distributors. But I am suggesting that AMP will make them care a lot more than they do now.
Tuesday, December 11, 2007
More Monkey Business From Cardinal
Believe it or not, the U.S. Drug Enforcement Administration (DEA) has again suspended Cardinal Health’s (CAH) license to distribute controlled substances from its Lakeland, FL, distribution center. This suspension follows close on the heels of the November 29 DEA suspension at the company’s Auburn, WA, distribution center.Two down; 26 warehouses to go?
Lakeland is midway between Tampa and Orlando, placing it smack dab in the heart of America’s Diversion Heartland™ in the state with the country’s first pedigree laws. Hmmm...
Cardinal’s press release states that the company is “reviewing its controlled substance procedures.” I guess another review can’t hurt. In its 10-K filed last August, Cardinal claims to have already “adopted policies and procedures designed to prevent the diversion of pharmaceutical products” in response to the Assurance of Discontinuance signed in December 2006 with the New York State Attorney’s office.
So far, Wall Street seems unconcerned because the suspensions will have no material financial impact. But doesn’t anyone else wonder if the DEA now has a dedicated Task Force examining every Cardinal facility?
In the meantime, perhaps Mr. Clark should lead a field trip to the new Good Medicine, Bad Behavior: Drug Diversion in America exhibit at the DEA Museum & Visitors Center in Arlington, Virginia. Looks fun to me.
Monday, December 10, 2007
Do Pharmacists want Pedigree?
Do pharmacists want pedigree laws? Who should pay for pedigree implementation in pharmacies?
I thought of these questions while reading the comments of Dave Wilcox, RPh, owner of Northwest Medical Pharmacy in Fresno. Mr. Wilcox testified on behalf of the National Community Pharmacists Association (NCPA) at the California Board of Pharmacy’s Work Group on E-pedigree last Wednesday. You can read his written testimony online.
NCPA argue that the implementation should be extended to January 1, 2011. They also raise two points that anyone concerned with pedigree should consider:
Alas, I wonder if raising the costs and administrative burdens of pedigree for pharmacies could lead to rampant non-compliance and turn pedigree laws into a meaningless exercise that will not secure the supply chain.
The Return of Unsafe Sourcing?
I also wonder if the burden of pedigree could tempt some pharmacies to engage in unsafe buying practices, especially if any type of importation law gets passed in the next Congress.
A recent Integrichain white paper suggests that $10 billion in prescriptions products in 2006 were either diverted, parallel imported, or outright counterfeit. Their analyses suggest that most secondary wholesalers now buy from non-wholesale sources (including long term care facilities, retailers, and public health services) and then sell directly to pharmacies. (You can download this white paper after registering.) Florida continues to have major diversion problems in the first year of its new pedigree laws.
I hate to be the bearer of bad news, but we should all acknowledge that it will be very difficult for the CA Board of Pharmacy to catch non-compliance. The California Board of Pharmacy has 50 employees and a budget of less than $10 million. There are fewer than 20 field inspectors to cover 5,300 community pharmacies and almost 65,000 community pharmacists – and that’s before we start counting institutional pharmacies in hospitals and clinics!
Given these limited resources, the CA Board ambitiously aims to inspect every licensed facility once in every three year inspection cycle. Pedigree non-compliance will likely to be low on the list of potential frauds.
Who should pay for pedigree?
Last January, I warned that private companies are being forced to shoulder the burden of protecting the drug supply chain with a do-it-yourself (DIY) model. I don’t see much changing in the future.
So far, nearly all of the costs of pedigree are being borne by manufacturers and wholesalers. Independent pharmacists are busy just trying to keep their heads above water - as the comments about AMP made by pharmacists on my blog indicate.
Since many boards of pharmacy are composed of independent pharmacists, I sincerely doubt that these Boards will allow additional burdens or costs to be put on independent pharmacies. Just reread California’s statute, which I view as deliberately vague about whether pharmacies must actively check the pedigree from wholesalers.
Still not convinced? Consider the comments of Bruce Roberts, who recently highlighted NCPA’s intention to “minimize any impact” of Federal pedigree laws on independent pharmacy. In 2006, the American Pharmacists Association (APhA) expressed its mild support for the FDA's attempt to implement the PDMA but worried about any minor disruptions or costs to pharmacists. (Read the APhA statement to the FDA.)
So, what do the pharmacists out there think? Who should pay for pedigree? Am I being a realist or a pessimist?
I thought of these questions while reading the comments of Dave Wilcox, RPh, owner of Northwest Medical Pharmacy in Fresno. Mr. Wilcox testified on behalf of the National Community Pharmacists Association (NCPA) at the California Board of Pharmacy’s Work Group on E-pedigree last Wednesday. You can read his written testimony online.
NCPA argue that the implementation should be extended to January 1, 2011. They also raise two points that anyone concerned with pedigree should consider:
- “As E-pedigree is implemented, independent pharmacists should be compensated for the costs associated with the purchase of multiple technologies.”
- Regarding “inference” that a container has the items listed in it: “[A] pharmacist and other recipients of 'inferred' containers should be held harmless for the contents of the container.”
Alas, I wonder if raising the costs and administrative burdens of pedigree for pharmacies could lead to rampant non-compliance and turn pedigree laws into a meaningless exercise that will not secure the supply chain.
The Return of Unsafe Sourcing?
I also wonder if the burden of pedigree could tempt some pharmacies to engage in unsafe buying practices, especially if any type of importation law gets passed in the next Congress.
A recent Integrichain white paper suggests that $10 billion in prescriptions products in 2006 were either diverted, parallel imported, or outright counterfeit. Their analyses suggest that most secondary wholesalers now buy from non-wholesale sources (including long term care facilities, retailers, and public health services) and then sell directly to pharmacies. (You can download this white paper after registering.) Florida continues to have major diversion problems in the first year of its new pedigree laws.
I hate to be the bearer of bad news, but we should all acknowledge that it will be very difficult for the CA Board of Pharmacy to catch non-compliance. The California Board of Pharmacy has 50 employees and a budget of less than $10 million. There are fewer than 20 field inspectors to cover 5,300 community pharmacies and almost 65,000 community pharmacists – and that’s before we start counting institutional pharmacies in hospitals and clinics!
Given these limited resources, the CA Board ambitiously aims to inspect every licensed facility once in every three year inspection cycle. Pedigree non-compliance will likely to be low on the list of potential frauds.
Who should pay for pedigree?
Last January, I warned that private companies are being forced to shoulder the burden of protecting the drug supply chain with a do-it-yourself (DIY) model. I don’t see much changing in the future.
So far, nearly all of the costs of pedigree are being borne by manufacturers and wholesalers. Independent pharmacists are busy just trying to keep their heads above water - as the comments about AMP made by pharmacists on my blog indicate.
Since many boards of pharmacy are composed of independent pharmacists, I sincerely doubt that these Boards will allow additional burdens or costs to be put on independent pharmacies. Just reread California’s statute, which I view as deliberately vague about whether pharmacies must actively check the pedigree from wholesalers.
Still not convinced? Consider the comments of Bruce Roberts, who recently highlighted NCPA’s intention to “minimize any impact” of Federal pedigree laws on independent pharmacy. In 2006, the American Pharmacists Association (APhA) expressed its mild support for the FDA's attempt to implement the PDMA but worried about any minor disruptions or costs to pharmacists. (Read the APhA statement to the FDA.)
So, what do the pharmacists out there think? Who should pay for pedigree? Am I being a realist or a pessimist?
Monday, December 03, 2007
Part D and Generics
I wonder if branded drug makers are having second thought about the Medicare Part D benefit.
On one hand, Part D has demonstrably improved access and reduced out-of-pocket costs for seniors with no drug coverage. (See PhRMA’s September 2007 study.) Part D has also slowed drug diversion from Canada, which improves patient safety.
However, the much-maligned “donut hole” also appears to be encouraging greater generic substitution. Check out a new OIG report called Generic Drug Utilization In The Medicare Part D Program., which examines 341 million prescriptions paid by Part D in the first half of 2006. During the first six months of the Part D program:
Ironically, the donut hole may ultimately end up hurting brand manufacturers by accelerating already-rapid generic substitution rates. (Good New York Times article on this topic: Strategies to Avoid Medicare’s Big Hole). According to the Times, CMS estimates that generic dispensing rates are now 61.5%.
This unexpected dynamic could slow momentum for dramatic changes to the Part D program. Democrats perpetually chatter about using “direct price negotiations” with manufacturers to fund the elimination of the donut hole. Although the structure of the Part D benefit makes such negotiations virtually impossible to implement, brand manufacturers will likely feel much more pricing pressure from Part D plans.
The next few years will see an enormous wave of new generics. In 2006, Part D cost the Federal Government $47 billion in 2006, which is $13 billion less than the original estimate of $59 billion. Generic drug substitutions were a prime contributor to the 2006 reduction and lowered future cost estimates. Look for further reductions in the estimated cost of Part D, especially if Average Manufacturer Price (AMP) gets linked to Part D.
Ironically, I learned over Thanksgiving that my own grandmother was one of the few seniors who hit the donut hole. Why? Grandma told me that “she doesn’t believe in generics” because “they are just not as potent.” (I'm not making this up!) She insists on paying for brands even though her own pharmacist said that she is wasting her money.
Don’t worry – I thanked her on behalf of all branded manufacturers.
============================
BONUS: Boomer humor
Click here to see a very funny animation aimed at readers who are (or will soon be) eligible for Part D!
On one hand, Part D has demonstrably improved access and reduced out-of-pocket costs for seniors with no drug coverage. (See PhRMA’s September 2007 study.) Part D has also slowed drug diversion from Canada, which improves patient safety.
However, the much-maligned “donut hole” also appears to be encouraging greater generic substitution. Check out a new OIG report called Generic Drug Utilization In The Medicare Part D Program., which examines 341 million prescriptions paid by Part D in the first half of 2006. During the first six months of the Part D program:
- Generic drugs were dispensed 88 percent of the time when generic substitutes were available
- 56 percent of all drugs dispensed were generics
Ironically, the donut hole may ultimately end up hurting brand manufacturers by accelerating already-rapid generic substitution rates. (Good New York Times article on this topic: Strategies to Avoid Medicare’s Big Hole). According to the Times, CMS estimates that generic dispensing rates are now 61.5%.
This unexpected dynamic could slow momentum for dramatic changes to the Part D program. Democrats perpetually chatter about using “direct price negotiations” with manufacturers to fund the elimination of the donut hole. Although the structure of the Part D benefit makes such negotiations virtually impossible to implement, brand manufacturers will likely feel much more pricing pressure from Part D plans.
The next few years will see an enormous wave of new generics. In 2006, Part D cost the Federal Government $47 billion in 2006, which is $13 billion less than the original estimate of $59 billion. Generic drug substitutions were a prime contributor to the 2006 reduction and lowered future cost estimates. Look for further reductions in the estimated cost of Part D, especially if Average Manufacturer Price (AMP) gets linked to Part D.
Ironically, I learned over Thanksgiving that my own grandmother was one of the few seniors who hit the donut hole. Why? Grandma told me that “she doesn’t believe in generics” because “they are just not as potent.” (I'm not making this up!) She insists on paying for brands even though her own pharmacist said that she is wasting her money.
Don’t worry – I thanked her on behalf of all branded manufacturers.
============================
BONUS: Boomer humor
Click here to see a very funny animation aimed at readers who are (or will soon be) eligible for Part D!