Strategic Questions for 2K10 (Part 1 of 2)

Happy New Year!

Welcome back to another year of irreverent, humorous, and potentially insightful viewpoints from Adam J. Fein, your friendly neighborhood blogger. My 2010 looks busy already but I plan to continue sharing my $0.02 with you on Drug Channels.

Here is the first of two posts outlining major topics that I'll be watching in 2010, framed as strategic questions with links to relevant background posts. Please add your own strategic questions in the comments.

Part 2 will appear on Thursday.

I would very much appreciate if you can tell your friends and colleagues about Drug Channels. There are three easy ways to subscribe: Email (use form on left sidebar), RSS feed, or Twitter. Hey, the price is right!

I also want to remind you about the U.S. Pharmacy Industry: Economic Report and Outlook. This report was a best-seller in 2009 (Thank you!) and generated heaps of positive feedback from buyers. Stay tuned for new industry reports coming soon, including the 2010 update to my 2009 Economic Report on Pharmaceutical Wholesalers.

STRATEGIC QUESTIONS (#1 to #4)

1) How will Federal health care reform affect the drug channel? As I see it, the current House and Senate proposals are neutral to positive for drug channels participants. Pharmacies may fare less well as the uninsured gain coverage, but will benefit from proposal to “fix” the Federal Upper Limit (FUL) and reduce transparency to Average Manufacturer Price (AMP). The political debate will be fierce, especially after Harry Reid’s “cash for cloture” Christmas Eve shenanigans.

• Healthcare Reform: Bullish for PBMs, but Not Pharmacies
• Healthcare Reform Options for AMP
• Who Will Pay for Prescription Drugs?

2) Will CVS Caremark prove the strategic value of a PBM-Retail combo? I asked the same question last year. My skepticism now seems more justified given the events of the past two months. Caremark has a new boss who can probably re-energize the PBM business (as I told Bloomberg News). But there’s still the nagging problem of explaining how a PBM client benefits when a brick-and-mortar pharmacy is combined with a benefit management business.

• CVS Caremark: Pharmacy Gain, PBM Pain
• CVS' Losses in 2010 Part D Enrollment
• The Odd Economics of Maintenance Choice

3) Will restricted pharmacy networks gain traction? I predict the growth of preferred and restricted networks—retail pharmacy networks using financial incentives or explicit restrictions to direct consumers into specific pharmacies or channels. These networks are common for specialty drugs but on the verge of expanding into traditional retail pharmacies. Keep an eye on the Caterpillar/Wal-Mart/Walgreens deal as well as potential new network structures from PBMs.

• CAT Rolls Out Preferred WAG-WMT Pharmacy Network
• Will Caterpillar trigger a pharmacy price war?
• CAT + WAG = More Momentum for Cost Plus

4) How quickly will PBMs transition to their new business model? The largest PBMs still rely on dispensing generic drugs via mail-order pharmacies to subsidize benefit management services. They are investing today to combat the commoditization of the core benefit management business and mitigate the risks of a generic-focused profit model. Major strategies include patient-centric branded services, horizontal consolidation, international expansion, and personalized medicine/genomics. The smaller PBMs are attempting to gain traction with alternative pricing models. I expect that we’ll see bold announcements from both groups in 2010.

• PBMs Go Global for Growth
• PBM Consolidation Ahead (redux)
• Wal-Mart Aims at PBM Mail Profits

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So, what’s on your list for 2010?

Tune in for my second set of questions on Thursday!