This is a bold move by CVS Caremark with enough positive strategic implications that it overshadowed the otherwise gloomy news from Q2 earnings.
The contract supports my contention that there will be more PBM consolidation ahead. Scale matters in the PBM business, especially on the eve of major generic launches.
It’s a great defensive move. Medco was rumored to be wooing Aetna last year, but now must shop elsewhere.
The size of the deal will relieve pressure on CVS Caremark as it fixes the PBM business.
Yet, I have some nagging doubts. The deal seems much more like a very big administrative contract win rather than a game-changing consolidation. The transaction is neither as straightforward as the Express Scripts/NextRx combination nor will it be as profitable for CVS Caremark. The lack of detailed financial disclosure also makes me wonder how much CVS Caremark was willing to concede to make it all happen.
Plus, CVS Caremark is embarking on a long-overdue consolidation of its multiple PBM platforms while simultaneously ramping up the Aetna business, adding implementation risk.
Here's a rundown of noteworthy news stories from the Drug Channels universe in July.
In this edition, we look at industry perspectives on a replacement for Average Wholesale price (AWP), an investment analyst recommends CVS Caremark (NYSE:CVS) because it may split up, how health insurance plans are experimenting with preferred networks, and Medco Health Solutions (NYSE:MHS) wins the Ironic Deal of the Year. Plus, the Motley Fool explains why McKesson’s compensation committee "should be ashamed of themselves." Doh!
You can see the impressive list of companies that will be represented at the meeting below. IIR is also providing free access to a podcast series for the event.
Remember, IIR is offering a special 25% discount for Drug Channels readers. Just mention VIP code XP1558DRUGCH when registering.
Drug Benefit News recently published Changes Are in Store for PBM/Wholesaler Deals, an interview with yours truly about the intertwined but usually obscure interactions between drug wholesalers and Pharmacy Benefit Managers (PBMs).
As I note, drug wholesalers have a complex relationship with PBMs. Wholesalers are vendors that supply the majority of brand-name drugs purchased by a PBM’s mail-order pharmacy. At the same time, wholesalers own and operate organizations that help retail pharmacies negotiate with PBMs.
Wholesalers and PBMs are also on a collision course over the distribution channels for specialty drugs. Many pharmaceutical manufacturer clients can't detect the risks due to organizational silos and general unfamiliarity with interconnections within the drug channel system. Time to pay attention.
On Friday, GlaxoSmithKline (GSK) made a depressing announcement: “A small number of Advair Diskus inhalers stolen from a GlaxoSmithKline distribution warehouse in 2009 have been found in some pharmacies.”
Yikes! I guess the gray market is still alive and well.
This news should be a wake-up call to pharmaceutical manufacturers that are investing money in serialization. As I point out in Reality Check on Supply Chain Security, pedigree laws and track-and-trace technologies only work if pharmacy buyers refuse to buy outside legitimate channels and agree to authenticate (scan) an electronic tag.
Many executives at drug companies spend a lot of time worrying about technology implementation and standards, but forget to worry if anyone will actually read their bar code or RFID tag. Today's supply chain security investments will only have value if gray market buyers play by the rules.
I am pleased to welcome a new sponsor to Drug Channels—RxRoundtable.org, a news and commentary site focused exclusively on prescription drug benefits. I personally find the site to be a very valuable part of my regular scan for links and news stories about the drug channels universe.
Careful readers will notice that I include the RSS feed from RxRoundtable among the Industry News feeds tracked on the left sidebar of Drug Channels.
The topics and issues covered by RxRoundtable are often not covered by traditional pharmacy or pharmaceutical industry publications and e-newsletters. RxRoundtable is supported by the Pharmaceutical Care Management Association (PCMA), the association representing Pharmacy Benefit Managers (PBMs).
Read more about the site below. Welcome aboard, RxRoundtable!
Tuesday’s post about South Carolina' pharmacy profit boost connected me with Kelli D. Littlejohn, R.Ph., Pharm. D., Director, Pharmacy Services at the Alabama Medicaid Agency. Subject to approval by the Centers for Medicare and Medicaid Services (CMS), Alabama’s Medicaid program will soon implement a new pharmacy reimbursement program using Actual Acquisition Cost (AAC) instead of published benchmarks or Maximum Allowable Cost (MAC) lists.
Does AAC sound familiar? Yup, it’s our old friend cost-plus pharmacy reimbursement. As far as I know, Alabama is the first state to move to a cost-plus model. Some implications:
The cost-plus revolution continues. Interest in cost-plus models stems from payer perception that reimbursement models based on list prices can provide inappropriately high pharmacy profits on certain prescriptions.
Pharmacy profits will decline. Alabama estimates that Medicaid pharmacy costs will drop by $30.5 million in the first year—more than 6% of total drug spending and about $4 per prescription. Say goodbye to mega-spreads on generic prescriptions.
Get ready for transparency. The State publishes AAC survey data by product name and package size. Check out the cost of your favorite brand or generic drug by downloading the most recent AAC list.
Other payers will follow. Since the AAC data are on a public website for all to see, I see no reason why Pharmacy Benefit Managers (PBMs) or Medicare Part D Prescription Drug Plans (PDPs) will not start using the data in Alabama.
Last month, I read a curious press release from NACDS titled Major Victory for Patients and Pharmacy in South Carolina. It describes the "monumental achievement" of switching the pharmacy's ingredient cost reimbursement in the state's Medicaid program from Average Wholesale Price (AWP) minus 10% to Wholesale Acquisition Cost (WAC) plus 12.5%
Don't be fooled. This really is nothing more than a victory of politics over economics. Moving to WAC+12.5% means that South Carolina’s Medicaid program will now pay far more than other states for its drugs even though pharmacy costs are no higher.
Anyone concerned about the cost of health care should be very anxious about this “victory.” I conservatively estimate that this change will cost the South Carolina Medicaid program almost $10 million per year. Expand this victory to the other 49 states and we’ll add half a billion dollars to Medicaid costs even as states feel tapped out.
Better keep your hand on your wallet. The Patient Protection and Affordable Care Act will increase Medicaid enrollment by 30%. (See Health Reform: Impact on Drug Channels.)
While health care reform may not have bent the cost curve, we certainly seem to be on the road to unbending the pharmacy profit curve.
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As always, I thank you for reading Drug Channels. Please feel free to contact me with comments, complaints, or kudos. You can also connect with me via LinkedIn.
Welcome back! Hope you all had a relaxing July 4th holiday! Here's a belated rundown of noteworthy news stories from the Drug Channels universe in June.
In this edition, we look at Medi-Span’s ongoing support for Average Wholesale Price (AWP), the end of the prosecution of two former Bristol Myers Squibb (NYSE:BMY) for alleged “channel stuffing,” and Medco Health Solutions’ (NYSE:NHS) new branding campaign. Plus, I highlight a totally hilarious cease-and-desist letter to stop copyright infringement in the promotion of Canned Unicorn Meat. (Mmmm, unicorn meat...)
On Tuesday night, CVS Caremark (NYSE:CVS) announced a 12-year contract to provide PBM services to Aetna (NYSE:AET). Here is the official press release: Aetna Awards Long-Term Contract to CVS Caremark to Provide PBM Services.
