Independent Pharmacy Cooperative, a large group purchasing organization (GPO) for independent pharmacies, recently filed a lawsuit against McKesson (NYSE:MCK), its prime vendor wholesaler. According to this Courthouse News Service article, IPC “claims McKesson Corp. is striking side deals to steal its members, and using a punitive, $100 million early termination penalty to keep the group tied to McKesson.”
IPC member pharmacies collectively make up one of McKesson’s largest customers. This Wall Street Journal article attributed last Thursday's drop in McKesson’s stock price in part to “investors worried about the potential loss of business from a key customer that sued the pharmaceutical supplier for breach of contract.” However, McKesson's stock price bounced back by Friday.
I have no opinion on the merits of the case because the facts are not known. However, I want to share my general perspective on pharmacy buying groups because some readers may not be aware of their role in the supply chain for independent pharmacies. The excerpt below comes from The 2010-11 Economic Report on Pharmaceutical Wholesalers.
I will be attending the PCMA Annual Meeting on October 4 through 6. Send me an email if you’d like to arrange a one-on-one meeting in California. If you happen to run into me at the meeting, please introduce yourself. I'm always interested in chatting with Drug Channels readers.
On a more personal note, I must take a moment of your time for a wee bit of bragging.
My gorgeous wife of 19 years is now appearing in an ad campaign for Philadelphia's Reading Terminal Market. Check out her photo below from a bus stop at 16th and Walnut Street in Center City. Congratulations, honey!
Bonus: I can legitimately say that I am married to a model.
I am pleased to welcome eyeforpharma’s Specialty Pharma Commercial Excellence conference as a Drug Channels sponsor. The conference will be held in Boston on November 15 and 16. Read more in the official description below or download the brochure. There is a discount if you register before October 1.
This event should be particularly interesting to Drug Channels readers. Specialty pharmaceuticals account for about 15% of total pharmacy industry revenues today but will be closer to 30% by 2015. Unlike traditional oral drugs, a specialty drug can be covered under a medical benefit, a pharmacy benefit, or both. (See Specialty Drugs: The Medical vs. Pharmacy Benefit Muddle for data on this marketplace confusion.) The diversity of payment and channel options increases the importance of a successful commercial strategy for manufacturers.
I will be attending (but not presenting) the conference, so perhaps I will see you there!
I want to share some of my speculations about the pharmacy industry’s evolution if cost-plus pharmacy reimbursement becomes common.
As I see it, a cost-plus model gives a payer more control over pharmacy distribution and dispensing expenses. But this model could reduce incentives for generic substitution by limiting the profitability of generic prescriptions for retail and mail-order pharmacies. Payers would get new insights to the economics of Pharmacy Benefit Managers (PBMs). And as I describe below, widespread adoption of cost-plus ingredient cost reimbursement will likely lead to further pharmacy industry consolidation.
I also encourage you to check out the insightful reader comments below Monday’s CMS Approves Alabama’s Cost-Plus Plan. My article prompted a response from the always-gracious Kelli Littlejohn, Director of Pharmacy at the Alabama Medicaid Agency. I am reproducing her comments in this post below.
As always, I look forward more good debate and discussion from the Drug Channels community!
The Alabama Medicaid Agency just announced that the Centers for Medicare and Medicaid Services (CMS) has approved a new pharmacy reimbursement program using Actual Acquisition Cost (AAC) instead of published benchmark or Maximum Allowable Cost (MAC) lists. Read the official announcement on the AAC Program Implementation page. The changes will be effective for outpatient pharmacy claims on September 22, 2010.
Fans of transparency will be pleased to know that Alabama will now publish pharmacy acquisition costs for both brand-name and generic drugs (by product name and package size) on this free public website: Alabama AAC List.
My $0.02: The post-Average Wholesale Price (AWP) future just became a little clearer. While alternative list price benchmarks, such as Wholesale Acquisition Cost (WAC), are becoming more common, I expect computed transactional benchmarks to become the norm for pharmaceutical reimbursement. The Alabama Medicaid Agency now officially becomes the leading innovator of alternative benchmarks.
Stock prices of the Big 3 drug wholesalers—AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson (NYSE:MCK)—all jumped yesterday on analyst upgrades. Combined market capitalization rose about $1.6 billion. See Big 3 US Pharmaceutical Distributors Post Sharp Gains or this stock price chart. Tom Gallucci of Lazard Capital Markets referred to drug distributors as "The kind of group to own in this environment."
While I never comment on stock valuations, I do believe that the biggest wholesalers are positioning themselves as indispensable intermediaries in the supply chain and staking out a powerful position in high-growth channels for specialty drugs. Like it or not, manufacturers and pharmacies will be negotiating with wholesalers for some time.
To understand what keeps drug wholesaler CEOs up at night, check out my article Forces of Change for Pharmaceutical Wholesalers from the latest Pharmaceutical Commerce. Forewarned is forearmed when developing your next fee-for-service contract.
Buried in the report is an important pharmacy benefit trend—the growth of plan designs with four or more tiers. One out of eight employers now have high-tier plans, almost double the pre-economic meltdown proportion from 2008.
Why should you care? Because four-tier plans can pose enormous financial burdens on patients who pay co-insurance—a percentage of drug costs—rather than a fixed dollar co-payment. I wrote about these patient challenges way back in 2008 in Tier 4 Co-Pays and Pharmacy Prices.
Pharmaceutical manufacturers also need to make sure that certain products don’t end up on a fourth tier because it can dramatically reduce or eliminate access for patients. In the lexicon of a pharmaceutical manufacturer, four-tier plans pose a significant challenge to the payer marketing function, something I am seeing first-hand in my consulting work with drug companies.
Have you ever wondered about the statement that "10% of all drugs worldwide are counterfeit"?
The 10% figure has been cited by the World Health Organization (WHO), which has become the de facto source for the statistic. Just about every technology vendor involved in pharmaceutical supply chain security still touts the 10% figure as often as possible.
Alas, it turns out that the 10% figure has no factual basis in reality. Carl Bialik, the Wall Street Journal's Numbers Guy, published a fantastic piece of journalism this weekend entitled Counterfeit Drug Count Is Tough to Swallow. You should also read Dubious Origins for Drugs, and Stats About Them from The Number Guy's blog for some additional background.
The lesson? Always check the references. And don't believe everything you hear from technology vendors.
I am conducting a very brief Drug Channels reader survey to learn more about what you like and dislike about the blog. There are just a few questions, so it should only take you about 5 minutes to complete. Here's the link:
There is also a spot to add a testimonial, which I hope you will feel inspired to do.
You can answer anonymously. But if you provide an email address, I'll enter you in a drawing to win a free corporate license of my 2010-11 Economic Report on Pharmaceutical Wholesalers. No matter what, everything is completely confidential.
These deals emphasize the consolidation trend that has been moving through the drug channels universe for the past few years. Both companies are exiting non-core businesses that were neither well-loved nor well-understood by the respective management teams. Just my $0.02, but Walgreens made the better deal because it adds another puzzle piece to its growing non-retail business. Omnicare merely bulks up in a core industry that it knows all too well.
Believe it or not, the answer is … Independent Drug Stores! In fact, independents added 474 locations (+2.3%) in 2009, almost three times as many as chains (+177 locations, +0.8%). Even more astounding, the newly-revised NACDS data now show the number of independents increasing by 1% over the past seven years instead of declining by 10%.
The bad news? Both total revenues and number of prescriptions continue to decline at independents (as shown in New Data on Pharmacy Industry Market Share). Thus, the average independent survivor is smaller and less productive than we all previously thought.
Read on for the wonky details. And no more complaints that your friendly neighborhood blogger never provides good news about independent pharmacies!
I hope you get a chance to relax over the Labor Day weekend. Perhaps you'll even see a movie.
Unfortunately, you'll have to wait until November 24 to see Love and Other Drugs, a romantic comedy starring Jake Gyllenhaal and Anne Hathaway. Why should Drug Channels readers care? Because the movie is based on Hard Sell: The Evolution of a Viagra Salesman, a non-fiction book penned by former Pfizer sales rep James Reidy.
Check out the trailer below for what seems like a sorta sympathetic look at the pharmaceutical industry. Click here if you can't see the video.
Autumn is in the air! Time for a rundown of noteworthy news stories from the Drug Channels universe in September.
