On Sunday, the National Community Pharmacists Association (NCPA) announced the appointment of Kathleen Jaeger as Executive Vice President and CEO. Read the announcement. Ms. Jaeger was most recently President and CEO of the Generic Pharmaceutical Association (GPhA).I’m impressed by this selection. NCPA has chosen an experienced association director and Washington insider. I expect her to upgrade NCPA into a more professional organization, assuming that the old guard doesn’t block her from making the necessary changes.
Ms. Jaeger’s appointment illustrates how the balance of power is shifting in U.S. drug channels.
GPhA became a powerful lobbying organization during Ms. Jaeger’s tenure—a period which also corresponded to an increase in the retail generic dispensing rate (GDR) from about 40% in 2002 to more than 70% today. Retail GDR will exceed 80% within two years, so generics represent the future of the pharmaceutical industry.
But generic drugs turn pharmaceutical channel economics upside down. The costs of distributing and dispensing a traditional (non-specialty) generic drug far exceed the actual cost of the medicine, which is the opposite of brand-name drugs. As a result, the economic interests of companies within the U.S drug channel—pharmacies, wholesalers, and PBMs—are diverging from brand-name drug manufacturers.
Intriguingly, GPhA often aligned with the Pharmaceutical Care Management Association (PCMA), which represents the pharmacy benefit management (PBM) industry. Members of both associations gain with increases in the generic dispensing rate. Members of NCPA also gain from a higher GDR because the average generic prescription is more profitable for a pharmacy than the average brand-name prescription. (Yes, this really is true despite the howls of protest that you often read in comments on Drug Channels.)
In contrast to the PCMA-GPhA relationship, NCPA and PCMA are usually at odds on most issues due to the underlying economic relationship between PBMs and pharmacies. Ms. Jaeger’s background implies that she understands the true economics of the PBM business today, such as the fact that the majority of a PBM's profits come from dispensing generic drugs from their own mail-order pharmacies while retail network spreads are a comparatively small source of profits. Can we presume that NCPA’s messaging will start to more accurately reflect the real economics of today’s drug channels? Perhaps no more odd reactions to Walmart announcements?
This appointment also fuels NCPA’s expanding political ambitions. As I note in The Politics of Pharmacy, the NCPA’s Political Action Committee (PAC) has become one of the largest association PAC in the country. Whether it’s good or bad…well, that’s a different question.
I counsel my pharmaceutical manufacturer clients to break down functional silos and improve cross-departmental collaboration as channels consolidate and converge. Effective channel management starts with an economic understanding of how the revenue from an individual prescription gets divided between the manufacturer, the wholesaler, the pharmacy, and the PBM. The growing political savvy of trade associations makes this effort more important than ever.
---
Here’s a photo of me at the NCPA Convention yesterday. I think the booth was called "The Future of Pharmacy Technology" or something.
Photo credit to the ever-suave Bill Bertizmann!