Welcome Again, Restat! (sponsor)

I am pleased to welcome continuing Drug Channels sponsor Restat, the largest privately-held Pharmacy Benefit Manager (PBM).

Restat markets a cost-plus, preferred pharmacy model to self-insured employers as Align, which they describe as "a proven way for self insured employers to reduce the cost of their pharmacy benefit." Read more in the company's description below and on their website.

You may recall Restat as the sponsor of very interesting white paper titled The Value of Alternative Pharmacy Networks and Pass-Through Pricing: An Actuarial Analysis (free download). You can read more about the paper along with a spirited debate about its conclusions in Pharmacy Profits in Preferred Networks with PBM Transparency.

Thanks very much for your support, Restat.

2011 Part D Market Share: A Win for Humana and Walmart

Humana (NYSE:HUM) recently announced that it will begin reporting its operating results in four business segments: Retail, Employer Group, and Health and Well-Being Services. Humana’s Retail segment includes Medicare Advantage, Medicare Part D Prescription Drug Plans (PDPs), and HumanaOne individual health plans. See Humana Makes Financial Announcements (press release).

Next Monday, Humana will report results for the first quarter of 2011. Based on my independent analysis of CMS data on Part D plans, the company will have a lot to brag about next week for its Retail segment:

• Humana had a net gain of about 570,000 PDP enrollees, more than any other organization in 2011.

• The Humana Walmart-Preferred Rx Plan, a preferred pharmacy network PDP launched in October 2010, is now the fifth-largest PDP in the U.S.

At the time the Humana-Walmart plan was announced, I predicted that other payers would roll out preferred pharmacy networks—one of my four big trends for 2011. Guess what? United Health’s (NYSE:UNH) Prescription Solutions (now OptumRx), the biggest player in Medicare, just launched its own preferred network design. Details below.

Drug Channels Earnings Calendar: 2011:Q1

The largest drug wholesalers and Pharmacy Benefit Managers (PBMs) all report quarterly financial results for the first calendar quarter of 2011 this week and next week. These financial reports and accompanying conference calls provide invaluable insights into the strategies and economics of companies within U.S. drug channels.

As a service to Drug Channels readers, I'm providing the calendar along with links to the earnings conference call webcasts for each company. If you don’t have time to listen to the calls, free transcripts show up on Seeking Alpha within a few days.

Pembroke Consulting retainer clients can contact me for post-game analysis on any of these reports. Gerson Lehrman Group customers can make a request via their GLG client representative.

Chains in 2010: Winning

Last week, IMS Health released its official public 2010 data in The Use of Medicines in the United States: Review of 2010. This free downloadable report provides lots of useful info about the state of the pharmaceutical industry.

My slice-and-dice of the data appear in the tables below. A few highlights:

• The total number of retail prescriptions dispensed grew by a paltry 1.2%.

• Chain drugstores gained market share of prescriptions again in 2010. All other retail formats—independents, supermarkets with pharmacies, and mail-order pharmacies—lost share.

• Independents filled 6.3 million fewer prescriptions in 2010, making it the only pharmacy format to shrink last year.

Note that my analysis below only focuses on prescription data. IMS inaccurately claimed to report data on “spending on medicines,” although they actually were reporting manufacturer revenues. Unfortunately, most press articles mindlessly lifted IMS’ language about spending. Oh well. Data wonks can savor my clarification at the end.

The Economic Outlook from GPO Premier

Premier, the large alliance and Group Purchasing Organization (GPO), just released its latest Economic Outlook report titled The Globalization of Healthcare. This is a useful (and free) report that you should download.

I had never read Premier's Outlook report before, but came away very impressed with both the quality of the content and the high level of production value.

Below are the highlights that caught my eye. BTW, the report comes out twice a year and is always available for free to non-members. I'll mark my calendar for the Fall edition.

More CVS Caremark Break-up Chatter

Last Friday, The New York Times covered the growing buzz about a CVS Caremark (NYSE:CVS) split in Pressure Grows to Unwind CVS Merger.

The article joins CVS $25 Billion Benefit Looms With Caremark Breakup: Real M&A from Bloomberg Business Week.

The clock is ticking for management to show significant non-retail synergy. Will CVS let its PBM go?

More commentary below. And as a special bonus, I include a hilarious video with a fifth question for your Seder tonight: What if Moses had social media?

Express Scripts' Disruptive Specialty Strategy

The 2010 Drug Trend Report from Express Scripts (NASDAQ:ESRX) shows an eye-popping 19.6% increase in spending on specialty drugs. See Insights from the new Express Scripts Drug Trend Report.

The new trend report also sheds lights on how Express Scripts is trying to solve this problem for its plan sponsor clients.

As I see it, Express Scripts is ahead of its PBM peers with an innovative and risky strategy for absorbing the buy-and-bill specialty drug spending from health care providers. If successful, the company will become the clear leader in a big new addressable market for PBM services.

This strategy puts Express Scripts on a collision course with AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK) for control over specialty channels to physician offices and clinics. It also sets up a battle for control over specialty drugs with the hospital systems that are busy acquiring physician practices.

Put another way, Express Scripts is playing three-dimensional chess against sectors that are used to playing checkers. Biopharmaceutical manufacturers should pay close attention when designing contracting and commercialization strategies.

Read on for more details revealed in the 2010 Trend Report along with highlights of fascinating and previously-unpublished new data on specialty drug spending.

Insights from the new Express Scripts Drug Trend Report

The 2010 Drug Trend Report from Express Scripts (NASDAQ:ESRX) just hit the streets.

I strongly recommend you download this must-read (and free) resource. PBM drug trend reports are invaluable resources for understanding patient behavior, pricing, utilization, and therapeutic competition.

Below, I pluck out a few key economic factoids from this 125-page report. Here's one shocker: Specialty drug trend was an eye-popping 19.6%, especially when compared to the mild 1.4% trend for traditional drugs.

Later this week, I’ll discuss what this latest trend report says about Express Scripts’ future strategy.

Drug Theft + Diversion Gets Bigger :(

Drug distribution muckraker Katherine Eban, author of Dangerous Doses, is back with another must-read piece of investigative journalism in Fortune magazine: Drug Theft Goes Big.

The article highlights the increasingly-sophisticated criminal gangs who are targeting pharmaceutical products. Ms. Eban also tells the fascinating and scary story of how stolen Novo Norvisk products were dispensed by Kroger (NYSE:KR), which allegedly bought product with a forged pedigree from a secondary wholesaler. Yikes!

Alas, Ms. Eban falls short when it comes to solutions, falling into the standard journalist’s trope of blaming manufacturers for not tagging more products. A noble sentiment, but e-pedigree and track-and-trace technologies only work if pharmacy buyers agree to authenticate (scan) an electronic tag. Note that chain pharmacies still officially oppose national track-and-trace legislation—as recently as March 17, 2011!

As you can imagine, "Don't ask, don't tell" is the mantra of people who buy diverted products from unsavory secondary resellers. If the price is too good to be true, then pharmacy buyer beware.

Read on for more details.

Update: CA Medi-Cal Backs Away from Cost-Plus

As you may recall, California was on the verge of shifting the pricing benchmark for Medi-Cal pharmacy reimbursement to average acquisition cost (AAC). See California Medi-Cal Joins the Cost-Plus Revolution for the background. California would have become the third state (after Alabama and Oregon) to alter the basis on which pharmacies are reimbursed for Medicaid prescriptions.

Governor Brown just signed Assembly Bill 97, which stripped all of the proposed language out of the bill. I'm not sure what went on behind closed doors, but the bill now only offers an intent for unspecified future legislation by August 1, 2011. See the relevant text below.

Once again, we see the challenges of controlling health care costs. Bending the cost-curve always means that someone somewhere gets less money.

There are only four months until August 1. Cry 'Havoc,' and let slip the dogs of lobbying!

BREAKING NEWS: Amazon.com to Acquire Rite Aid

Hot on the heels of Walgreen’s acquisition of drugstore.com comes today’s surprise announcement that Amazon.com (NASDAQ:AMZN) is acquiring Rite Aid (NYSE:RAD). The story just broke on Dow Jones Newswires. Wow!

Here’s what CEO Jeff Bezos had to say about the combination, which will be renamed RITEon.com:

“Amazon's 2010 revenues were $34.2 billion, up 134% over the past four years. We have the highest American Customer Satisfaction Index (ACSI) score for any retailer, whether Internet or brick-and-mortar. Acquiring a debt-laden underperformer that loses market share each and every day is exactly the kind of challenge that I need.”

Apparently, Rite-Aid’s 15 minute prescription guarantee program will be retooled because (per Bezos) “one-quarter of an hour is not Internet speed.” Following the acquisition, Amazon Prime members who don’t get their prescription filled in 5 minutes will get a free Amazon Instant Video movie rental. On the downside, RITEon.com will only guarantee that prescriptions are "mostly accurate."

"RITEon, a groovy idea, man," added Bezos.

Read my comments below for important details of this surprising deal.