Boo! Catalyst Says Walgreens is Cheaper

Here’s a Halloween scare for the pharmacy industry.

Last Friday, Catalyst RX (NASDAQ:CHSI) placed a full-page Wall Street Journal ad touting the value of having Walgreens (NYSE:WAG) in its pharmacy network. Catalyst simultaneously released a case study explaining the “value of Walgreens to a large client.” Download the case study here.

One spooky disclosure: Walgreens receives lower average reimbursement rates vs. other pharmacies. The case study attributes the gap to superior generic utilization.

Catalyst is clearly trying to give goosebumps to plan sponsors looking at Walgreens’ still-unresolved dispute with Express Scripts (NASDAQ:ESRX). But the data will surely spark more shrieking about the economics of preferred vs. open networks.

Retail and Mail Pharmacy Economics Start Converging

Let’s dig into PBMI’s 2011-12 Prescription Drug Benefit Cost and Plan Design Survey again to look at the drug channel management in employer-sponsored plans.

Here’s what I found:

• For employers and consumers, a 30-day brand-name prescription is still cheaper at a mail pharmacy than a retail community pharmacy.

• However, mail's economic advantage is vanishing because six out of ten employers allow community pharmacies to fill 90-day prescriptions for maintenance medications. These programs reduce retail reimbursement and shrink the mail-retail gap.

• For generic prescriptions, mail appears to have an ingredient cost advantage vs. retail, although employers are less likely to use Maximum Allowable Cost (MAC) limits for mail pharmacies.

The PBMI data demonstrate that plan sponsors are paying attention to drug channel margins. The embrace of channel-neutral benefit designs will pressure profits at both retail pharmacies and PBM-owned mail pharmacies. Retail pharmacies must accept lower reimbursements to compete with mail order, while mail pharmacies must compete more directly on service with retail community pharmacies.

Oh, by the way, manufacturers: who do you think is going to be asked to subsidize the system as profits get sucked out of the pharmacy distribution?

More Formulary Exclusions for Many Drug Therapies

The Pharmacy Benefit Management Institute (PBMI) just released its 2011-12 Prescription Drug Benefit Cost and Plan Design Survey, a detailed and highly informative report on employer-sponsored pharmacy benefits that you can download for free. A hearty Drug Channels “Thank You” to Takeda Pharmaceuticals North America for again sponsoring the research.

Today I am going to look at trends in formularies and utilization management. Key highlights (discussed in detail below):

• Four-tier plans keep growing.
• More employers are excluding entire therapy classes from the formulary. (Manufacturers, take note!)
• Utilization management tools are being applied in many therapy categories.
  

I’ll examine the pharmacy reimbursement data later this week.

Take this AMP and Shove it

Looks like the Average Manufacturer Price (AMP) battle ain’t over yet.

The National Community Pharmacists Association (NCPA) kicked off the latest round with a letter to CMS complaining about the new AMPs and asking for another fix. Here's the press release: Pharmacists to Federal Medicaid Officials: Revamp Proposed Generic Drug Federal Upper Limits to Preserve Pharmacy Access for Patients.

I have some sympathy for pharmacies because the new Federal Upper Limits (FULs) were lower than almost anyone (including me) expected—primarily because generic drugs are even cheaper than anyone believed!

Sigh. It was only a year ago that NCPA and NACDS patted themselves on the back for “reducing what would have been major cuts to pharmacy reimbursement.” I guess healthcare reforms are like the squeaky door to my daughter's bedroom. No matter how many times you try, some things just won’t stay fixed.

Read on for my analysis of the letter.

The True Economics of Pharmacy Ownership

Hooray! It’s time for my annual disambiguation of independent pharmacy owners’ true economics, courtesy of the new 2011 NCPA Digest sponsored by Cardinal Health.

You may believe that independent pharmacies are unprofitable and pharmacy ownership is a bad deal. However, data from the NCPA’s latest Digest show otherwise. Here are four fun economic observations about pharmacy ownership:

• Pharmacy profit margins remain stable.

• An independent pharmacy’s profits from prescriptions are increasing, not decreasing.

• The average pharmacist owning a single pharmacy earned over $250,000 in 2010, but 7% less than 2009.

• The average pharmacist owning multiple pharmacies earned over $1 million, up 17% vs. 2009.

These data have some limitations, but are certainly fair game for analysis.

Curiously, the NCPA Digest no longer reports profitability by payer. Those data have historically shown extraordinarily high margins for uninsured, cash-pay consumers at independent pharmacies. Hmmm...

Forum on Emerging Care Delivery Models (sponsor)

I am pleased to welcome CBI's Forum on Emerging Care Delivery Models as a Drug Channels sponsor. The conference will be held at the Doubletree Hotel in Philadelphia on November 17 and 18. Read more in the official description below or view the website.

This is a must-attend meeting if you have any involvement with hospitals or healthcare delivery. Topics include Accountable Care Organizations (ACOs), group purchasing, new payment models, manufacturer contracts, and much more.

CBI is offering a special $400 discount to Drug Channels readers. Just register with Promo code ZRQ783. Thanks, CBI!

A Look at Drug Benefit Tiers in 2011

The Employer Health Benefits 2011 Annual Survey, the annual study by the Kaiser Family Foundation and the Health Research and Educational Trust, made the news recently with the finding that employer-based premiums for families rose by 9% to more than $15,000 annually. See, for example, Kaiser Finds Huge Rise in Employee Premiums, but Can’t Pinpoint Why.

The report contains a wealth of data about prescription drug benefits at about 2,000 employers. Below, I discuss the following highlights related to formulary tiers:

• Co-payments for brand-name drugs are growing more slowly than overall prescription prices.

• Tier spreads are widening.

• Four-Tier plans keep expanding.

• High-deductible plans are less likely to use formulary tiers.

The full report is 225 pages long, which may make you want to shout and let it all out. I, of course, go head over heels for this sort of stuff.

Drug Channels News Roundup: October 2011

Here is my monthly look at noteworthy news stories from the Drug Channels universe, hand-selected and cold-pressed for your edification. In this issue:

• Et Tu, New York Times? A surprising voice against the NY mail order bill

• Still hungry: Cardinal plans more Chinese acquisitions

• Eight is Enough: An excellent overview of 8 specialty pharmacy trends

Plus, The Onion continues their healthcare series with a look at the latest insurance premium data.

7th Annual Bio/Pharma Trade and Channel Strategies (sponsor)

I am pleased to welcome back CBI's 7th Annual Bio/Pharma Trade and Channel Strategies conference as a Drug Channels sponsor. The conference will be held at the Doubletree Hotel in Philadelphia on December 6 and 7. Read more in the official description below or view the website.

I expect this to be another worthwhile event. Participating companies include Eli Lilly & Co, Express Scripts, Genzyme Corporation, Millennium Laboratories, Ortho-McNeil Pharmaceuticals, Santarus, Sunovian Pharmaceuticals, plus a set of industry experts. In fact, I'll be delivering the opening address on Tuesday.

CBI is offering a special $400 discount to Drug Channels readers. Just register with Promo code XGF737. Thanks, CBI!

Congress Asks Where Gray Market Drugs Come From

Rep. Elijah E. Cummings of Maryland, the ranking Democrat on the House Oversight and Government Reform Committee, just launched an investigation into the gray market with a “document request” to five distributors regarding five drugs. See Cummings Investigates “Drug Speculation” and “Gray Market” Sales of Drugs in Critically Short Supply, complete with anonymous Tip Line.

In Drug Shortages and Gray Market Profiteering, I wondered: “How do these mysterious vendors get access to drugs in short supply?” This led to some very entertaining back-and-forth in the comments below my article with (anonymous) secondary distributors. I hope Rep. Cummings learns something more useful from his official inquiries.

Aetna and Coventry Join the Part D Preferred Network Party

Preferred pharmacy networks—one of my top pharmacy trends for 2011—show no sign of slowing down.

Coventry, one of the largest Prescription Drug Plan (PDP) sponsors, joined the Part D party with its First Health Value Plus Plan. See Coventry Health Care Joins Forces with Walgreens, Walmart on New 2012 Medicare Part D Plan Available Across the Continental U.S. Aetna is launching a plan with CVS Caremark (NYSE:CVS). See Aetna and CVS/pharmacy Team up to Offer Co-Branded Medicare Prescription Drug Plan.

These PDPs join Humana (NYSE:HUM) and Walmart (NYSE:WMT) in offering Part D beneficiaries lower-cost generic drugs in exchange for using a preferred pharmacy network. Comparatively high generic prescription margins create the opportunity for pharmacies seeking volume and market share. The Coventry network includes the pharmacy locations of Walgreen (NYSE:WAG), Walmart, and Target (NYSE:TGT), while Aetna only includes CVS retail pharmacies.

Medicare Part D is a clear success for seniors. The program’s flexibility and innovation will continue to contain costs, as evidenced by pharmacies’ price competition to be part of a preferred pharmacy network. So I guess that’s why some of our nation’s oh-so-brilliant legislators want to change Part D? Yeah, whatever.

PCMA’s 2012 PBM and Specialty Pharmacy Conferences

I am pleased to welcome back the Pharmaceutical Care Management Association (PCMA) as a Drug Channels sponsor.

PCMA has just released their 2012 conference lineup. Here's the rundown:

• February 7–9: Managed Markets Educational Forum in Ft. Lauderdale, FL

• April 2 & 3: PBM Summit in Las Vegas, NV

• April 3–5: Specialty Pharmacy Business Forum in Las Vegas, NV (NEW!)

• October 15–17: Annual Meeting in Rancho Palos Verdes, CA

You should check out these conferences because PCMA always has exceptionally well-run events. I expect these conferences to be valuable in both networking and informational aspects for anyone connected to pharma managed markets, PBMs, specialty pharmacy and payer organizations. Full details below.