The 2013 Drug Channels Year in Review

Dear Drug Channels reader,

Whew. It’s been a crazy, busy year. Thank you for welcoming me into your inboxes and browsers. I’ve had fun writing about this year’s unexpected, unusual, and fascinating events. I’m grateful to our many sponsors and guest writers. Special thanks to the brave souls who joined in the spirited discussions below the articles.

This was also big year for Drug Channels. We hit almost 8,000 subscribers, started tweeting @DrugChannels, and proudly launched the Drug Channels Institute (DCI), a management education and computer-based training business for and about the pharmaceutical industry.

Below, I gift wrap 2013’s six biggest themes, so you can unwrap your favorite articles for the holidays.

Drug Channels will return in the new year. In the meantime, please enjoy our Drug Channels video greeting. As a special treat, you can see me dancing with my wife, Paula, who runs DCI’s e-learning business.

Here’s my 2014 promise to you: If you like your Drug Channels, you can keep your Drug Channels. Period.

All the best to you and your family,
Adam

Our Evolving Channels: CBI Trade and Channel Strategies Wrap-Up

Last week, we attended CBI’s 9th Annual Trade and Channel Strategies conference in Philadelphia, Pennsylvania. The keynote speaker was none other than Adam J. Fein, Ph.D.

Dr. Fein and others pointed out that manufacturer trade activities must evolve into an integrated channel strategy commercial function.

Below, we summarize other key takeaways from the meeting, including alternative distribution strategies, the outlook for buy-and-bill, and the emergence of boundary-spanning organized customers.

Benchmarking Manufacturers' PBM Rebates

The Pharmacy Benefit Management Institute (PBMI) has just released its 2013-2014 Prescription Drug Benefit Cost and Plan Design Report. (Free download.) This report provides invaluable insight into employer-sponsored pharmacy benefits. Drug Channels again salutes Takeda Pharmaceuticals North America for having sponsored the research.

As far as I know, the PBMI report offers the only public benchmarking data on manufacturer rebates to pharmacy benefit managers (PBMs). A few highlights:

• Employers use a wide variety of rebate structures, including per-prescription guarantees and percentage shares. Nearly one-third of smaller employers get no rebates.

• Rebates average $17 per 30-day brand-name retail prescriptions. Surprisingly, rebates were comparable for both large and small employers.

• On average, PBMs pass more than 80% of rebates back to employers.

Read on for details from the report. And don’t forget to join me at the PBMI’s Annual Drug Benefit Conference in February.

Express Scripts Plans a Specialty Drug Price War

According to a new must-read Bloomberg story, Express Scripts plans to start a price war over new hepatitis C treatments. The news follows the release of Gilead’s Sovaldi (sofosbuvir), which reportedly costs $1,000 per pill.

Express Scripts projects that Hepatitis C drug trend will grow by 168% by 2015, so payers are closely watching this test case. When there are multiple treatments in a therapeutic class, can the biggest PBM really control specialty drug costs?

While Express Scripts is talking boldly, the empty threat of blocking valuable medications has come back to life more times than a narcoleptic Jason Voorhees.

Read on for details on the unlucky hepatitis C medications that may be cut (or not) by Express Scripts’ machete.

Cardinal and CVS Caremark Form a Generic Power Buyer: Deal Analysis

If you can’t beat ‘em…

Yesterday, Cardinal Health (NYSE: CAH) and CVS Caremark (NYSE: CVS) announced a new 50/50 generic drug buying joint venture. See CVS Caremark And Cardinal Health Announce Creation Of Largest Generic Sourcing Entity In U.S.

Shocking? Not really. As I noted in Quantifying Generic Buying Power for McKesson-Celesio, big deals have a funny way of spawning more deals. Et tu, Express Scripts?

The joint venture structure and deal terms make it a win-win for CVS Caremark and Cardinal. Both companies will gain significant scale going into the upcoming wave of newly-generic drugs. Read on for the details and comments on the new joint venture structure.

Three New Specialty Pharmacy Deals Signal The Boom Ahead

There have been three major specialty pharmacy announcements over the last week.

• Long term care pharmacy Pharmerica acquired a minority stake in fast-growing specialty pharmacy Onco360

• Express Scripts opened up its specialty pharmacy network to physicians in the RainTree Oncology network

• Grocery chain Giant Eagle bought Rx21, a small transplant/hepatitis C specialty pharmacy

Pay attention. As these deals show, the specialty market is getting even hotter. Everyone wants specialty drug revenue. Read on to find out who’s moving in.

Transparent Drug Pricing Is Good for All

Today’s guest post is from George Kitchens, RPh, President of Artia Solutions, and consultant for Elsevier.

In this new post, Kitchens revisits the topic of drug price transparency and discusses how Predictive Acquisition Cost (PAC) helps ensure accurate reimbursement rates for both pharmacies and payers. To learn more, download Elsevier’s most recent report on PAC use cases across the industry, entitled Achieving Cost Savings with Accurate Drug Price Information: Industry Use Cases for PAC.

Please contact George Kitchens (gkitchens@artiasolutions.com) with any questions about the article.

We’re All A-Twitter!

Great news! You can now find more fresh information tidbits on the Drug Channels Twitter page.

At our page, @DrugChannels, you’ll find our carefully curated, hand-crafted selection of news and opinions about drug distribution, pharmaceutical economics, reimbursement, payers, current events, and more.

Follow us to learn about the events we attend, get up-to-the-minute news via live tweets, and view fun photos of us in action.

Sample tweets below. Enjoy!

3 Reasons Why CVS Caremark Absorbed Coram

While you were busy brining a turkey last week, CVS Caremark purchased Coram LLC, the specialty infusion services and enteral nutrition business unit of Apria Healthcare Group. Read the press release.

I spot three factors behind the deal:

• Home infusion is a fast-growing channel for specialty drugs, so the deal deepens CVS/pharmacy’s footprint as a major dispensing channel. CVS can also catch up to Walgreens.

• Home infusion can be a cheaper site of care, which helps Caremark’s specialty benefit management PBM business. Oddly, CVS Caremark’s own data shows home infusion to be more expensive than in-office treatment. See the chart below.

• Benefit coverage for home infusion specialty drugs is fragmented across the pharmacy and medical benefits. Payers are therefore looking for integrated management, visibility, and control.

Read on for details and background, some of which appeared a mere two weeks ago in CVS Caremark’s 2013 specialty trend report. CVS Caremark continues to expand throughout the healthcare system, swallowing up adjacent sectors with ease.

Attention, Hospital Shoppers: Cancer Markup Madness

Ever wonder why cancer care costs so much more in a hospital than in a doctor’s office? A Milliman, Inc., study—Comparing Episode of Cancer Care Costs in Different Settings: An Actuarial Analysis of Patients Receiving Chemotherapy—has an answer. (Free download).

The report compared cancer treatment costs in outpatient hospital departments vs. outpatient physician offices. As we highlight below, hospitals inflate drug expenses far beyond acquisition costs.

• For treatment in a physician office, total drug costs range from $12,000 to $62,000. 

• For treatment in a hospital outpatient setting, total drug costs range from $18,000 to $91,000. 

• The markups are especially egregious for such higher-cost specialty drug therapies as cytotoxic chemotherapies and biologics.

Once again, we see that hospitals can generate more revenue from specialty drug administration than can independent physician-owned clinics. Drug channel intermediaries can add to drug prices, with different markups for different channels.

Read on to see how shopping for cancer drugs in a hospital setting can bag you a very bum deal.

PBMI’s 2014 Drug Benefit Conference

Check out this cool conference: The Pharmacy Benefit Management Institute (PBMI) will host its 19th Annual Drug Benefit Conference at the Paris Hotel in Las Vegas, on February 3-5, 2014.

Many attendees will be from employers, health plans, and unions, so you’ll learn the payers' perspectives on pharmacy benefits. Highlights include multiple sessions on specialty drug management as well as the latest techniques for pharmacy benefit manager oversight. Check out the session descriptions.

Register before January 10, 2014, to get the early bird rates. Drug Channels readers can register with promo code PC2014 and receive an additional $300 off registration. Thanks, PBMI!

I’ll be attending, but not presenting. See you in Las Vegas.

AMP Final Rule Delayed Yet Again ... to May 2014

UPDATE (12/2/13): CMS announces its intention to finalize the Federal Upper Limits (FUL) for multiple source drugs in July 2014!

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Here’s another reason to be cynical about the Affordable Care Act's implementation.

The long-awaited Final Rule on Covered Outpatient Drugs, a.k.a., the AMP Final Rule, has been pushed back yet again, to May 2014. This follows at least two previous delays, described here and here.

Sounds to me like politics trumps the law. Given the dual debacles of healthcare.gov and “you can keep your insurance,” I presume the Obama administration wants to avoid political noise from the ACA's hit to pharmacy profits.

The delay is good news for the pharmacy industry. When (if?) the new AMP-based Federal Upper Limits get implemented, pharmacies in many states will face reimbursement cuts of 30% or more. See Obamacare Will Squeeze Pharmacy Profits.

For government notice aficionados, I have pasted the notice below. Enjoy Black Friday!

Drug Channels News Roundup: November 2013

Here's a pre-Thanksgiving news roundup, to stretch your mind before stretching your stomach later this week. In this issue:

• Drumstick of Truth—Walmart’s Alabama plan exposes pharmacy economics

• No Leftovers—What Hospitals think about specialty drug white bagging

• Extra stuffing—Cardinal’s George Barrett wins CEO of the Year…in Ohio :/

Plus, GlaxoSmithKline launches an ultra-orphan, “second term strength” version of Paxil. You’re welcome, Mr. President.

Retail Generic Drug Costs Go Up, Up, and Away

For an updated analysis, see Retail Generic Drug Inflation Reaches New Heights (August 2014).

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Retail generic drugs usually get cheaper over time. But our exclusive analysis (below) shows that about one-third of generic drugs have gotten more expensive in the past twelve months.

Even more surprising, a small number have skyrocketed. Twelve drugs’ costs have increased by more than 2,000%.

Drug shortages appear to be the primary culprit. Contrary to what some people believe, exploding generic costs are the one thing that can’t be blamed on Obamacare.

Pharmaceutical wholesalers have been the big winners. Some pharmacies have also benefited, but many are being squeezed by third-party payer reimbursements. My big questions: will continued price increases slow the pharmacy industry’s race-to-the-bottom generic price war or make preferred network participation less appealing to pharmacies? Keep an eye on this trend.

2014 sPCMA Business Forum

The Pharmaceutical Care Management Association (PCMA) will hold its 2014 sPCMA Business Forum in Orlando, Florida, on March 12 and 13, 2014.

The new conference combines all of the networking, business, and educational benefits of the PCMA's previous spring conferences—the Managed Markets Educational Forum, the PBM Summit, and the Specialty Pharmacy Business Forum—into a single, two-day event.

Former Secretary of State Hillary Rodham Clinton will deliver the keynote address. Check the agenda for updates on speakers and sessions.

Walmart's TV Ad Pitches Preferred Networks

While healthcare.gov is failing, the Medicare Part D open enrollment period is going strong.

Regular readers know that Preferred pharmacy networks are kind of a big deal among 2014 Medicare Part D prescription drug plans (PDPs). You also know that Walmart is the biggest deal in these preferred networks.

In the TV commercial below, see how Walmart explains a preferred network's appeal, in just 30 seconds. Narrow networks are teaching consumers to shop for prescriptions by price. View the lesson below.

ABC Still Dominates Specialty Distribution, but Competition is Catching Up

AmerisourceBergen (NYSE: ABC) recently reported financial results for its 2013 fiscal year. Read the press release.

Its Oncology Supply specialty distribution business again underperformed, as that distributor's revenues dropped by 10% in 2013. On the earnings call, the company blamed the decline on “reimbursement headwinds,” which I presume refers to the sequester’s impact on government payments.

But that’s only part of the story. As I discuss in DCI’s latest economic report (page 91) and in May’s What’s Behind AmerisourceBergen’s Disappointing Oncology Results?, the community oncology market is undergoing dramatic change, posing risks to specialty distributors. While ABC still accounts for more than 50% of total specialty product distribution revenues to physician offices and clinics, it also faces newly-energized competitors.

Read on for details and our market share estimates.

Specialty Therapies

The long-running Specialty Therapies Summit returns to Las Vegas in January. This meeting is a great way to understand how payers view the evolving specialty marketplace. Key topics: cost control, benefit design, and formulary strategies.

Speakers come from such companies as Aetna, Armada Health Care, Artemetrx, CVS Caremark, Diplomat Specialty Pharmacy, Horizon Blue Cross Blue Shield, John Hopkins Healthcare, OptumRX, Priority Health, RegenceRx, UPMC Health Plan, Western University of Health Sciences College of Pharmacy, and more.

Drug Channels readers can register with code DTY526 to save $400 off of the standard registration rate.* Thanks, CBI!

Impact of Drug Price Benchmarks for Payers and Pharmacy Networks

Today’s guest post is from George Kitchens, RPh, President of Artia Solutions, and consultant for Elsevier.

George discusses research that compares acquisition cost reimbursement benchmarks—National Average Drug Acquisition Cost (NADAC) and Predictive Acquisition Cost (PAC)—to such usual list price benchmarks as Average Wholesale Price (AWP). He provides examples showing that acquisition cost methods can reduce payer costs while also improving pharmacy profits. Anyone interested in more effective pricing metrics should take a look.

Visit the Centers for Medicare & Medicaid Services to learn about NADAC. Download Elsevier’s most recent case study and news article to learn how Predictive Acquisition Cost (PAC) aids retail pharmacies and payers.

Please contact George Kitchens (gkitchens@artiasolutions.com) with any questions about the article.

A Tale of Two Wholesaler CEOs

Imagine that you are the just-retired CEO of a major pharmaceutical wholesaler. How should you live your life?

Should you:

• Spend your days visiting your grandkids, hanging out with your wife of 40+ years, and sitting on a few boards?

• Divorce your wife and go on an unhinged, hedonistic bender filled with girls, guns, and sex tapes?

Put another way, should you follow the example of Dave Yost, former CEO of AmerisourceBergen, or Stewart Rahr, former CEO of Kinray Drugs? Read on for the just-published mundane and/or salacious details of their respective post-wholesale retirements.

Which one is the cautionary tale? Well, that's between you, your conscience, and your spouse.

Profits Rebound for Pharmacy Owners

Time for my annual look at independent pharmacy owners’ true economics, courtesy of the just-released 2013 National Community Pharmacists Association (NCPA) Digest, Sponsored by Cardinal Health. Here's the press release: NCPA Digest: Community Pharmacists Promoting Medication Adherence, Generic Drugs To Improve Health Outcomes and Reduce Costs

The news is pretty good for pharmacy owners. Here are my observations from crunching the Digest's latest numbers. Full details below.

• An independent pharmacy's overall margins and per-prescription profits increased in 2012.

• The average pharmacist owning a single pharmacy earned about $245,000 in 2012—up 5% from 2011. Owners of multiple pharmacies earned much, much more.

• The NCPA estimates that the total number of independent pharmacies continues to hold steady.

Hmmm, what happened to the doom-and-gloom predictions about the Express Scripts/Medco merger, which would, as NCPA said, “make an already bad situation even worse”? As the data below show, it was never that bad, and it hasn’t grown worse.

As always, I welcome your constructive comments. Just remember our philosophy, courtesy of the late Senator Patrick Moynihan: "Everyone is entitled to his own opinion, but not his own facts."

Medicaid Drug Rebates and Pharma's Future

Medicaid's impact on the pharma industry is growing. Based on early reports, Medicaid enrollments dominate public exchange sign-ups. Medicaid will be setting the pace for pharmacy reimbursements, per Obamacare Will Squeeze Pharmacy Profits. And, manufacturers will need to wrestle with new guidance on bona fide service fees when the Average Manufacturer Price (AMP) Final Rule is released in January.

Want to learn more? Join me in February, when I'll discuss "How Medicaid Will Shape Pharma’s Future" as the keynote speaker at the 2014 Medicaid Rebate Summit, in Washington, DC. See more below. Check out the Medicaid Rebate Summit blog for regular updates.

Other speakers on this top-notch agenda come from such companies as Amneal Pharmaceuticals, Apexus/340B Prime Vendor Program, Biotechnology Industry Organization (BIO), CMS, Daiichi Sankyo, Dendreon, DHHS, CMS, Eli Lilly, Genentech, Hospira, HP Enterprise Services, HRSA, Iroko Pharmaceuticals, Janssen Pharmaceuticals, Johnson & Johnson, Mylan Pharmaceuticals, NACDS, NCPDP, OIG, Pfizer, Pharmacy Services Manager, Oregon MMIS, Purdue Pharma, Vertex Pharmaceuticals, and more.

Drug Channels readers can register with code DC15 and receive 15% off the standard registration rates. Thanks, Conference Forum!

Drug Channels News Roundup: October 2013

Boo! Time for my Halloween-themed roundup of Drug Channels news stories. Never fear. None are as scary as your teenage daughter's Miley Cyrus costume. (Trust me.)

In this issue:

• Zombie Attack: Why Fortune got its Express Scripts "exposé" wrong

• Don’t Fear the Reaper: Walmart lobbies for preferred networks…in Medicaid!

• 340Boo: A superb article on the 340B drug discount program

• Spooky: 10 megatrends for specialty pharmacy

Plus, Secretary of Health and Human Services Kathleen Sebelius provides tips for coping with the healthcare.gov website.

Quantifying Generic Buying Power for McKesson-Celesio

Here’s some thought-provoking follow-up data, related to McKesson Finally Snags Celesio: Analyzing the Deal.

Tom Gallucci and his team at FBR Capital Markets have updated their estimates for the biggest global drug buyers’ oral solid generic purchasing power. While ABC-Walgreens-Alliance Boots still tops the list, the McKesson-Celesio combination comes close. See the full list below.

Below, I offer some observations on the new global drug procurement landscape. Expect the most colossal conflict the generic industry has ever seen!

ePharma Summit

Rejoice, digital marketing execs! IIR’s three-day pharmaceutical industry digital marketing event, ePharma Summit, will be held at the Marriott Marquis New York on February 10-12, 2014.

Speakers come from such companies as athenahealth, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Catamaran, CSL Behring, Daiichi Sankyo, futurethink, Geisinger Medical Management, GlaxoSmithKline, Ironwood Pharmaceuticals, Janssen Pharmaceuticals, Merck, Pfizer, Purdue Pharma, Walgreen Co., WEGO Health, and more.

Drug Channels readers can register with promo code XP1906DC and save 10% off the standard registration rate. Thanks, IIR!

McKesson Finally Snags Celesio: Analyzing the Deal

McKesson’s long-rumored acquisition of Celesio was officially announced this morning. Read the press release: McKesson Announces Agreement To Purchase Celesio To Create Leading Global Healthcare Services Platform.

The era of global drug distribution has officially arrived. The combined company will have annual revenues exceeding $150 billion and operate in more than 20 countries. Below, I provide analysis and context for the transaction, along with links to deal documents. I also speculate on Cardinal's next steps.

To help you celebrate—or lament—the deal, we are offering a special flash sale on our new 2013–14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. Just use the discount code CELESIO no later than Saturday, October 26, 2013.

Express Scripts and the Inevitability of Formulary Exclusion

Here’s a pre-Halloween scare for pharmaceutical manufacturers. Pharmacy benefit manager (PBM) Express Scripts (NASDAQ: ESRX) will drop 48 brand-name drugs from its 2014 standard national preferred formulary. View the Express Scripts 2014 Preferred Drug List Exclusions.

Steve Miller, Express Scripts’ chief medical officer, gave an enlightening interview in which he explained the changes and exclusion criteria. Links and my highlights below.

Express Scripts is following CVS Caremark’s example, so manufacturers should be unsurprised by another inevitable consequence of the generic wave. Brand-name drugs in highly genericized therapeutic classes face enormous pressure for price and rebate concessions. Tier 3 formulary position no longer guarantees cost-effective patient access. And scariest of all: your pricing actions and marketing tactics increase the risk of formulary exclusion.

Customer-Facing Innovation Webinar

Want to learn about the next commercial model for pharmaceutical companies? Curious to know what Pfizer and Novartis are doing?

Then sign up for Eyeforpharma’s Customer-Facing Innovation webinar, taking place on Wednesday, October 30th at 12pm EDT. You’ll hear from Jim Immormino, Head of Commercial Innovation & Strategy at Novartis Oncology and Matt Portch, VP Commercial Model Innovation, Pfizer.

Drug Channels readers can register for free. (Yes, really!)

Customer-Facing Innovation will also be a key topic at eyeforpharma Philadelphia 2014, which will be being held on April 16-17, 2014.

Walmart Plays to Win in 2014 Part D Preferred Networks, while CVS and Rite Aid Lag

In my previous post (For 2014, more than 70% of Medicare Part D plans have a preferred pharmacy network), I highlighted the plans that will dominate Medicare Part D with preferred pharmacy networks.

Below, I examine the pharmacies in the biggest plans’ networks. Key conclusions:

• Walmart participates in more Part D preferred networks than does any other chain.
• Supermarket and other mass merchants—such as Kroger, Safeway, and Target—also now big players in preferred networks.
• Among major chains, CVS and Rite Aid are the laggards.
• Once again, independent pharmacies seem to have missed an opportunity.

Read on for what's happening in your world today.

EXCLUSIVE: For 2014, more than 70% of Medicare Part D plans have a preferred pharmacy network

Today, Medicare Part D kicks off its open enrollment period. Through December 7, America’s seniors can keep their current plan or switch to a new one. But the big story is the narrow network boom.

In 2014, preferred pharmacy networks will dominate Part D. There will be 56 plans with a preferred network, up from only 16 plans in 2013. Our analysis reveals that 72% of the nearly 1,200 regional prescription drug plans (PDP) have a preferred network. By the beard of Zeus!

When the first enrollment data are released in January, I predict that a majority of seniors will have chosen a PDP with a preferred pharmacy network.

Read on for our exclusive look at the 2014 Part D landscape, which includes insights on the major health plans behind the PDPs. As always, Drug Channels brings you the news—so you don't have to get it yourself.

Breaking WBAD: An Update on Walgreens-Alliance Boots Synergies

When the Walgreens-Alliance Boots deal was announced, in June 2012, Walgreens projected $100 million to $150 million of combined first-year synergies.

Last week, Walgreens surprised everyone by reporting $154 million of first year “net synergies” with Alliance Boots. The company now projects combined 2014 fiscal year synergies to be $350 million to $400 million. See the highlights below, along with a special video explaining how Walgreens Boots Alliance Development (WBAD) GmbH got its name.

If the companies continue to outperform their synergy targets, expect follow-on deals to create global purchasing scale. According to Dow Jones, the next noteworthy deal might be McKesson’s acquisition of Celesio.

Obamacare Will Squeeze Pharmacy Profits

The Office of Inspector General (OIG) recently released Medicaid Drug Pricing In State Maximum Allowable Cost Programs. If you own or invest in retail pharmacies, you should read it—anyway, anyhow, anywhere.

The OIG compared existing state Medicaid programs’ generic prescription reimbursement limits with the new limits mandated by the Patient Protection and Affordable Care Act (PPACA), a.k.a. Obamacare. The highlights:

• On average, the new federal reimbursement limits are 22% below the current state amounts.
• Pharmacies in many states will face reimbursement cuts of 30% or more. (See the chart below.)
• Total pharmacy revenues will decline by about $1.2 billion (-0.4%).

One more tricky day for you: The pharmacy industry has successfully lobbied to create state laws requiring that private payers provide “transparency” into generic reimbursement limits. Will savvy private payers rely on the forthcoming government limits to be the bad man?

Specialty Data Optimization

Specialty drugs' growth is generating many new data streams. Unlike a retail pharmacy, a specialty pharmacy may contract with a pharmaceutical manufacturer to provide highly detailed, patient-specific (but de-identified) data for each prescription dispensed. These pharmacy data must then be integrated with other data.

In response to these new flows, CBI is launching a new Specialty Data Optimization Summit. It will be held in Philadelphia, PA, on December 11, 2013. Speakers on the agenda include companies such as Acro Pharmaceutical Services, Astellas, IBM Global, Lilly USA, Occam Health Services, ProMetrics, Roche Pharmaceuticals, and more.

Drug Channels readers can register with promo code PXF783 by Friday, October 11 to save $300 on registration to this one-day event. Thanks, CBI!

FYI, there are two other co-located events: Trade and Channel Strategies (on December 11 and 12), and GPO and Institutional Sales Strategy Summit(on Decmeber 12). See below for additional package discounts.

Five Crucial Questions about Healthcare Reform and Drug Channels

Yesterday, I looked at who will pay for our prescriptions drugs in 2022, using drug spending forecasts from the Centers for Medicare and Medicaid Services (CMS). See Public Funds and Exchanges Will Crowd Out Employer-Sponsored Insurance.

As a follow-up, I consider five questions about healthcare reform that could radically alter CMS’s forecasts and disrupt the channel:

• Will private exchanges take off?
• Will employer-sponsored insurance collapse?
• Will copay cards be banned on the public exchanges?
• Will narrow pharmacy networks dominate public exchanges?
• What happens to Pharmacy Benefit Manager (PBM) profits?

It’s not too soon for pharmaceutical manufacturers to consider how market access strategies could change as traditional employer-sponsored private insurance declines. Expect more pressure on the PBM business model, as drug payment shifts to (government-directed) health plans at the expense of self-insured employers.

Public Funds and Exchanges Will Soon Overtake Employer-Sponsored Insurance

The state-level Health Insurance Marketplaces (HIM) launch today, so let’s look at who will be paying for our drugs as healthcare reform kicks in.

In The Outlook for Pharmaceutical Spending Through 2022, I examine the September 2013 drug spending forecasts from the Centers for Medicare and Medicaid Services (CMS). I crunched the numbers again and identified four key insights into the 2022 drug market:

• Public funds, primarily Medicare and Medicaid, will pay for 42% of all drug spending.

• Individually-purchased private insurance (via both public and private exchanges) will account for 5% of drug spending.

• The employer-sponsored insurance market will keep shrinking.

• Consumer out-of-pocket spending will drop to only 10% of drug spending.

The CMS projections are highly precise econometric guesswork. (Hello, dartboard!) Tomorrow, I’ll consider some uncertainties behind these forecasts.

GPO and Institutional Sales Strategy

Last Wednesday, well-known group purchasing organization Premier Inc. (NASDAQ: PINC) had a blockbuster IPO. The company had expected to price its shares at $23 to $26. By Friday, its shares closed at $31.69, giving the company an impressive market cap of $892 million.

So, it's a good time to think about the evolving role and activities of GPOs, which is why CBI is offering a one-day conference in December called GPO and Institutional Sales Strategy Summit. Speakers on the agenda come from such companies as Bayer Healthcare, Bristol-Myers Squibb, Institute for Integrated Healthcare, McKesson Specialty Health, Novartis, Sisters of Providence Health System, the Journal of Healthcare Contracting and ACO Insights, VHA, and more.

Drug Channels readers can register with promo code NMX542 by Friday, October 11, to save $300 on registration. Thanks, CBI!

The New Rules of Life Sciences Business

Today’s guest post is from Karen Bell, Product Marketing Manager at Revitas. In the article below, Karen outlines automation’s value to bio/pharma companies that want to improve contracting, pricing, and compliance.

Please contact Karen Bell (kbell@revitasinc.com) with any questions about the article. And don’t forget to join me at the Revitas Industry Summit: Life Sciences, which will be held at the Four Seasons Hotel in beautiful Philadelphia, PA, on November 5-6, 2013.

NEW: 2013–14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors

I am pleased to announce the availability of our new report: The 2013–14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. We’re offering special discounts if you order before October 11, 2013.

If you like Drug Channels, then you'll love this report! The completely updated, revised, and expanded report uncovers the business strategies and hidden economics of U.S. drug distribution companies. Plus, this year’s report has loads of new content about specialty distribution channels.

As always, I worked hard to create an invaluable planning tool for pharmaceutical manufacturers, wholesalers, pharmacy buyers, benefit managers, managed care executives, healthcare policy analysts, investors—anyone who wants to understand and benefit from what's really going on. Whether you're a newbie or a grizzled veteran, the The 2013–14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors will help you and your team build deep business acumen about U.S. drug distribution.

Read on for more details, or download your very own copy today. Enjoy!

Drug Channels News Roundup: September 2013

Wow, Sunday was the first day of autumn. Time to buy a rake, gather up some acorns, make fantasy football trades, and read these acquisition-related news stories from the Drug Channels universe.

In this issue:

• Harvest Time—Express Scripts rescues Walgreens-backed Part D plan
• Chinese Acorns—Alliance Boots plans a major China pharmacy expansion
• Raking Up—Magellan buys PartnersRx

Plus, watch my latest TV interview, in which I discuss anti-counterfeiting technology and the folly of sketchy online pharmacies. Will Mainers listen?

Trade and Channel Strategies

Are you ready for some channel strategy? Then join me at CBI’s Trade and Channel Strategies conference, being held this December in Philadelphia. CBI’s annual event has become our industry’s premier event focused on bio/pharma trade management.

I’ll be kicking things off with a keynote address on " Preparing Trade for the Specialty Revolution." I'll highlight organizational and strategic best practices of leading bio/pharma manufacturers.

CBI has arranged a solid lineup of other speakers from such companies Bayer Healthcare, Bracco Diagnostics, CutisPharm, Insys Therapeutics, IntegriChain, Lazard Capital, Mylan Specialty, Novartis, ProMetrics, Sonexus Health, Teva Pharmaceuticals, VHA, Vivus, and more.

Day one’s last session should be a standout. I invited Bill Roth of Blue Fin Group to go mano-a-mano with me in CBI’s XTreme Battle Cage. Two consultants will enter…but only two will leave!

Drug Channels Readers can register with promo code CTC543 by Friday, October 11, and save $400 on registration! Hope you’ll join me in Philadelphia this December.

The Outlook for Pharmaceutical Spending Through 2022

The Centers for Medicare and Medicaid Services (CMS) has once again graced us with its forecasts for national health expenditures. The forecast is summarized in a Health Affairs article: National Health Expenditure Projections, 2012–22: Slow Growth Until Coverage Expands And Economy Improves (free download).

Below, I delve into the prescription drug forecasts and show you some pretty charts. Highlights:

• Prescription drug spending growth, which was negative in 2012, is projected to accelerate to 5.2% in 2014.

• From 2012 to 2022, annual expenditures will grow by $194.2 billion (+75%), to $455.0 billion. During this period, Outpatient prescription drugs will be at about 9% of total U.S. healthcare spending.

• Health care reform will add an extra $15.3 billion in annual drug spending by 2022. This is far below last year’s projected incremental $25.9 billion in spending by 2021.

In a future article, I’ll look at who will be paying for all of these drugs. In the meantime, pity the poor government economists tasked with forecasting healthcare spending. They must bravely peer beyond today’s pitched political battles and economic uncertainty—and then hurl a guess at the 2022 dartboard. Chin up, chaps!

Payers Want Specialty Drug Distribution to Change

Guess what? Third-party payers want the distribution of provider-administered specialty drugs to change. In particular, most would prefer that buy-and-bill fade away and be replaced by specialty pharmacy fulfillment.

This conclusion comes from the Zitter Health Insight's Managed Care Oncology Index, a survey of payers. The chart below highlights two significant findings:

• About one-quarter of provider-administered specialty pharmaceuticals are now fulfilled by specialty pharmacies, via the white bagging process.

• Payers would prefer that providers acquire most (57%) infused drugs from specialty pharmacies, instead of specialty distributors.

AmerisourceBergen Corporation’s Specialty Group and McKesson Specialty Health (a business unit of McKesson Corporation) generate more than 75% of total specialty product distribution revenues to physician office and clinics. This trend therefore has a big impact on their business.

Manufacturers should pay attention to this channel shift, because a bigger specialty pharmacy presence for infused drugs increases 340B liabilities and raises diversion risks.

Coupon and Co-Pay Off-Set Strategies

Co-pay cards and other offset programs remain controversial. About two years, the Pharmaceutical Care Management Association (PCMA), which represents pharmacy benefit managers (PBMs), started targeting these programs. (See PBMs Launch a New Attack on Copay Cards.) Defenders argue that co-pay offset programs don't increase utilization of higher-cost brand-name drugs and don't reduce generic usage, but do increase adherence. (See A Defense of Co-Pay Cards and A New Reality Check on Co- Pay Offset Programs.) Last week, I suggest that copayment offset programs for specialty drugs are becoming a roundabout way for payers to extract discounts from pharmaceutical manufacturers. (See How the Fourth Tier Coinsurance Boom Drives Copay Offset Programs.)

Given the topic's importance, I’m glad to see CBI launch a new event: the Coupon and Co-Pay Off-Set Strategy Summit. It's being held in Philadelphia on October 9 and 10.

Speakers will represent multiple perspectives, so it should be lively discussion. Speakers come from such companies as Allergan, AstraZeneca, Ironwood Pharmaceuticals, Johnson & Johnson, McKesson, Medical Marketing Economics, Physicians Interactive Holdings, PSKW, Relay Health, Source Marketing, Tufts University School of Medicine, Steward Heath - St Elizabeth's Medical Center, Warner Chilcott, Zitter Health Insights, and more.

Through September 27, Drug Channels readers can register with discount code COUPDC and save $400.* Thanks, CBI!

My Visit to Boots UK: An International Pharmacy Photo Essay

In August, my family and I spent a wonderful 9 days in a surprisingly sunny London. In addition to the usual tourist haunts, I visited a few Boots pharmacies. (Of course I did!) I gained valuable insight into a key overseas pharmacy player that is now part of Walgreens.

Below are my observations on how Boots compares with U.S. drugstore chains. From my photos, you’ll see some similarities but also very intriguing differences. And by publishing this post, I can convert my entire vacation into a business expense. (Shhh, don’t tell the IRS.)

Bonus: I’ve included a photo of my amazing visit to (full-size) Stonehenge. Drug Channels goes to 11!

Walgreens Grabs Kerr Drug

Another one bites the dust! Walgreens continued its industry roll-up with today’s surprise acquisition of Kerr Drug’s retail drugstores and specialty pharmacy business. (Kerr is keeping its long-term care pharmacy business.) Here’s the press release: Walgreens to Acquire Kerr Drug’s Retail Drugstores and Specialty Pharmacy Business.

Kerr, a high-profile regional drugstore chain, adds only a small percentage to Walgreen’s revenues. (See the table below.) However, the deal boosts Walgreen’s North Carolina presence, where CVS is much larger. Kerr is also a good fit with Walgreen’s Well Experience strategy.

Kerr’s owners understand industry consolidation’s key rule: Get big, get focused, or get out. Winning in the retail pharmacy industry requires scale or differentiation. Otherwise, cash out gracefully.

Be Smarter with Drug Channels Institute

Since 2006, the Drug Channels blog has been helping thousands of people make sense of pharmaceutical economics and the drug distribution system.

Today, I’m delighted to tell you about Drug Channels Institute (DCI), a cool new service that my wife, Paula, and I created. Our mission is simple: to make you smarter. And we do it with invaluable industry content delivered via interactive, online learning.

Our e-learning modules are packed with information, yet easy to understand. They are an essential tool for building knowledge and results. Plus, you can get started quickly with our on-line hosted solution.

Read on for details. If you're curious, just click here to view two sample e-learning modules.

Multichannel Marketing and the Key to Channel Integration

Today’s guest post is from Craig Sharp, Chief Editor at eyeforpharma.

Craig discusses the Key to Channel Integration and eyeforpharma’s Channel Integration Guide which is a major focus at the Multichannel Engagement USA conference on being held November 18-19, in Philadelphia, PA.

Check it out, especially if you want to learn more about integrating digital channels with traditional approaches.

How the Fourth Tier Coinsurance Boom Drives Copay Offset Programs

The new 2013 Kaiser/HRET Employer Health Benefits Survey, released in August, highlights a troubling trend—the sharp growth in coinsurance for expensive specialty medications on the fourth tier of benefit plans.

Here are some pharmacy benefit highlights from this excellent survey of employer-sponsored health coverage at more than 2,000 companies:

• Three-tier plans remain the most common benefit design, but 25 percent of employees now have a plan with four or more tiers. Products on this top tier tend to be specialty drugs.

• Almost half of employees now face coinsurance (instead of copayments) for fourth-tier drugs.

• Coinsurance averages 32 percent of a drug’s cost, potentially creating large financial burdens for expensive drugs. However, most employees have maximum dollar limits on this coinsurance.

As I see it, the fourth-tier coinsurance boom is closely linked to copayment offset programs. With few formulary rebates available for specialty drugs, employers and their PBMs are daring manufacturers not to cover patients’ huge out-of-pocket costs. Thus, copayment offset programs for specialty drugs are becoming a roundabout way for payers to extract discounts from pharmaceutical manufacturers.

Read on for the tracks of my tiers.

Say Hello to the 12 Fastest-Growing, Private Specialty Pharmacies

Back to work! Time to check in with the new Inc. 5000 list, Inc. magazine’s ranking of the 5,000 fastest-growing private companies. Once again, the list highlights the boom in specialty drug dispensing.

The 2013 Inc. 500 list, which is based on 2012 revenues, includes 12 specialty pharmacies. The pharmacies and their key stats are listed below, along with recent specialty forecasts. Diplomat Pharmacy again topped the specialty pharmacy list, with revenues of $1.1 billion, up 42% vs. 2011. The other 11 pharmacies had total revenues of $1.3 billion.

Pay attention: these companies are the vanguard of tomorrow’s pharmacy industry.

VA DoD PHS Federal Pricing and Contracts

Here’s the latest conference for any Drug Channels readers with government business: CBI's VA DoD PHS Federal Pricing and Contracts for Bio/Pharmaceutical Companies. It will be held on November 21, 2013 at the Loews Hotel in Philadelphia, PA.

The top-notch speaking faculty includes government perspectives from the U.S. Government Accountability Office, U.S. Public Health Service (PHS), the Department of Veterans Affairs, and the Apexus/340B Prime Vendor Program. (Timely!) Industry insights will come from Amneal, Boehringer Ingelheim, Cornerstone Therapeutics, Horizon Pharma, Johnson and Johnson, Lilly, Pfizer, and Teva.

Drug Channels readers can register with promo code HBG345 by September 13 and save $300 on registration!