Drug Channels News Roundup: February 2014

Our neverending winter is almost over! Get ready for an early spring with my monthly look at noteworthy new stories from the Drug Channels universe. In this issue:

• Hospitals Enter Specialty Pharmacy—Money on their Mind?

• PBMs and Health Plans—Buy or Build?

• New York joins the AAC Revolution—Done right?

• More Specialty Pharmacy Consolidation—Surprise? (No, not really.)

Plus, a really funny video about conference calls.

P.S. If you can’t wait for our monthly news updates, then join the twittering hordes following @Drug Channels.

EXCLUSIVE: 340B Is Taking Over the Hospital Market—With a 25% Share

At the recent 340B Coalition winter meeting, Apexus President Chris Hatwig revealed that 2013 purchases made under the 340B drug discount program were $7.5 billion. Hospitals accounted for 87% of this total. (source) After the article was published, Chris told me that the actual total was $7.2 billion.

Is $7.2 billion a big number? Defenders of the 340B status quo, such as the American Hospital Association, argue that this amounts to “only 2%” of U.S. drug purchases.

However, the 2% figure is just misleading propaganda. In reality, 340B is rapidly taking over the hospital market, which accounts for almost 90% of 340B purchases. Our exclusive analysis, detailed below, shows the reality:

• During the past decade, purchases under the 340B drug discount program have grown by 800%, from $0.8 billion in 2004 to $7.2 billion in 2013.

• In 2013, hospitals received 340B discounts on at least 25% of their drug purchases, compared with only 3% of 2004 purchases.

These numbers are extremely disturbing, since two-thirds of hospitals do not offer the reduced 340B prices to uninsured patients. (See New OIG Report Confirms Our Worst Fears About 340B Contract Pharmacy Abuses.) Given the money at stake, how can this status quo be considered acceptable? Let’s hope HRSA’s forthcoming proposed rule brings greater accountability to this out-of-control market and refocuses the 340B program on uninsured patients.

Oncology USA: The Future of Customer-Centric Cancer Care

The Oncology USA 2014 Summit will be held at the Hotel Marlowe in Cambridge, Massachusetts on March 25th and 26th.

More than 20 leading organizations including Sanofi, Merck Serono, Association of Community Cancer Centers, Priority Health and United Healthcare will participate in the event in order to identify the business models and growth strategies crucial to engage key stakeholders with a robust oncology pipeline strategy.

Drug Channels readers can register with discount code BSDC2014 to save $300 on registration. Thanks, eyeforpharma!

McKesson, Rite Aid, and the Changing Generic Channel

As predicted, McKesson and Rite Aid announced a new generic purchasing agreement. Click here to read the press release.

Once they get organized, McKesson-Celesio-Rite Aid will be the largest generics buyer in the world. (See table below.) The new relationship has some common elements with the Walgreens-AmerisourceBergen (ABC) tie-up, although McKesson gains a more valuable sourcing position compared to ABC.

More significantly, the deal continues a revolution in how wholesalers interact with their biggest retail customers. Below, I contrast the various wholesaler-customer deals and highlight implications for wholesalers’ channel role, generic buying, downstream speculative buying, AMP-based FULs, and more. Be prepared for more change.

6th Annual Government Programs Summit

HRSA’s 340B Program Update, Managing the Coverage Gap, and a Full-Day of Final Rule Insight at IIR’s 6th Annual Government Programs Summit

At IIR's 6th Annual Government Programs Summit happening March 26-28, 2014, in Alexandria, prepare for the impact of the U.S. Department of Health and Human Services June publishing of the 340B proposed rule and get practical solutions to manage the Coverage Gap Discount Program (CGDP) challenges. Download the brochure for full agenda and speaker details.

Understand the rebates and forecasting involvement with the new Part D requirements in the session Practical Solutions Manufacturers can use to Manage Coverage Gap Discount Program Challenges. Hear from Cmdr. Krista M. Pedley, PharmD, MS, CDR, USPHS, Director, Office of Pharmacy Affairs, Health Resources and Services Administration, on 340B program updates. Learn about the latest hot topic areas: Contract Pharmacies, Orphan Drugs, GPO Prohibition, Covered Outpatient Drugs, and Audits in the track 340B Summit for Manufacturers, in collaboration with Apexus' 340B University.

Drug Channels readers can register with code XP1951DC and receive 10% off the standard registration rates. More details below, including a free pre-conference podcast.

How Medicaid is Squeezing Specialty Pharmacy Profits

An Avalere Health report—Tracking Gaps in State Specialty Pharmacy Reimbursement—highlights an interesting question: Do new state Medicaid acquisition-cost pharmacy reimbursement models adequately compensate specialty pharmacies?

The problem is easy to describe. State Medicaid programs are rapidly adopting acquisition cost methodologies for pharmacy reimbursement. These new models reduce or eliminate pharmacies’ spread profits. Higher Medicaid dispensing fees are benchmarked to retail pharmacies and don’t account for additional services provided for specialty drugs.

This situation, however, is hard to fix. Unless it is corrected soon, patients will be the big losers. Avalere implies that states will step up with higher fees. Instead, I suspect that manufacturers will be expected to pick up the tab as specialty pharmacies' spreads gets squeezed.

Employers Pick Specialty Pharmacies Over Retail Drugstores—For Now

The Pharmacy Benefit Management Institute (PBMI) has just released its 2014 PBMI Specialty Drug Report. (Free download.) The report is stuffed with fascinating insights about how employers view specialty drugs covered under medical and pharmacy benefits.

I was struck by the results on employer perceptions of pharmacy outlets for specialty drugs. Employers think specialty pharmacies provide better pharmacist access and lower costs. However, they also think retail pharmacies are comparable for clinical services—and that surprised me.

The specialty/retail pharmacy distinction is blurring, because many drugstores are chasing the specialty market opportunity. (See Chapter 8 of the new 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies and The Explosion in Accredited Specialty Pharmacies.) Perception may not match reality, but expect these comparisons to become more common.

340B Sessions at the Medicaid Rebate Summit Address new OIG reports and more

Last week's OIG report on the 340B contract pharmacies highlighted crucial issues for the controversial 340B drug discount program.

At the upcoming 2014 Medicaid Rebate Summit, many speakers in multiple sessions will address the program. They include Commander Krista M. Pedley, PharmD, MS, Director, HRSA, Office of Pharmacy Affairs, and Chris Hatwig, President, Apexus 340B Prime Vendor. (Full list below.) I'll be there as the keynote speaker, discussing "How Medicaid Will Shape Pharma’s Future."

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

New OIG Report Confirms Our Worst Fears About 340B Contract Pharmacy Abuses

Moments after yesterday's post on the booming 340B contract pharmacy market, the Office of Inspector General (OIG) released the first of its three planned reports on the 340B drug discount program: Contract Pharmacy Arrangements in the 340B Program.

OIG’s research confirms many long-suspected problems regarding oversight, diversion, and the mystery methodologies for identifying 340B-eligible prescriptions.

But here's what's most troubling: the neediest patients are not benefiting from 340B discounts. In OIG’s sample, two-thirds of the hospitals do not offer the 340B price to uninsured patients. Wow.

These 340B contract pharmacy shenanigans need to stop. Based on the OIG report, uninsured and indigent patients aren’t benefiting from 340B drug discounts. Hospitals should stop hiding behind vague language about “stretching scare federal resources” and come clean about who really gains from 340B contract pharmacies.

Read on for highlights from this depressing report on the out-of-control 340B program.

Walgreens Still Dominates Booming 340B Contract Pharmacy Market, with CVS and Rite Aid Right Behind

In the 340B drug discount program, contract pharmacies are a crucial, but little understood, cog in the 340B money machine. Hospitals can pocket big profits from retail pharmacy prescriptions that are paid by commercial health plans and Medicare Part D. It’s all technically legal, especially since there are no regulations on what’s OK.

With little oversight and big money at stake, I’m not surprised that the program is still expanding at a breakneck pace. Consider:

• Nearly 14,000 pharmacies act as contract pharmacies for a 340B entity. That’s more than 20% of total U.S. retail, mail, and specialty pharmacy locations.

• Our analysis shows that the number of contract pharmacies has grown by 1,073 (+8.5%) over the past six months.

• Walgreens still dominates the market, but Rite Aid, CVS, and Walmart are gaining quickly. (See chart below.)

• More than 100 health systems have mega-networks of 50 or more pharmacies.

• Specialty and mail pharmacies play a larger role in the 340B program.

This will be a big year for the 340B drug discount program. The Health Resources and Services Administration (HRSA) promises to (finally) release long-overdue proposed regulations. The Office of Inspector General (OIG) expects to release a study on “program integrity” of 340B contract pharmacy arrangements. (Details below.) Let’s hope these developments get the 340B contract pharmacy program properly focused on helping needy patients access these medications. But I’m skeptical.

Oncology USA

Anybody in the rapidly growing Oncology space should consider attending eyeforpharma’s 5th annual Oncology USA 2014 Summit The conference will be held at the Hotel Marlowe in Cambridge, Massachusetts on March 25thand 26th.

Confirmed to speak are experts from Aetna, Amgen, Association of Community Cancer Centers, Connecticut Center for Primary Care, Eli Lilly, Moffitt Medical Group, Molecular Health, Oncology Patient-Centered Medical Homes, Orange Health, Physician Resource Management, Predictive Health, Priority Health, Sanofi, Strategic Oncology, Zitter Health Insights, and more.

Drug Channels readers can register with discount code BSDC2014 to save $200 on registration. Thanks, eyeforpharma!