June 28, 2010 
Of all the companies that might put out a restricted network whitepaper (PBMs, retail chains, consultants), I will admit that Wal-Mart is a surprise to me. It’s not that they haven’t been trying different strategies to increase market share – $4 generics, direct-to-employer contracting, but in general, I don’t see them doing a lot of marketing or selling in this space. They participate at one industry event, but their booth is very stark compared to other pharmacies.
But, that being said, the whitepaper makes the key points that anyone would make (i.e., I agree with the framing of the opportunity) with a slight twist of focusing on member savings versus payer savings.
Some of their key points from the whitepaper are:
- You should treat pharmacy negotiations like buying any widget. There is more supply than demand.
- Today’s model encourages all pharmacies to offer a rate that doesn’t get them kicked out of the network.
- Today’s model doesn’t encourage consumers to pick one pharmacy over another.
- There’s 5x more pharmacies than McDonald’s in the US…and no one would argue that it’s difficult to get a Big Mac.
- They quote the Medicare pharmacy access standards to make the point about what access you can survive with. They reference an Express Scripts analysis that says the Medicare access standard can be achieved with a national network of less than 20,000 retail pharmacies (compared to the 60,000 in most networks).
While limited retail networks are not a new concept, they haven’t been widely adopted historically (<10% of clients). PBMs have always offered this type of plan design to payers – “If you remove a few chains from your network, you’ll get a lower rate from the other chains in return for increased marketshare.”
With the integration of CVS Caremark and their offer of Maintenance Choice, we’ve obviously seen the focus on this increase. And, the recent public negotiations with Walgreens highlighted that this is seen as a viable model for the future.
The question now is whether this will accelerate adoption of some type of limited network. If it goes forward, there are lots of questions to answer:
- How small will the network be – regionally, nationally?
- Who do you build the network around – CVS, Walgreens?
- What does this mean for mail order?
- What rates do the retailers have to match to participate?
- Does it include 90-day?
- Does the network start to look like a formulary where you have preferred pharmacies at one copay and non-preferred at another copay or is it either in-network or out-of-network?
- Does this increase or decrease power for the independents that have to be in certain places?
- Will anyone really test the national access standards and go to a 20,000 store network?
- What will consumers say and do?
- Does this accelerate adoption of cash cards and cash business for generics?
But, again, I struggle to see Wal-Mart as the chain that you build around unless the whitepaper is a thinly veiled attempt to push the direct-to-employer model (i.e., Caterpillar) which has saved the employer lots of money, but isn’t a simple to implement program (IMHO).
Here are some marketshare numbers for Walgreens, CVS, Rite-Aid, and Wal-Mart for the top 30 MSAs. Only 9 of those markets have Wal-Mart share above 10% and none are higher than 14%. For the other three, you have markets where they have a much higher concentration around which you can build.
Someone was asking me the other day if I saw the PBMs essentially partnering up. I’m not sure I do since there are markets where you would want to build a limited network with Walgreens and markets where you would want to build a limited network with CVS. At least for now, I don’t see Medco and Express Scripts just picking one dance partner although they might just based on who’s willing to play with them.
The other thing that becomes important here (tying this back to my Silverlink work) is communications. You have to identify who will be affected in moving to a limited network. You have to communicate with those people and help get them to the preferred pharmacy. You have to help them understand why you are doing this (savings) and WIIFM (what’s in it for me).
It creates some great dialog between the head of benefits and the CFO. We can save $X…BUT we will have to ask Y% of our employees and their families. Will they care? Do they know their pharmacist (unlikely)? Will it be an issue of convenience? Will they complain (of course…change is hard)? Will they ultimately care (unlikely as most disruption becomes accepted after 3-6 months)?
Enabling Healthy Decisions 