Enabling Healthy Decisions

A lot has changed to the PBM industry in the past year:

• The Express Scripts acquisition of Medco
• The proposed SXC acquisition of Catalyst (on top of prior acquisitions)
• UHG insourcing their PBM as part of their overall Optum strategy
• The contract dispute between Walgreens and Express Scripts

And, there will certainly be more (e.g., the rumor about Cigna’s pharmacy business).  I also think that we’ve seen Walgreens become a lot closer to the independent pharmacies and would expect more changes from them.

So, while I still get people that call me and ask me whether they should start a PBM, I think it’s more interesting to think about this using the GE framework of destroymybusiness.com.  To do that, we have to think about where are the profit drivers for the PBM and how can those be impacted:

• Mail order has certainly been a driver, but as I’ve discussed and Adam Fein has discussed, this is a challenge to grow these days due to pricing, generics, and 90-day retail.
• There’s been lots of generics coming to market, but many others have written about the patent cliff and it’s potential impact.
• There’s been plenty of discussion about generic spread and some of the transparency efforts have impacted this.
• While many still think rebates are a profit driver, my perception is that most of that is already shared with clients.

So, if you wanted to destroy the PBM model, how would you replace it:

• You would eliminate spread which has been tried by numerous companies under the “transparency” framework.
• You would eliminate rebates and move to an outcomes-based contracting approach.
• You would create a competitive market for mail order which is 90-day retail.
• I might even look at how the Prime Therapeutics ownership model could be applied at a broader level to unions, employers, and small payers.

So, the new model in my mind would look very different:

• A big focus on specialty with oral solids being basically just coordinated for DUR purposes around claims processing.
• A shift over the next decade to be very genomics oriented.
• A shift in customer service from general call center to a broader self-service option.
• Much greater involvement in condition management possibly even with a shift to work with the providers.
• A role in coordinating Rx, Dx, and lab data to drive outcomes.
• Being known more for clinical care then cost management.

I personally also think you’ll see the pendulum swing back to a closer relationship between the PBMs and pharma which I think is important as you focus on more and more orphan drugs and specialty conditions with genomics and high costs.

I think the key question is whether one of the traditional PBMs evolve and own this space or whether a new challenger comes in and shakes up the industry.  Traditionally, the industry has been basically driven by consolidation with limited success by new entrants.

Now that the Express Scripts’ acquisition of Medco was approved (surprisingly without any caveats), I’m going to guess that a lot of employees are in one of four positions:

1. I just made a ton of money based on my vested options, and I’m not going to work for the new organization (by my choice);
2. My job is safe, and I work in the field with clients so no real impact;
3. My job is likely being cut so I need to find a new job without triggering my non-compete; or
4. My job is safe, and for some… I have to move to St. Louis.

The people in the grey area that are uncertain are the people that are probably the most anxious.  And, of course, some of this is happening to the Express Scripts’ people also where there are overlapping jobs.

Since I’ve been out looking to move for my new job, I have some idea of the basic types of questions that those employees looking to move have, and I haven’t found the information that easy to get.

So, here goes with two caveats – (1) this is my biased view after 19 years here and (2) St. Louis is not NY:

Pharmacies: Generally, the majority of pharmacies in town are Walgreens, but you won’t have access to them.  CVS is building a presence here, but you’ll likely go to the grocery store, big box, or independents.

Grocery Stores: The town is dominated by two local chains called Schnucks and Dierbergs.  There is a Whole Foods and a Trader Joes.  There are a few Shop and Saves.

Workout: There are lots of chain and small gyms around town.  If you haven’t been to one, you should look at the Lifetime Fitness in West County.

Restaurants: St. Louis Bread Company (Panera to you) is headquartered here and is everywhere with free wi-fi.  There are lots of Starbucks.  Some of my favorites (non-chains) include Yia-Yia or Charlie Gittos or Cardwells or Bristols.  You should try Crown Candy in the city and Ted Drewes for deserts.  (I also really like Silky’s in West County.)  [I’m obviously not a foodie.]

Places: You’ll hear people talk about “the Hill” which is an Italian area in the city.  You’ll hear about Clayton which is the one business area outside downtown.  You’ll hear about West County, South County, and North County which are just like the names (counties around St. Louis city).  You’ll hear about 40, 70, 44, 270, and 170 which are the highways.  You’ll hear about Forest Park (which is our version of Central Park).

Vacation: The two Missouri vacation places you’ll hear people talk about are Branson and Lake of the Ozarks.

Casinos: There are several casinos around town.

Smoking: Smoking in restaurants was banned a few years ago.

Other Big Companies: A lot of the big companies like Anheuser-Busch and Ralston have been bought, but they still have a big presence here.  Emerson Electric is here.  SSM Healthcare is here.  Ascension Health is headquartered here.  Centene is here.  Enterprise Rent-A-Car is headquartered here.  EdwardJones, AG Edwards, and Scottrade are all here.  Citibank has a large presence here as does Mastercard.  Build-A-Bear was started here.

Colleges: Washington University (WashU) and St. Louis University (SLU) are both here in town.

Areas to Live: I would say that many people from Express Scripts management live in West County (Chesterfield, Wildwood, Ellisville) which is where I’ve lived most of my time here.  There are lots of transplants out here.  Traditionally, most people from St. Louis will live east of 270 in Clayton, Ladue, Frontenac, Webster, Kirkwood, or in the city (see Delmar Loop area or Washington St. downtown).  Some other areas where people will live include St. Charles or some people in Illinois.  If you like a new house with lots of square footage, you can get that in West County or other areas farther.  There are even a few new subdivisions being built by Pulte homes.

Golf: If you like to golf, there are lots of places to go.  I really like Tapawingo and Peveley Farms.  There are also many good clubs which can be joined for a reasonable fee like St. Albans or Forest Hills.

Schools: The public schools are very good (at least from what I know out here in the Wildwood/Chesterfield area).  There are also a lot of private schools with a huge emphasis on Catholic schools.

Things for Kids to Do: There are lots of great places like Purina Farms, Six Flags, Dave & Busters, City Museum, The Magic House, Grants Farm, and of course…the Arch.  Additionally, there’s the zoo and the Science Center.

Sports: Of course, you have the Rams, Cardinals, and Blues.  There is no NBA.  (Tickets are probably a lot easier to get here than in NY.)

Places to Shop:

• Chesterfield Mall
• West County Mall
• The Galleria
• The Valley (Chesterfield)
• Frontenac
• Fleet Feet (for runners)

Surprises:

• If you go south in Missouri, you’ll see armadillos.
• The first question that many people will ask you is where you went to school.  (They mean high school not college which allows them to quickly stereotype you.)
• There is wine made in Missouri (although I can’t vouch for quality).  You can do a bike tour stopping at multiple wineries which is fun (and maybe dangerous).
• Here we fry our ravioli to make toasted ravioli.  You can also get lots of gooey butter cakes and cookies.
• Another big food favorite here is pork steaks (which are actually quite good).

More information:

• http://explorestlouis.com/visit-explore/discover/25-things-to-do-in-st-louis/
• http://www.tripadvisor.com/Attractions-g44881-Activities-Saint_Louis_Missouri.html
• http://stlouis.about.com/od/thingstodowithkids/Things_to_Do_With_Kids_in_St_Louis.htm
• News / weather / etc – http://www.ksdk.com/
• Private schools – http://www.privateschoolreview.com/county_private_schools/stateid/MO/county/29189

I keep thinking about the $4-$6B that the Visante Study estimated was being spent by pharma on copay cards and how that money could drive overall adherence.

Here’s my thought:

Based on work I’ve participated in and work I’ve seen my clients do, I know you could raise adherence by ~10 percentage points by some simple intervention programs that would cost much less than $10 per patient per year. At the same time, there is still lots more work to be done to address primary adherence and we know that not all people are non-adherent for the same reasons or will respond to the same techniques.

But, I’m pretty confident that the the remaining $32 per patient could fund a lot of POS interventions like Ashville, education programs, caregiver programs, incentives, and other tactics. Of course, this would float all boats (I.e., brand and generic Rxs) so the cost per manufacturer might drop and the ROI should go up. At the same time, this should create overall saving by cutting into the estimated $290B in costs associated with non-adherence.

Of course, most people are skeptical about this type of preventative health programs (aka primary preventation or public health) although 25 of the 30 years in additional life expectancy gained over the last century is credited to public health. Additionally, the Trust for America’s Health (TFAH) had estimated that an annual $10 per person investment in disease prevention programs could produce more than $16B in annual saving within five years.

The easy argument would be that ultimately interests aren’t aligned for pharma as prevention might reduce Rx utilization. I would hypothesize that the increased number of new starts and decrease in abandonment would more than compensate.

Of course, how do we pull this off? I’m not sure but it seems like a great HHS opportunity.

Within the M&A landscape, “people keep returning to pharmacy. Pharmacy has always had long-term investment [interest] … and opportunities for growth and expansion are not difficult to imagine…. Pharmacy is sexy; it always has been, and, for the near future, it will continue to be.” — Dexter Braff, president of The Braff Group, a health care M&A company, told AIS’s Specialty Pharmacy News.

This was an interesting quote for me. While I agree that the fundamentals of pharmacy are good, there are lots of challenges.

From a positive perspective:

BUT, from a negative perspective:

So…on the one hand, I agree. Pharmacy is very interesting and ripe for innovation. On the other land, there are lots of big, established players fighting for the same margin dollar. I’m still betting money on the industry, but I know lots of companies are trying to sell out so that tells me there are some challenges.

I’m sure this is a little bit out there in terms of some of my ideas, but I like it. While a little Orwellian, I was talking with a retailer the other day about how to maximize the experience at the counter between the patient and the pharmacist. At a small independent pharmacy, the owner (pharmacist) probably knows a lot of this patients (customers) by name. On the other hand, this is a lot harder at the larger chains which are busier and with multiple pharmacists working different shifts.

I was thinking about how technology could address this. What if you had a camera that was monitoring customers as they came in the store (which most probably have today in terms of security cameras)? Could that be augmented by adding facial recognition software (which I have no idea how expensive it is)? Then, the pharmacy could know that George was in the store and tap into a CRM system that could remind Nancy the pharmacist that I have a dog and a fear of needles (for example). When I got to the counter, Nancy could greet me by name and ask about my dog. It would certainly make me feel welcome and should create some stickiness (although maybe less if I knew it was technology enabled).