Enabling Healthy Decisions

While the judicial committee meeting today has no direct bearing on the FTC’s review of the proposed merger, it will definitely help form some public opinions and may help layout some areas of focus for the review.  You can see the Bloomberg summary of some of the key quotes here.

You can also read the submitted testimony by each of the six witnesses online at the judicial site.  I pulled a few comments from each below.

From Stephanie Kanwit:

The most important theme of the Guidelines is that “mergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise.” Reams have been written about what constitutes “market power,” but the definition in the Guidelines is relatively straightforward:

“A merger enhances market power if it is likely to encourage one or more firms to raise prices, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives.”

From Dan Gustafson:

the major PBMs continue to expand exclusive distribution arrangements with pharmaceutical manufacturers. Further analysis is required to determine whether these acquisitions and distribution alliances have led to decreased service and consumer choice in providers, as well as substantial increases in the prices of several specialty drugs.  [Isn’t this becoming the norm with more and more REMS being required by the government for specialty drugs?]

From Dennis Wiesner:

The payment from a PBM to a pharmacy for dispensing a prescription drug differs from the amount a PBM charges a plan for the same prescription drug, to the benefit of the PBM. Plans sponsors are typically unaware of this difference, commonly referred to as “spread.”  [Isn’t this common in business?  Does a clothing retailer reveal what it pays its supplier for goods?]

From Joseph Lech:

Everyone knows the fastest way to reduce drug costs is to maximize the proper utilization less-expensive generic drugs. Yet, community pharmacies dispense generics at a much higher rate than the PBM-owned mail order outlets because we do not have incentives, such as kickbacks from manufacturers, to dispense brand name drugs. For example, the generic dispensing rate at the ESI mail facility is 60%. It is 62% at the Medco facility. By contrast, community pharmacies dispense generics on average 72% of the time.  [How long will these inflated statistics stay around…it’s like the false perception about vaccines.  You have to adjust out the acute drugs and acknowledge a different consumer mix leading to similar GFR.]

From George Paz:

According to our data, Express Scripts members utilizing our full complement of tools enjoy an additional annual average savings of over 11 percent per year. These savings are in addition to the discounts from negotiating with drug makers, which average 27 percent below the average cash price consumers would pay at a retail pharmacy for brand name drugs and 53 percent below the retail cash price for generic drugs.

From David Snow:

The business of pharmacy benefit managers (PBMs) is defined by robust competition, with more than 40 PBMs working hard to provide differentiated value propositions for public and private payors. These firms are a diverse group with very different business models and varying degrees of vertical integration, some integrated with pharmacies, others integrated with managed care organizations and others entirely independent. Nine Fortune 500 companies operate their own PBMs. Non-PBM participants like Wal-Mart and Target also contribute meaningfully to the competitive landscape by offering low-price generic prescriptions, as do other retail pharmacies that are providing steep discounts on 90-day prescriptions.

I didn’t get to listen to the prepared testimony, but I think I heard most of the Q&A which was interesting.  But, I think I’m too close to it.  I was really confused by some of questions and discussion.

1. If the large payers only will choose one of the large PBMs that aren’t associated with another payer (i.e., OptumRx or Humana Rightsource), why would a merger of two of the top three affect the smaller PBMs in any way?  [I don’t agree with the hypothesis by the way.]
2. Since several PBMs leverage either SXC or Argus software, why would someone say that the smaller PBMs don’t have access to the same technology?
3. Why would you view sales to managed care companies as a submarket for which to look specifically at marketshare?  Or national employers for that matter?  And, will any of that matter in the exchange market if consumers can purchase pharmacy coverage separately from medical benefits?
4. Since consumers typically pay copayments, why is there a big focus on how consumers feel the savings of the merger?  They may see a slight difference in percentage copayment plan designs, but the savings accrue to the payer which can choose whether or not to share those savings through lower copayments with the consumer.
5. What services that a PBM provides are limited because of their geographic location?  This seems to be one of the key points about the limitations of the smaller PBMs.
6. Part of the pharmacy arguement was for creating a pharmacy home (which I agree with) and directing consumers to a single pharmacy.  They also talked about having the pharmacist determine who should be allowed to fill 90-day prescriptions.  This doesn’t sound very consumer friendly and sounds a lot like what they say the PBMs are doing that is bad.
7. The idea that drugs are just shipped to patients without them wanting them was brought up several times.  I’d really love to see some specific data about how that happens.  Did their physician call it in?  Did they sign up for auto-refill?  There is a process to be followed which addresses consent and payment so while I believe consumers may say this happened I’d love to see the data on an individual basis.

I also thought it showed the difference culturally or philosophically when you listened to George Paz answer the question about the greatest opportunity to save money versus David Snow’s reponse.

• George said to focus on eliminating fraud, waste, and abuse
• David said to focus on managing chronic conditions

This difference is both the challenge and the opportunity that the combined entity will have to embrace.

The one part that really frustrated me was watching the member of the committee from Michigan try to pin everyone down on what they thought of healthcare reform and making the point that they were under oath.  That seemed too political and not relevant to me.