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Drug rebates will remain… but so will pressure to reduce drug prices and demonstrate value

[Note: I’m republishing a few Deloitte blogs that they are no longer hosting as part of the new website.]

Published Date : July 29, 2019
Author: Deloitte
Categories : Biopharma, Drug rebates, Health policy, Life sciences

On July 10, the White House abandoned efforts to eliminate safe-harbor protections for drug rebates in Medicare Part D and Medicaid managed care due to concerns that the change would lead to higher premiums for beneficiaries. (For background on this issue, see our previous blogs.) While the rebate issue is now off the table, pressure to reduce prescription drug costs is not. But rather than waiting for the next round of regulations, we believe the pharmaceutical industry should consider developing its own business models that address drug prices and demonstrate value.

Recall in January, the US Department of Health and Human Services (HHS) proposed eliminating safe-harbor protections for rebates beginning on January 1, 2020. The Congressional Budget Office (CBO) estimated the proposal would have increased Medicare spending by $170 billion and Medicaid spending by $7 billion over the next decade (see the May 7, 2019 Health Care Current). It also would have increased the premiums that Medicare beneficiaries would pay under Part D.

Who’s to blame for rising drug costs?

The Pharmaceutical Research and Manufacturers of America (PhRMA) said the decision not to eliminate safe-harbor protections for rebates was “a blow to seniors who could have paid less” for prescription drugs. America’s Health Insurance Plans (AHIP), however, said that drug manufacturers are solely responsible for setting drug prices and determining price increases, and could decide to reduce prices. In February, a group of biopharmaceutical executives told a Senate committee that eliminating safe-harbor protections—and shifting toward a value-based drug-pricing system—might be the key to reducing drug costs (see the March 5, 2019 Health Care Current). However, at a subsequent hearing, executives from five large PBMs suggested that increased competition among drug manufacturers could help to reduce drug costs.

At the heart of the debate is whether drug prices are artificially high because of the rebate system, or whether this system helps to bring drug prices down. In 2017, rebates and discounts offered by brand-name drug manufacturers reduced list prices by an average of 44 percent.1 Several PBMs have said they keep 5 percent or less of the rebates,2 which means the vast majority of rebate dollars are transferred to health plans, self-insured employers, and Part D plans to help reduce premiums. While some PBMs say they send 100 percent of rebate revenue to clients, they usually charge administrative fees to plan sponsors.

Four strategies for helping ensure market access

The average older American takes 4.5 prescription drugs, often to treat a chronic illness.3 Between 2012 and 2017, the average annual cost of four widely used prescription drugs increased about 58 percent, according to AARP. Even with the rebate proposal off the table, pressure to rein in price increases is likely to increase, which could push pharmaceutical companies to compete more directly on value. This might require a shift in strategy toward more robust evidence generation, the continued use and expansion of support services, and greater competition in value-based contracts. As we have suggested in previous posts, here are a few ideas pharmaceutical companies might consider:

  • Use real-world evidence (RWE) to highlight clinical and economic outcomes: Pharmaceutical companies might want to evaluate clinical outcomes to demonstrate superiority in class, improvements in standard of care, or efficacy within specific patient sub-populations. As value-based contracts become more common, manufacturers should demonstrate the value of new products or product classes. Such contracts might also help to mitigate the clinical uncertainty of a high-cost treatment.
  • Differentiate products based on patient preference. Patient convenience, or strategies that help boost adherence, might help pharmaceutical companies make their products more appealing.
  • Expand patient-support services: Most (if not all) pharmaceutical companies offer some type of patient support. But they should consider making information available directly to patients to help them understand their illnesses, manage their medications, and navigate prior-authorization requirements (particularly in specialty areas).
  • Consider using targeted therapeutics: Manufacturers might try to reduce the impact on health plans and other payers by identifying target populations that are likely to receive the maximum benefit from a therapy.

Regulatory changes could accelerate use of value-based contracts

Over the past few years, we have seen an uptick in value-based contracts in several therapeutic categories. However, some barriers appear to be holding back widespread adoption. Some contracts have been abandoned before completion due to the amount of work required to operationalize them. While these contracts haven’t fully yet taken root, we expect the evolving regulatory environment could change that. The Deloitte Center for Health Solutions recently analyzed branded portfolios of the 19 largest biopharma companies (by revenue). From that list, we found 16 drugs that are (or were) included in a VBC.

While the rebate idea has been shelved, prescription drug costs will remain a top issue for the administration, Congress, and regulators as they advance policies outlined in the Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (see the January 8, 2019 My Take). Moreover, value-based contracting will continue to alter existing business models. The status quo is unlikely to remain and pharmaceutical companies and PBMs should prepare for change now rather than waiting for change to be mandated.
1 Adam J. Fein, Ph.D., Drug Channels Institute, April 24, 2018 (
2 As a PBM and an Employer, We Know Rebates and Innovation Lower Drug Costs, Morning Consult, October 3, 2018 (
3 Press release, April 4 2019, AARP (

With drug rebates on the chopping block, stakeholders should prepare for change

[Note: I’m republishing a few Deloitte blogs that they are no longer hosting as part of the new website.]

Published Date : April 17, 2019
Author: Deloitte
Categories : Drug rebates, Health care providers, Health IT, Life sciences

Early this year, the US Department of Health and Human Services (HHS) proposed eliminating safe-harbor protections for the rebates drug manufacturers pay to pharmacy benefit managers (PBMs), Medicare Part D plans, and Medicaid managed care organizations. At the same time, HHS proposed two new safe-harbor protections for some point-of-sale (POS) price reductions on prescription drugs and certain PBM service fees.

The proposed rules, which are slated to go into effect on January 1, 2020, would not affect commercial health plans…at least not yet. On February 1, HHS Secretary Alex Azar urged Congress to pass its proposal “immediately” and to draft legislation that would extend it to the commercial drug market. In March, Sen. Mike Braun (R-Ind.) introduced the Drug Price Transparency Act (S. 657), which would extend the rebate prohibition to the commercial market.

With the rule prohibiting rebates in Part D still under review, and more than 25,000 comments submitted, Part D plans have to create their bids for CY2020, which are due in June. On April 4th, the US Centers for Medicare and Medicaid Services (CMS) announced it would let Part D plans test a new payment model that would reduce the risk of large gains or losses through risk corridors under a two-year demonstration. Additionally, CMS provided clarity that Part D plans should submit bids “in a form and manner that is consistent with the Anti-Kickback Statute law and regulations in effect as of the bid submission deadline, including, for the purposes of bid development, the treatment of manufacturer rebates per our existing rules and guidance related to Direct and Indirect Remuneration.” At the same time, during an April 9 hearing before the Senate Finance Committee, executives representing six large PBMs warned that eliminating rebates could lead to higher drug prices for seniors and argued that changing the business model by January 1, 2020, was not realistic.

While we have been tracking this issue closely over the past several months, it continues to evolve. In my October blog, The future of drug rebates: Are they to be or not to be?, I explained how pharmaceutical manufacturers use rebates when establishing list prices for their products. In November, my colleague Joe Coppola outlined some of the alternative models that could emerge if safe-harbor protections are eliminated. This third installment of our drug-rebate blog series examines how the proposed changes could affect various stakeholders.

At the heart of the debate is whether drug prices are artificially high because of the rebate system, or whether this system helps to bring drug prices down. Critics argue that rebates are to blame for high drug prices, while PBMs and health plans contend that rebates are an important tool in keeping rising drug costs in check. Others note that the rebate system existed and worked when plan designs were based on flat-dollar copayments. However, now that health plans often tie patient out-of-pocket costs (e.g., deductibles, coinsurance) to list prices for drugs, this might no longer be a practical solution.

Here’s what we know…

Regardless of how rebate reform rolls out, most stakeholders will be affected. At this point, there are many questions and few detailed answers. If HHS’s proposed rule is finalized and survives any legal challenges that arise, we can make several reasonable assumptions:

  • Changes to the rebate model will begin with Medicare Part D and Medicaid managed care. Legislation, if enacted, could extend the changes to the commercial market.
  • Rebates will likely transition to upfront POS discounts for consumers that take place at the pharmacy.
  • Premiums are likely to increase for all affected lines of business.
  • Pharmaceutical manufacturers could face market pressure to reduce list prices to reflect current net prices.
  • Patients who take multiple brand and/or specialty drugs could see lower out-of-pocket costs.
  • PBMs will likely be affected but will survive.

Here’s what we don’t know…

A big question surrounding HHS’s proposal is whether it will help achieve the administration’s goal of reducing list prices for prescription drugs…and at what cost? Here are a few questions we can’t answer until we have more information:

  • How quickly will changes in Medicare and Medicaid spill over into the commercial markets?
  • Will pharmaceutical manufacturers and/or other entities have to maintain multiple price lists? If so, how will they be managed? And, how will this reimbursement be managed and paid at the POS?
  • Will changing the rebate model change the focus on value-based or outcome-based contracting around pharmaceuticals?
  • How much are premiums likely to increase?
  • Could the proposed changes really go into effect as soon as January 1, 2020 (as proposed by HHS)?
  • Will net prices be lower, and how will transparency influence future drug pricing?

Stakeholders will likely have to prepare for change in different ways.

Here is how we think various stakeholders could be affected by the elimination of the drug-rebate model:

  • Pharmaceutical manufacturers: Drug makers could face new operational challenges if they need to maintain a rebate-pricing strategy in the commercial market while developing a net-pricing strategy for Medicare and Medicaid. Pharmaceutical manufacturers will likely need to determine how much to change list pricing without rebates and/or whether to launch authorized generics. They might also have to build new connectivity with whichever third-party is responsible for paying the POS discounts (if not the PBMs). We would also expect to see an increased focus on competitive transparency and pricing analysis and greater emphasis on the value and efficacy of new therapies. This should also drive more focus on the comparative effectiveness of therapies.
  • PBMs: The transition away from rebates as a source of revenue will accelerate if the HHS proposal is finalized, and PBMs might need to redefine the services they offer. As brand prices are adjusted, PBMs will likely experience a drop in topline revenue and could see plan sponsors shift plan designs back to flat dollar copays. They will also likely need to re-contract with plan sponsors, especially around rebate guarantees, and might need to adjust the service fees they now charge pharmaceutical manufacturers.
  • Retail pharmacies: Retailers are likely to see a drop in topline revenue as brand prices are adjusted. Pharmacists might also need to spend more time explaining the new pricing model to consumers, and there could be changes to direct and indirect remuneration (DIR) from PBMs as rebates are replaced by POS discounts. Ultimately, the biggest impact will likely be the establishment of new payment mechanisms so that discounts can be received at the POS from a potentially new third-party.
  • Medicare and Medicaid plans: Retrospective rebates would likely be replaced by POS discounts. Given that copayments are already low in Medicaid, we anticipate supplemental rebates will be eliminated. By contrast, Medicare beneficiaries could see higher premiums as POS discounts show up as lower cost sharing instead of lower premiums. A more transparent model with the elimination (or reduction) of rebates and DIR fees will change PBM pricing and require new contracts especially around rebate guarantees.
  • Commercial health plans: We probably won’t see any immediate impact unless legislation is enacted to expand the rebate change to the commercial sector. However, we do expect health plans will start to use more POS rebates in anticipation of a future change. As with Medicare and Medicaid plans, commercial health plans also could see higher PBM fees and need to re-contract especially around rebate guarantees.
  • Self-funded employers: Self-funded employers won’t experience much of an impact if changes are limited to Medicare and Medicaid. However, we would expect employers to move to POS rebates so that they are prepared if Congress acts to eliminate rebates in the commercial sector. Self-funded employers could be asked to pay higher PBMs fees under a more transparent PBM model, and PBMs would need to re-contract with employers especially around rebate guarantees.
  • Consumers: People covered by Medicare Advantage and Medicare Part D are likely to see increased premiums. However, high-utilizers of heavily rebated brand or specialty prescription drugs, could wind up with lower total out-of-pocket expenses. The majority of consumers who fill generic drugs will not see any reduction in their out-of-pocket spending. With these changes, consumers are also likely to see increased transparency around drug prices.

Regardless of the shape the final rule takes, and the timing of the implementation, we are already seeing various stakeholders distancing themselves from drug rebates. In a letter to Office of Management and Budget Director Mick Mulvaney last fall, former House Energy and Commerce Committee Chairman Greg Walden (R-Ore.), and former Senate Finance Committee Chairman Orrin Hatch (R-Utah) noted that possible changes to the existing rebate model “could ripple across the health care sector, altering a major sector of the U.S. economy that Americans depend upon for their health and well-being.” Depending on where you sit, this is either worrisome, long overdue, or the natural evolution of the market.

The future of drug rebates: Are they to be or not to be?

[Note: I’m republishing a few Deloitte blogs that they are no longer hosting as part of the new website.]

Published Date : October 18, 2018
Author: Deloitte
Categories : Biopharma, Drug rebates, Life sciences, Regulatory

Nearly half of all Americans (49 percent) have at least one prescription drug, and 12 percent of the population has five or more, according to 2017 data from the Centers for Drug Control and Prevention (CDC). In 2016, $329 billion was spent on prescription drugs—an increase of nearly 30 percent from 2010.1

With so much money at stake, drug pricing has become a front-page issue. But the sale of pharmaceuticals is based on a complex economic model that few people fully understand. It involves employers, health plans, pharmaceutical benefit managers (PBMs), pharmaceutical manufacturers, wholesalers, pharmacies, and the government.

As the administration looks for ways to reduce prescription drug prices, prescription drug rebates is one area that has come under scrutiny. Health and Human Services (HHS) Secretary Alex Azar recently said it was within his agency’s power to eliminate rebates on prescription drugs. A proposed rule from HHS, which could end or significantly alter rebates, is being reviewed at the Office of Management and Budget. This regulation could affect commercial health coverage and Medicare Part D, but might begin with an initial focus on Medicare.

How drug rebates work

Pharmaceutical manufacturers establish a list price for their products with an understanding that discounts and rebates will be used to reduce the list price employers or government programs actually pay. A clinical drug evaluation conducted by a PBM’s Pharmacy and Therapeutics (P&T) committee identifies which drugs have to be covered and which drugs are optional. Health plans and PBMs then consider rebates as they design their formulary (i.e., the preferred drug list used by health plans). This discussion considers the breadth of the formulary (i.e., number of drugs per therapeutic category), whether the formulary is open or closed, and the number of formulary tiers. Rebates typically increase as a formulary becomes more narrow (or closed) because it increases the likelihood that certain drugs will be prescribed.

In 2017, rebates and discounts offered by brand-name drug manufacturers reduced list prices by an average of 44 percent.2 Several PBMs have said they keep 5 percent or less of the rebates, which means the vast majority of rebate dollars are transferred to health plans, self-insured employers, and Part D plans to help reduce premiums. While some PBMs say they send 100 percent of rebate revenue to clients, they do charge plan sponsors administrative fees. PBMs also collect administrative fees from pharmaceutical manufacturers for managing the rebates. What is less clear is how consumers benefit from rebates. For example, do rebates translate to lower health insurance premiums for everyone versus directly benefiting only the patients who use the medications?

The administration views rebates as one lever that could have an impact on drug prices. At the heart of this debate is whether drug prices are artificially high because of the rebate system, or whether this system helps to bring drug prices down.

Antitrust litigation prompted drug-rebate model

Drug rebates became popular among PBMs after the antitrust litigation of the 1990s challenged the ability of drug manufacturers to offer up-front discounts. The courts determined such discounts ran afoul of antitrust law by favoring managed care providers over pharmacies. In response, drug manufacturers turned to rebates, which the courts indicated would be preferable.

Under current law, rebates are permissible because the anti-kickback statue—and implementing regulations—has a discount exception (also known as the safe harbor). The administration’s “blueprint” to reduce drug prices includes the removal of this safe-harbor protection of manufacturer rebates. The intent is to decrease out-of-pocket costs for consumers and reduce overall drug spending.

Over the past five years, the amount of rebates and discounts offered by pharmaceutical manufacturers has doubled to $153 billion in 2017, according to life sciences analytics firm IQVIA. This trend aligns with a growing number of high-cost specialty drugs and more aggressive cost-management tactics—such as closed formularies—among plan sponsors. Until the administration began focusing on drug costs, the gross-to-net bubble (i.e., the difference between the list price and the actual price paid after rebates) had shown no signs of decreasing.

The IQVIA data also indicates that while list drug prices have increased, net prices have remained relatively flat over the past five years. The higher list prices can lead to higher rebates, however one recent study suggested that there is no correlation.3 These higher list prices can result in bigger out-of-pocket costs for patients who have high-deductible health plans or coinsurance-based copayments, although they do help offset premium costs for all enrollees.

This issue of alignment, and how to contain drug costs, is at the heart of the issue. The ability to design formularies and negotiate rebates is a core value proposition for many PBMs. While the rebate model has existed in a bit of a black box for many years, from a business-to-business perspective, it has become less opaque (although not yet fully transparent). Consultants and sophisticated plan sponsors have increased their use of rebate audits and have called for greater transparency.

If the rebate model goes away, what will replace it?

Many groups have said it might be time to replace the rebate model. But what would replace it? Would all list prices need to be re-aligned to match today’s net prices or will a completely new model emerge? Will we see widespread adoption of value-based (or outcome-based) contracts between health plans, pharmaceutical manufacturers, and providers? At this point, there are no clear answers.

Several potential replacement models are being discussed that could take the place of rebates. A point-of-sale (POS) rebate model might be easiest to implement and could be an interim policy step. Under this model, the plan sponsor would have its PBM implement POS rebates so that members would pay the net cost of brand-name drugs. This could mean lower out-of-pocket costs for people who have high-deductible health plans or who are responsible for coinsurance. This would likely affect only a minority of members because rebates aren’t used for generic drugs, which make up almost 90 percent of all prescriptions filled in the US. It would not affect people who have flat-dollar copayments that aren’t tied to the net price of the drug (in a point-of-sale rebate scenario).

What can stakeholders expect if drug rebates are eliminated?

How would the list prices for drugs be affected if rebates are eliminated? Would pharmaceutical manufactures drop list prices down to the net price point, or would some alternative discounting program emerge? The other key discussion point is whether eliminating rebates will change the pricing trajectory and impact the industry’s economic model. If Average Wholesale Price (AWP) inflation slows, or reverses as a result, PBMs and other stakeholders that have some of their revenue streams tied to AWPs could need a strategy to replace lost revenue.

Eliminating rebates will not be like turning off a spigot. A PBM with a three-year contracting cycle, for example, might need a year or two to open and renegotiate thousands of contracts. Government bids, based on the existing system, are priced out almost nine months in advance. Without rebates, drug manufacturers will likely have to rethink their market-access approach and reevaluate their pricing strategies.

The loss of rebate revenue could cause plan sponsors to re-evaluate their pricing models, plan designs, and underwriting process. Without a new model to represent the current net-of-rebate cost for all drugs, consumers could see higher out-of-pocket costs, or more limited benefits to keep premiums from rising.

The drug-rebate model is extraordinarily complex, and people across the health care ecosystem are closely analyzing a variety of possible scenarios that could occur if that model changes or is eliminated. There are many questions that can’t yet be answered. Will rebates go away completely? How long will it take? Will the change be limited to Medicare? Will rebates continue to exist, but get shifted to the point of sale? Maybe the biggest question is…who wins and who loses? And can re-evaluating business models and potential financial vulnerability now help to create different winners?

We will begin to try to answer these and other questions in future blogs as we continue to dig into this issue and further evaluate the potential impact on all of the stakeholders in the health care ecosystem. Stay tuned.

1 Health Affairs, January 2018, “National Health Care Spending in 2016”
2 Adam J. Fein, Ph.D., Drug Channels Institute, April 24, 2018 (April

Gilead’s Sovaldi Is The $5.7B Canary In The Coal Mine For Specialty Medications

In case you haven’t been tracking specialty drug costs for the past decade, the recent news with Gilead’s Sovaldi ($GILD) is finally making this topic a front page issue for everyone to be aware of.  I think Dr. Brennan and Dr. Shrank’s viewpoint in JAMA this week did a good job of pointing that issue out.  They make several points:

  • Is this really an issue with Sovaldi or is this an issue with specialty drug prices?
  • Would this really be an issue if it weren’t for the large patient population?
  • Will this profit really continue or are they simply enjoying a small period of profitability before other products come to market?
  • Based on QALY (quality adjusted life years) is this really quick comparable cost to other therapies?

If you haven’t paid attention, here’s a few articles on Sovaldi which did $5.7B in sales in the first half of 2014 and which Gilead claims has CURED 9,000 Hep C patients.

But, don’t think of this as an isolated incident.  Vertex has Kalydeco which is a $300,000 drug for a subset of Cystic Fibrosis patients.  In general, I think this is where many people expected the large drug costs to be which is in orphan conditions or massively personalized drugs where there was a companion diagnostic or some other genetic marker to be used in prescribing the drug.

The rising costs of specialty medications has been a focus but has become the focus in the PBM and pharmacy world over the past few years.  This has led to groups like the Campaign for Sustainable Rx Pricing.  Here’s a few articles on the topic:

Of course, the one voice lost in all of this is that of the patient and the value of a cure to them.  Many people don’t know they have Hepatitis C (HCV), but it can progress and lead to a liver transplant or even ESRD (end state renal disease) which are expensive.  15,000 people die each year in the US due to Hep C (see top reasons for death in the US).  So, drugs like this can be literally and figuratively life savers.  These can change the course of their life by actually curing a lifetime condition.

This topic of specialty drug pricing isn’t going away.

At the end of the day, I’m still left with several questions:

  1. What is the average weighted cost of a patient with chronic Hep C?  Discounted to today’s dollars?  Hard dollars and soft dollars?  How does that compare to the cost of a cure?
  2. What’s the expected window of opportunity for Gilead?  If they have to pay for the full cost of this drug in one year, that explains a lot.  If they’re going to have a corner on the market for 10-years, that’s a different perspective.  (Hard to know prospectively)
  3. For any condition, what’s the value of a cure?  How is that value determined?  (This is generally a new question for the industry.)

And, a few questions that won’t get answered soon, but that this issue highlights are:

  1. What is a reasonable ROI for pharma to keep investing in R&D?
  2. What can be done using technology to lower the costs of bringing a drug to market?
  3. For a life-saving treatment, are we ready to put a value on life and how will we do that?
  4. What percentage of R&D costs (and therefore relative costs per pill) should the US pay versus other countries?

Reconciling Legal Marijuana With Drug Prevention

As the parent of kids, I’m obviously concerned about what they do as they grow up.  On the one hand you want them to learn to make decisions.  On the other hand, you don’t want to endanger them.  That requires helping them to understand right from wrong.  That requires helping them to make smart decisions and understand the long-term implications of them.

This is where I struggle with the modern attitude towards the legalization of marijuana.  While it may not be a “gateway drug” according to science, it is certainly highly correlated with future drug use, and it has a negative impact on health.  Additionally, it’s addictive for about 10% of people and more addictive when you’re younger.

As someone who has watched people throw away their life on drugs and the son of someone who worked in drug and gang rehabilitation centers, I personally see it as a slippery path.  I agree that alcohol may be the gateway “drug” when not used appropriately and can be very dangerous for kids and for many adults who can’t control themselves.  You can find lots of research on alcohol related deaths due to increased disease burden or simply drunk driving.

So, like many health related topics, the information out there is very confusing for our kids.  On the one hand, we point out what your brain looks like on drugs (if you remember the PSA from the 80s and 90s).


On the other hand, we talk about medical marijuana, and we have states where it’s now legal to buy marijuana like Colorado.  But, the idea of walking down the street and seeing cannabis stores is crazy to me.


Perhaps a sad sign of this issue is the spike in travel to Colorado especially around Spring Break.  They’ve also seen an enormous jump in applications to go to college in Colorado.  (I think I’ll bet on causality not just correlation here.)

At the end of the day, I think we want to keep our kids safe and help them avoid anything addictive – tobacco, drugs, and alcohol.  (And, yes…you could take this further to look at caffeine or sugars or other things that impact their health.)  At a minimum, we want to help them understand the facts and make sure they know the risks and determine if they fit the addictive profile or not.  They already have a hard time navigating childhood and adolescence…let’s be careful not to make it too easy for them to fall off track.   Unfortunately, decisions like this  have broader implications on our next generation even if they don’t actually use marijuana.

Of course years ago, we used opium, cocaine, and herion as medicine also…but we outgrew that phase of “modern healthcare” so maybe this too will pass.

Obamacare Will Be A Great Case Study

When I think back to business school, I can only imagine in a few years that Obamacare will be a great case study for business school students to use.  It begs lots of questions that really test someone’s decision making ability.

  1. You know healthcare is a huge issue for the country.  How do you respond?
  2. You create a law that divides the country.  How do you get people to focus on the benefits of the law?
  3. You create a law that no one understands and has to go to the Supreme Court.  How do you defend it?
  4. You have to negotiate with lots of powerful groups to get everyone on board.  How do you manage that?
  5. You decide to go with a web based strategy for sales and distribution.  How do you develop and test that?
  6. You find out early that your web portal has functionality and security risks.  What do you do about it?
  7. You have a failed launch and need to fix it.  How do you do that?
  8. You made a promise to people about keeping their healthcare which everyone in the industry knew wasn’t true.  What do you do now?
  9. You make changes on the fly that affect your partners and will affect other long-term components of the plan.  Do you sacrifice for the long-term for short-term political gain?
  10. You have a chance to admit the complexities of the healthcare system and move forward.  Do you take it or stick to your guns?

I could go on, but it is fascinating.  I think these last few weeks of decisions have been crazy.  I hope there’s some group of healthcare people that really understand the current US system advising him, but it doesn’t seem like it.  Or, the administration is deliberately making choices to shift blame.

Allowing health insurers to extend individual plans that they’ve already cancelled is crazy.  It’s driving mass confusion with consumers.  It’s lighting up the call centers.  And, ultimately, if those healthy consumers go back to the plans, the underwriting for the exchanges will be garbage meaning that they health insurers will lose their shirts.  This will then mean that they underwrite with even higher prices for 2015 which will create a vicious cycle.

Like I’ve said before, this started with good intentions, but it has been a series of bad decisions.  Some things had to happen.  Nothing happens without some failures, but at some point, we need better decisions to be made.

Can You Keep Your Prior Health Insurance – No

“That means that no matter how we reform health care, we will keep this promise to the American people: If you like your doctor, you will be able to keep your doctor, period. If you like your health plan, you’ll be able to keep your health plan, period. No one will take it away, no matter what.” President Obama, June 15, 2009, from a speech to the AMA

You know what…that was a great campaign soundbite. It might have even been what he wanted. But, it’s not reality. They made a mistake. Move on. Everyone in healthcare knows the industry needs reform. I think the administration would be better off to admit they were wrong and focus on the benefits of reform and stop trying to defend what they’ve said.

Instead, they continue to try to justify this statement – see whitehouse blog. Stop kidding yourself or get out of the ivory tower. It’s like trying to build a website without any experience. It makes no sense.

As I said the other day, just like isn’t the same as Health Reform (PPACA).  The same goes for this statement.  Healthcare needs to change.  There are some good things here, but healthcare is complicated and the administration made some mistakes.

At the end of the day, I think we have all been surprised at the rate of change especially for big companies:

People are jumping on this opportunity to drop coverage and shift coverage to the exchanges. Someone should have been able to model out all these scenarios years ago. What if this drives lots of companies to lower hours so that people don’t get coverage and they don’t get penalized. That would be a disaster. We don’t want a society where everyone’s balancing 2-3 jobs just to get to full-time hours. (Of course, some people do it just to pay the bills.)

On the flipside, the idea of creating better healthcare coverage for individuals was a good one, but I’m not sure why anyone thought this would be price neutral. In establishing a baseline offering which everyone has to have (e.g., maternity benefits), this is going to drive up costs. By requiring pricing for 2015 before anyone has experience with 2014 is just going to require companies to underwrite a lot of risk and drive premiums up.

As a good summary read of issues, read 31 Things We Learned in’s First 31 Days.

Retail Pharmacies As The Distribution Point For Information

It’s always exciting to be “right” in a prediction.  When I spoke at the CBI conference a few weeks ago, one of the key points I made was that today’s healthcare consumer is overwhelmed with information.  They get conflicting data.  They don’t have enough time with their physicians.  They are increasingly responsible for decisions and even with transparency, they don’t always know what to do.  With that in mind, one of my suggestions was that retail pharmacies had a great opportunity to step in and be this information management source for consumers.  (aka – The retailers can serve as the physical resource for the retailing of healthcare.)

With that in mind, I find the announcements by Walgreens and CVS very interesting.

From the CVS press release:

“Humana’s partnership with CVS/pharmacy reflects our proven and ongoing commitment to educate individuals and their families at the places they go when they have questions about their health,” said Roy A. Beveridge, MD, Humana’s Chief Medical Officer. “We’re working to ensure people develop a better understanding of how their health coverage can help them make better, and healthier, decisions.”

“Providing information about new health insurance coverage opportunities is in keeping with our purpose of helping people on their path to better health,” said Helena Foulkes, Executive Vice President and Chief Health Care Strategy and Marketing Officer for CVS Caremark. “We are pleased to combine our innovative suite of services and our new and existing relationships with organizations such as Humana to help patients understand and have access to information about insurance options in their community.

From the Walgreen’s press release:

Walgreens store personnel are directing individual customers who inquire to the GoHealth Marketplace, a resource where they can shop and compare health insurance plans, enroll and find other important tools and information. Consumers can access the GoHealth Marketplace online from or via phone at 855-487-6969. Walgreens also is providing informational brochures and other materials in stores.

“As an accessible, community health care provider serving more than 6 million people each day, Walgreens can help connect those customers who may be considering new health insurance options with resources and information,” said Brad Fluegel, Walgreens senior vice president and chief strategy officer. “Our goal is to help ensure people fully understand the marketplace, and working with GoHealth, to provide personalized consultation from experts who can help them make informed decisions.”

In both cases, they may have addressed one of my questions about this strategy from my presentation which was how would they monetize this.  I think it’s the right role, but I wasn’t sure how it would lead to revenue other than general revenue related to store traffic.  I assume both of these have some “commission” or “referral fee” for traffic generated.

I Thought I Got To Keep My Doctor In Health Reform

We all remember when President Obama pointed out that you wouldn’t have to change your doctor with health reform.  That’s probably true in the most expensive plans, but you can’t always eat your cake and keep it too.

We know healthcare prices vary from semi-rational to outrageous.  It would be hard to get any concessions if every physician had to be in the network.  So, like we’ve seen in pharmacy with some initial screaming but general acceptance, plans are going to reduce the size of their networks in return for some price concessions.

Should this be a surprise?  No…unless you actually believe politicians.

Will this lead to a different set of issues around monitoring out of network use?  Yes.  This is something plans historically don’t do very well.

Short Sighted View Of Freedom With NY Soda Ban


There are lots of fundamental issues here:

  • Was the law legal?
  • Does soda make you fat?
  • Should the government be able to steer you to positive choices?
  • Did this impact our freedom?

At the end of the day, I look at it very differently.  I think the proposed ban was great.  I was very annoyed last night to find out it was overturned.


  1. I don’t see this as any different than moving unhealthy foods to a less obvious place in the food line at school.  It simply was meant to help steer people to make healthier decisions.  We should all be thankful for someone helping us since we generally don’t seem to be able to help ourselves.
  2. Government has to be run like a business.  (It usually isn’t.)  Obesity is a big driver of costs.  It requires more power for public transportation.  It requires bigger chairs.  It requires bigger hospital beds.  It requires bigger ambulances.  And, all of us taxpayers pay for this.
  3. 80% of healthcare costs are driven by personal decisions that we make mostly around diet and exercise.  Since most people will end up on Medicare at some point, we need to change the cost curve in healthcare sooner rather than later.  Otherwise, we either bankrupt our country or we bankrupt Medicare.

So, enjoy your big 64 oz soda now, but when you’re 69 and Medicare has been rolled back to 70 due to funding challenges, you can smile and remember that you got to enjoy all that sugar for years without anyone trying to help you. (I can picture a great political cartoon here of the patient getting a healthcare bill looking over their shoulder from their wheelchair to see a big pile of soda cups!)  Never mind the fact that you’re bankrupt due to your healthcare bills and not able to walk around to keep up with your grandkids.

The Business of Obesity
Source: Petition Regarding Pharmacists

Someone posted a link to this in LinkedIn.  For those of you in the pharmacy world, pharmacists, PBMs, and even medical professionals that work with them, this seems very relevant.  We all know the value that pharmacists bring to the over all care team.  With that in mind, I signed the petition and thought I would share it here.

(BTW – I’ll admit that I thought the Medicare legislation did recognize pharmacists.)


Recognize pharmacists as health care providers!!!


I just signed the following petition addressed to: Congress.

Recognize pharmacists as health care providers!!!

Despite overwhelming evidence of the positive impact pharmacists can have on patient health, pharmacists are not recognized as healthcare providers under the Social Security Act and, therefore, cannot be paid by Medicare for therapy management and patient consultation services. The Social Security Act does recognize other healthcare professionals such as dieticians, nurse practitioners, physician assistants, nurse midwives, and clinical social workers.

By changing the compensation structure allowed under Medicare, we can ensure that patients have access to the medication expertise of pharmacists. Studies have shown that when a pharmacist is directly involved in patient care, patients have fewer adverse drug reactions, experience improved outcomes, and healthcare costs are reduced.

The perils of adverse effects from taking multiple medications affect all age groups. According to a recent survey, just over half of all Americans take at least 2 medications each day and nearly one-third take 4 or more medications each day. For the Medicare population, medication use is even higher — nearly half of Americans aged 65 and older take at least 4 medications each day.

This is a critical safety issue!!


George Van Antwerp

What Would You Pay For A Week Of Life?

I was at an Oncology meeting earlier today, and there was a brief discussion about pharmaceutical costs which is certainly one factor in overall healthcare costs.  (See article on the 11 most expensive drugs ranging from $200-$410K / year)  Ultimately, this always brings you back (at some point) to the topic of Quality Adjusted Life Year (QALY) or (a new term to me) “futile care” meaning care done essentially with a very low probability of working. 

Of course, like the lottery, we all like to believe that we’ll be the 1% for which this effort pays off.  (see Prospect Theory or a broader article on use of incentives in healthcare).  This can often be a very cost effective way to get people excited.  This is especially true for poorer people who spend as much as 3% of their income on lotteries which have a very low return

But, the question at the center of this is what you would pay for a week of life?

  • $100
  • $1,000
  • $10,000
  • $50,000

And, would that answer change based on timing?  I believe so.  If asked today, when you were healthy, would you agree to spend $50,000 to gain one week of life?  Perhaps not.  When you’re on your death bed and realize that you still want to see a few more people, your answer may change.  And, your family’s answer might change.  If you had to make that decision for your parent, it might be tough to make at the hospital, but if you sat down with them when they were healthy and asked them whether they would like you to spend your kid’s college savings account on gaining them a week of life, the answer might change.

But, what about when the money’s not yours.  We all know the infamous diner’s dilemna where we’re likely to spend more money when your splitting the bill with everyone.  When you’re covered by insurance or by the government, it’s not always your money being spent.  So, what if it was positioned differently?  If you knew that spending $50,000 for that one week of life meant that there wouldn’t be money to fund a shelter for 3-months that provided 20 homeless families with a place to sleep.  Would that change your answer?

It’s a tough question.  No one like to put a financial value on life.  I don’t have an easy answer other than having the discussions earlier with the patient and framing them the right way. 

Never mind the question about quality of life…Would you rather die in 2 days at home or would you rather live 8 days in the hospital where your throwing up all the time?

I don’t know the economic tradeoff of these treatments or drugs so this isn’t specific to any scenario, but is a situation which come up and everyone runs away from.  I understand why.

$WAG and $ESRX Reach New Pharmacy Deal!

Wow!  Finally! 

Those are my immediate reactions.  I just saw the news that Walgreens and Express Scripts have reached a new pharmacy deal effective 9/1/12.  I’m sure there are lots of consumers that will be happy about that and a few competitive PBMs that will be disappointed. 

A few things that this makes me think about:

  • The Walgreen’s shareholders will be happy.
  • Both parties can claim some victory by holding out so long.
  • I imagine that the limited network was working ok, but there wasn’t huge adoption.  It was probably also an issue in RFPs and with consultants.
  • Other PBMs were likely using this in selling against Express Scripts so they’ll be disappointed.
  • Obviously, the Medco contract with Walgreens was the big catalyst here.  Letting that transition to a point where they didn’t get any Medco or Express Scripts patients would be a disaster.
  • Will this change Walgreens collaboration with the NCPA against the PBMs and mail order or is that just the natural conflict here?

The biggest battle now will be around customer retention and winback.  Can Walgreens get their old Express Scripts patients to come back?  Can CVS and others hold on to the patients?  This will really test the theory about customer loyalty in the pharmacy space. 

The other interesting thing here is that this pushed Walgreens to really re-evaluate their strategy and market positioning.  Will they emerge as as stronger and different company because of this 9 month period.  I would think so, but that is still TBD.

Scary Infographic On the Effects Of Soda

The scariest stat in here is that kids ages 1 and 2 are drinking soda on a daily basis.

Now, the fact that we’re fat and drink too much soda isn’t the soda’s company’s fault.  We drink soda of our own free will, but this is a contributor to our obesity and this is why the NY soda law makes sense.  (And, IMHO, this is why the soda companies supported removing their drinks from schools and went into the business of selling non-soda beverages…they know there are issues regardless of what they say.)

Soda Infographic

Will The GAO Doom Medicare Star Ratings?

I’ve talked about the Medicare Star Ratings several times before.  This is a critical framework for beginning the shift in payment from a fee-for-service world to a outcomes based system.  I’m sure there are many issues with it, but being in the trenches, I certainly noticed that many companies began to look differently at programs over the past 18 months.  So, from an attention getter, it worked.

We all know rates were getting cut in Medicare so this shifted some of that pain to make companies focus on what matters in terms of quality and outcomes.

Now, the GAO has put out a report that questions whether the expansion of the Star program to include 3 Star plans was a good idea.  (see Gorman’s comments here)  I think this is a fair question.  Should we reward mediocrity?  I think there are ways to do this.

  1. You could pay 3 and 3.5 star programs but only if they show improvement year-over-year.
  2. You could lower the payments or only reimburse them for investments made (i.e., no profit).
  3. You could do it for one year then move the line up to 3.5 stars and then move it to 4 stars to give plans some time to implement, learn, and improve.

Right now, very few plans earn 5 stars, but dropping it to include 3-star plans makes almost 90% of plans get bonuses.  Maybe this is a case for some time of GE program where the top 10% get the biggest bonus; the bottom 10% have to stop offering a program; and the remaining funds get divided up based on some time of rating system.

The key here is not to throw the baby out with the bathwater.  The framework is good.  It’s taking time to understand the program, implement changes, and see an impact.  But, let’s not reward people that can’t continue to innovate and improve and do it in a way that rewards members based on outcomes and satisfaction.

NACDS on George Paz Quote

Apparently George Paz, the CEO of Express Scripts, had the following quote the other day that has upset NACDS:

“At the end of the day … Nexium is Nexium, Lipitor is Lipitor, drugs are drugs, and it shouldn’t matter that much who’s counting to 30.”

Are you offended by this quote? If I reverse this, then I guess it doesn’t matter which specialty pharmacy a patient uses, but we all know that pharmacy is a lot more than pill counting (or should be).

I’ve talked about my vision of the future before which is where pharmacists can leverage technology more for prepackaged drugs (especially with low cost oral solids) and long-term patients while their expertise is leveraged in counseling and helping patients understand their drugs and conditions. This is crucial to the healthcare system.

So, while I can exploit the quote to drive an emotional response, isn’t the point that counting doesn’t matter but delivery of the medication and interaction with the patient does matter?

“Twight” (Twitter Fight) Between $ESRX and $WAG

This is either a massive validation of the perceived value of Twitter or a crazy distraction, but either way, it’s interesting to those of us who study the industry and/or study marketing and communications. 

As part of the ongoing dispute between Walgreens and Express Scripts, Twitter has become one of the latest tools.  (see June post and September post)  In an effort to sway public opinion and thereby pressure Express Scripts and its clients, Walgreens turned to bloggers and Twitter to push their messaging…but these were in some case paid comments which was surprising.  They already have strong messaging in their IChooseWalgreens website and whitepapers on the Value of Walgreens.  I also thought they were demonstrating some success in converting people to their discount program which was part of their overall growth strategy shared at their shareholders meeting

After Walgreens (with almost 84,000 followers) created a promoted hashtag of #ILoveWalgreens, Express Scripts (with 1,645 followers) countered back with several Tweets about the dispute (see below).  I guess the question is whether with millions affected and decisions made by the businesses and not consumers…does this forum matter?  But, journalists and analysts follow them so it’s important to keep the messaging up.  (Other articles on this are here, here, and here.)

Conveniently, I found this infographic on how Twitter is changing healthcare.  At the same time, this is an interesting fight because it’s a blend of B2C and B2B crossing paths.  More to come since I’m sure this fight is long from over.

Sarbanes Appeals To FTC Regarding Lipitor

Yesterday, Congressman John Sarbanes (D-MD) asked the FTC to take action against Pfizer based on the deals they are signing with PBMs that will prevent consumers from accessing generic versions of the cholesterol drug Lipitor.  (see Pharmalot story on this)

“This is a sweet deal for the drug companies at the great expense of consumers, employers and taxpayers,” said Congressman Sarbanes. “At a time when we should be doing more to slow the rising costs of prescription drugs, these types of practices should be prohibited. “

Assuming that this is about savings to the consumer which I think is what the FTC is focused on, I think he missed the point of the deals.  Pfizer is rebating the drug to cost less than the generic which is then prompting PBMs (and payers) to treat brand Lipitor as a generic.  The consumer would pay their generic copay (from what I’ve seen), and they can still go get Lipitor for less then their copay by using the copay card that Pfizer offers making brand Lipitor $4 a month.

This is a brilliant deal by Pfizer to extend the life of the drug (although I’d be upset if I was the authorized generic).  The only potential people losing in this are payers who might not see the impact of the rebate dollars (e.g., carve-in employers).  Most PBMs are sharing the majority of their rebate dollars these days.  The question is how those rebate dollars flow down from there.

Judicial Committee On Proposed Express Scripts Acquisition Of Medco

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.

Walgreens and Express Scripts: The Plot Thickens ($ESRX, $WAG)

Remember when this “conflict” was first announced a few months ago.  If you’re like me, you probably assumed this would be over in 30-days like the Walgreens – CVS Caremark dispute last year.  What’s different?  I’m not sure.  It seems like both sides are well dug in.  (From my poll a few days ago of 22 of the readers of this blog, 65% felt this would get resolved by 1/1 and 25% felt that it would never get resolved.)

Now, it seems like both sides are continuing to take significant steps towards no resolution.

Express Scripts has apparently launched a pilot program to move share from Walgreens stores now using coupons.  I believe the pilot was with Lowes and is about to expand to the Department of Defense.  Additionally, I’ve heard that Express Scripts has sent out letters to their clients preparing them for a limited network starting 1/1/12 without Walgreens.

On the flipside, I’ve heard that Walgreens has begun putting signage out encouraging consumers to talk to their plans about excluding them from the network and for Medicare members to chose plans that aren’t run by Express Scripts.  Walgreens also put out a whitepaper about what happens when you remove them from the network.  This has some really interesting data in it.

Key Statement: Excluding Walgreens from a pharmacy network will result in little to no savings for most sponsors and patients, and in some cases will raise costs, while causing significant patient disruption and risking gaps in care, and increasing administrative costs on plan sponsors.

  • As part of this document, they are encouraging payers to consider directly contracting with them and/or creating a custom network (if their PBM contracts allow for that).
  • They state that their costs are comparable to other retailers or within 2% of their costs.
  • They show some data from another PBM (not named) that modeled out network savings for them based on a limited network taking into account their drug costs, generic fill rate, and 90-day rates.  It shows a jump in costs versus savings.

  • They share data that their Generic Fill Rate (GFR) is 1.4% higher than the rest of the Express Scripts retail network which the paper says translates to $2 per Rx in cost.
  • They say that 90-day retail generates a 6-8% savings compared to 30-day retail based on the pricing that they offered to Express Scripts.

Ultimately, I still believe resolution will occur before the end of the year.  While both parties are dug in, I believe it’s a lose-lose situation for this to stay unresolved.  That being said, there are lots of things that could occur here:

  • This creates a wave of direct contracting between payers and pharmacies.
  • This validates the integrated model of CVS and Caremark.
  • This creates a large number of limited networks.
  • This creates greater use of the Walgreens discount card and/or cash business at Walgreens especially for lower cost generics.
  • Alienating Walgreens creates a disruptive force in the FTC review of the proposed Medco acquisition.
  • Another PBM jumps in to do a creative deal with Walgreens which limits their long-term ability to work with Express Scripts.
  • Express Scripts ends up in a shotgun relationship with CVS.
  • The terms of PBM contracts get changed going forward based on new terms regarding retailers.
  • Walgreens becomes a much more vocal voice in the retail world through NCPA and other organizations.

Between this and the proposed Express Scripts acquisition of Medco, the landscape in the PBM market could be radically different by early 2012.

[Note: As the stock market has dropped, I have continued to buy stock in the PBM industry including several of the specific companies mentioned in this post – MHS, ESRX, WAG and CVS.]

25% of MDs Tell Un-vaccinated Kids To “Get Lost”

Unfortunately, the issue of kids not getting vaccinated is not going away.  While only 1% of infants don’t get any vaccines, there are still 30% of kids who don’t get all the recommended vaccines.

So, what should a pediatrician do about families that don’t get their vaccines?  Should they continue to treat them?  The number that say it’s time to find a new provider has jumped to 25% in 2011 (compared to 18% in 2005) according to research reported in a Time Magazine article.  I’d bet that number might jump further as physicians bear risk or have more money tied up in performance bonuses.

It begs the question of what adults do…For example, with flu shots, do adults get them?  Based on a Consumer Reports study, it’s only about 50% of adults that do.

I have a few older posts on this general topic.  It’s also a very interesting topic in the pharmacy world as retailers focus on vaccinations both as a revenue source and a value-added service.

I also found this infographic on the topic which I thought I would share.

Medical Coding Career Guide
Created by: Medical Coding Career Guide

NY Bill Continues To Stir The Pot – NCPA, FTC

The bill to restrict mail order utilization for pharmacy is not the first attempt, and it won’t be the last attempt by the independents to try to even the playing field with the PBMs through legislation (see comments about KS bill).  If limiting networks (retail, specialty, mail) can lower prices and save consumers and payers money, why shouldn’t they exist?  The payers should have this option in their toolkit.

Here’s the actual text from the bill:


Let me make a few comments:

  1. Does this mean that Express Scripts has to let it’s members go to Caremark mail order if they meet their rates?
  2. What does “comparable” mean?  Why isn’t it the same?  Do the independents really want to go to mail order rates?
  3. No more copay differentials?  If this works, pharma should lobby for no more formularies.  (That might not be relevant today, but in the biologics or biosimilars world, they could say we’ll meet the price but you can’t have any copay differentials or utilization management restrictions…AND get it legislated!)

You can see some similar comments on this from Ed Silverman at Pharmalot and Adam Fein at Drug Channels.

As Adam points out, this may even be a leading indicator on how the FTC views the acquisition of Medco by Express Scripts (although the $MHS stock doesn’t reflect that right now).  Here’s what the FTC said in their letter:

FTC staff appreciate that A-5502-B seeks to enhance consumers’ ability to fill their prescriptions at the pharmacies of their choice. We are concerned, however, that the Bill impedes a fundamental prerequisite to consumer choice: healthy competition between retail and mail order pharmacies, which constrains costs and maximizes access to prescription drugs. We are concerned that, in the end, higher costs will lead to higher prices and fewer choices for New York health care consumers. For some consumers, increased costs may mean higher out-of-pocket prices for prescription drugs. For other consumers, it may mean that prescription drug benefits are curtailed or eliminated. Scaled-back drug benefits are likely to create pressing financial concerns for many consumers, and may even lead to additional health problems. As an article in ealth Affairs noted, “when costs are high, people who cannot afford something find substitutes or do without. The higher the cost of health insurance, the more people are uninsured. The higher the cost of pharmaceuticals, the more people skip doses or do not fill their prescriptions.”

As I mentioned in a Pharmacy Times article that I just wrote for their online version, this is a unique time for the independents to try to figure out what to do about consolidation in the industry.  If it’s not Express and Medco, it will be others.  This will look like the wholesaler market sooner rather than later.  It’s time to figure out how to make lemonade here and differentiate their pitch and value. 

In the end, I think you do yourself a long-term disservice to not allow for pricing differentiation within the network based on copays.  I would want to position myself as a higher service pharmacy with greater satisfaction, better medication possession ratio, better outcomes, and therefore become a preferred pharmacy within a limited retail network. 

5 Indicators Of Pharmacies Crossing The Chasm

I’ve talked about this several times before in my post about The Future Of Pharmacists and in my whitepaper “Innovate Or Be Commoditized“, but I continue to believe that pharmacists can play a bigger role in healthcare (see also Pharmacists to Prescribe).

I know that people sometimes perceive my support for mail order and/or PBMs as anti-pharmacist, but they’re not. Even my criticism of independent pharmacies isn’t on the great work they do with patients but is focused on the tactics used to try to even the playing field.

But, one of the things I’ve been watching for is what are some early indicators of how pharmacists are crossing the chasm from being dispensing-focused to being core members of the care team.

I’ve seen several:

  • A more outspoken push for pharmacist involvement in ACOs.

“I really think that CMS was remiss in not explicitly including the drug benefit in the Shared Savings model. Because the industry recognizes that it’s important, what we are seeing is that the people who are planning on participating in the ACOs are already reaching out to the PBMs to lean on them to develop programs. So by default, we will end up being participants in it indirectly versus directly…. It’s the most frequently used benefit. It’s hard to imagine that you’ll be able to have a successful ACO model without considering the effects of somebody involved in health outcomes.”  Brit Pim, VP and general manager of the Medicare/Medicaid division of Express Scripts, Inc. (from Drug Benefit News)

  • MTM moving from a required program in Medicare to an optional program for commercial populations.

The Academy of Managed Care Pharmacy (AMCP) recently conducted a survey of its members to get an update on current MTM programs being offered by payers. Out of 57 respondents — which included 43 health plans, six PBMs, five integrated delivery systems and three other organizations — only six reported using MTM programs for their commercial populations alone. Another 17 said they use MTM programs for both Medicare and commercial populations. (from Drug Benefit News)

  • Continued focus on pharmacists and distribution of vaccines.

Immunizations are crucial to protecting patients from developing and dying from vaccine-preventable diseases, and in order to be successful, a team effort is required for all health care professionals to increase immunizations.29 Pharmacists are in a pivotal position to increase awareness about the importance of vaccinations and identify those patients who may benefit from specific vaccinations. By continually increasing awareness about the availability and importance of vaccinations, patients can make informed decisions to protect themselves and their family members. (Pharmacy Times article)

Up to 50 percent of chronically ill people stop taking their medication within the first year. Pharmacists understand many of the contributing factors, which range from cost and side effects to the inherent challenges of taking multiple medications, and can help address them. In fact, CVS Caremark research shows a pharmacist in a face-to-face setting is the most effective healthcare professional at encouraging patients to take medications as prescribed. (CVS Caremark press release)

Copay Cards: Don’t Throw The Baby Out With The Bathwater

Prescription Copay Cards continues to be a hot topic (see list of articles at the end here), but I see a lot of FUD (fear, uncertainty, and doubt) versus a lot of facts. At the end of the day, there are certainly a few stories about cases where costs have jumped up due to copay cards overcoming formulary positioning.

But, no one knows the total market impact. I’ve spoken with six different organizations that would be well positioned to know, but they don’t. It’s not tracked or easily available in the data. Reasonable estimates from Dr. Adam Fein over at DrugChannels put the market at about 100-125M Rxs which is about 3% of the total Rx market (assuming 3.3B Rxs/year) or 12% of the total brand market (assuming 75% GFR). [I validated those numbers with a specialty pharmacy that shared that they were seeing 13% of their claims come in with a copay card.] Certainly, the market has grown as IMS estimated in one recent article.

The question of course is whether these are good or bad and whether their use is malicious or not. My conclusions are based on talking with about 30 people in preparation for my AIS webinar on this topic today. What I concluded was:

  1. There is a win-win. Copay cards can improve adherence. Adherence can reduce total healthcare costs. There is a point at which the increased cost curve crosses the savings curve and is something to be considered.
  2. Today’s approach is a shotgun approach by which cards are available online (e.g., and by physicians. They’re not focused on patients with need or on patients with adherence barriers. They play into the misperception that cost is the primary barrier to adherence WHICH IT IS NOT. [Cost is an issue in <20% of the cases according to multiple barrier surveys.]
  3. Copay cards are really a CRM Trojan Horse for pharma to build a 1:1 patient relationship (or should be if they’re not thinking that way). Due to HIPAA, pharma doesn’t typically know who uses their drugs. If I were a brand manager, I would gladly trade some copay relief in return for increased adherence and the contact information for my patients.

I think there are several ways that industry (especially pharmacies) should collaborate with pharma on how to leverage these copay cards at the POS with patients [call me to discuss]. But, to do that, I think the broader industry is going to require some type of rules which I am sharing shortly as a proposed “pledge”.


The other thing longer-term to watch is will this further change the PBM-Pharma relationship.  I think yes.  If the PBMs push for legislation on this marketing tactic or the manufacturers figure out that this is a better use of their spend than rebates, this will change the relationship. 

Additional Reading:

  1. Prescription Drug Coupons Bad for Patients
  2. Drug Firms Providing Kickbacks For Copays and Coinsurance
  3. DBN article – As Competitors Encroach, Pfizer Seizes A Few More Glory Days With Lipitor Promo
  4. Adam Fein blog posts
  5. Copayment Subsidies
  6. Coupons For Patients, But Higher Bills For Insurers

$5.2B In Savings From OTC And Patient Self-Diagnosis?

This is an interesting piece with some good data in it.  It estimates that 10% of physician visits are for minor healthcare items where an OTC (over-the-counter) drug could be used.  It then estimates that if 50% of those unnecessary visits were eliminated we could save $5.2B.  It will certainly get some political attention (which it already has).

I have a lot of questions:

  1. How does the patient know that their “ailment” is something to self-diagnose?
  2. Does self-diagnosis lead to new issues?
  3. What are the restrictions around OTCs versus Rx products?  [Look at Prilosec OTC which has labeling limiting it’s long-term use versus the Rx product which could be viewed as a maintenance drug.]
  4. Were there other benefits to the patient and healthcare system of them visiting the physician?

On the other hand, if I were a clinic company (think MinuteClinic or TakeCare Clinic), this would be great.  It’s proposing to move 26M physician visits to another channel.  I think the research believes this all jumps to Dr. Google, but I think it’s more likely that this gets pushed to clinics (and hopefully not to ERs). 

Here We Go Again – WAG and ESRX Network Dispute

This morning Walgreen’s announced that it could not reach agreement with Express Scripts on their retail network contract. This is a big deal (for both parties) as Walgreens processes approximately 90M Rxs for Express Scripts or approximately $5.3B worth of Rxs.

This has definitely happened before (see CVS Caremark and Walgreens before), but this year’s dispute is different for a few reasons:

  1. CVS Caremark clearly had their own retail network to fall back on. Express Scripts wouldn’t likely partner up with CVS so they’d be pushed into creating limited networks and partnering with everyone except the two biggest retail chains (in so much as PBMs partner with retailers versus simply negotiate with them).
  2. Last year’s dispute seemed focused on Maintenance Choice while this year’s dispute seems focused on contract terms (from press release).
    1. Express Scripts insisted on being able to unilaterally define contract terms, including what does and does not constitute a brand and generic drug, which would have denied Walgreens the predictability necessary to reliably plan its business operations going forward.
    2. Express Scripts rejected Walgreens request to be informed in advance if Express Scripts intends to add or transfer a prescription drug plan to a different Express Scripts pharmacy network, and to provide patients with equal access to Walgreens retail pharmacies.
    3. Express Scripts proposed to cut reimbursement rates to unacceptable levels below the industry average cost to provide each prescription.

As with last year (and year’s prior), I believe this will get resolved, but it creates an arbitrage opportunity for all the PBMs except Express Scripts in the short-term. [In the short-term, Express Scripts gets hurt in the sales cycle with this distraction. If this played out, Walgreens would take the brunt of the real impact by losing significant script volume. Ultimately, it’s a game of chicken with potential bad outcomes for all (as the picture indicates).]

My questions are:

  • These have been issues in contracting for a long time. Why now?
  • Why are these disputes with CVS Caremark and Express Scripts? What are Medco (or others) doing to avoid these issues?
  • Does Walgreens get these terms from other PBMs? Or, is Express Scripts able to get these terms from CVS and other large chains like Walmart?
  • Is this just a negotiating tactic which is to put public pressure out there? If so, it’s seemed to work in the past. Will it work again? [The UAW used to do this on a rotating basis to the big 3 auto makers. It worked well, but every once in a while they had to go on strike.]

I know one Wall Street analyst who is at Express Scripts tomorrow. That should be an interesting discussion.

If history is any indication, I would expect we’ll see an Express Scripts press release on their perspective by the end of the day.

Ultimately, the big question is whether something like this could be the final event to push the industry into limited / restricted networks (see Walmart post) and get it from the 5-10% of clients that use this today to a more meaningful number.

[FYI – As of right now, ESRX is down 1% and WAG is down almost 6%…buying opportunity?]

Is The PBM A Fiduciary? I Don’t Think So.

I’m not a lawyer, but with the potential repealing of the Maine law regarding PBMs, it’s time to think about this question.

Here’s a definition from

A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation’s board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust’s beneficiaries, and an attorney has a fiduciary duty to a client.

A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client. The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client’s behalf.

Just looking at this definition, it raises a few eyebrows:

  1. Can the PBM be responsible to its shareholders and to the clients?
  2. Does the PBM act on behalf of the client?

The fiduciary relationship basically makes the PBM into a cost-plus model where profits and costs are know. There are already lots of transparency standards for clients to leverage in designing their PBM contracts.

I struggle to see a comparable fiduciary business relationship out there. Suggestions?

On the second point, the whole PBM model around benefit design and interventions has been set up as consultative where the PBM provides ideas and models for the payer to select from. They don’t get to chose what’s best for them. I’m not sure that the lobbyists for the original plan would want this. If I’m a PBM with a mail order pharmacy, I believe that this is the best model to save money, drive adherence, and avoid errors. So, as a fiduciary, wouldn’t I have to put in a mandatory mail program with mandatory generics lots of utilization management programs and a closed formulary? That’s what’s best financially in most (all cases).

I’m all in favor of disclosure of conflicts of interest. PBMs should explain how they make money to their clients so it’s clearly understood.

In this older post on another blog, a physician talks about physicians having some fiduciary responsibility, but I don’t think this goes far enough. If the physician has a fiduciary responsibility to the patient, wouldn’t they have to disclose their profit based on different choices:

  • If you choose this medication and fill it from my in-office dispensing, I make $X versus you choosing this other drug.
  • If you get this procedure done, I get a referral from my colleague plus I make $X on performing the surgery.

Of course, maybe the issue is that Maine (and others) have tried to use fiduciary to focus on the financial controls around the PBM business model instead of the business practices about helping payers understand their decisions (the legal breakdown on MDs seems more business focused):

  • This will affect X% of the population.
  • This will save you $X compared to your other options over here.
  • This will be a win-win for us because we make money as your GFR goes up.
  • We charge manufacturers an administrative fee for managing the rebate contracts and will keep that.

When the DC regulation around PBM fiduciary responsibility went to court, it was struck down. Will Maine finally end up in the same bucket? Will others follow?

I guess the question for people to ask is what has happened to Maine’s pharmacy costs in the past few years. Has there been an advantage (or disadvantage) to this law?

Up To 200,000 MDs Require eRx Exemption From CMS

Electronic prescribing has been an effort for at least the past decade and significant progress has been made (see Surescripts latest report). That being said, we all know that changing behavior in the office setting is difficult. It has been the bane of many a technology vendor in the healthcare space.

On the one hand, I’m not surprised to see that lots of physicians might apply for an exemption from CMS around electronic prescribing.

BUT, I was surprised by several things in this article:

  1. Some physicians simply used electronic prescribing to write the 10 scripts required and then turned it off.
  2. The fact that there could be so many doctors that fit the approved exemptions.

The exemptions are for physicians who:

  1. Practice in an area with limited high speed Internet access.
  2. Work in an area where a limited number of pharmacies accept electronic prescriptions.
  3. Cannot prescribe enough drug orders electronically due to local, state, or federal laws (e.g., controlled substances).
  4. Have limited prescribing activity. [but yet still see a lot of Medicare members]
  5. Have insufficient opportunities to report the e-prescribing measures because of their patient type.

I didn’t think that could get you to 200,000 physicians (who were actively working with Medicare patients). The one that seems most feasible is for physician who register to participate in the Medicare or Medicaid EMR incentive program AND both adopt and use the technology by the 2011 deadline. They can also get exemptions.

Physicians care because they have to:

  • Prescribe electronically 10 times before June 30th to avoid a 1% penalty on all Medicare payments in 2012 or
  • Prescribe more than 25 times before Dec 31st to earn a 1% bonus in 2012.

Depending on your patient base, this seems like a pretty good business case to at least get a system in; write for 26 prescriptions; and collect your bonus.

New Moran Bill Uses Legislation As Business Model

The Moran bill in Kansas is another example of localized politics for independent pharmacies trying to legislate competition rather than find ways to differentiate their business.  I’ve talked about this before in:

This is focused (I believe) on the whole issue of limited networks and preferred networks as you can see from the NCPA letter about Maintenance Choice.  They throw everything but the kitchen sink at this model…why?  Because it works.  Maintenance Choice is saving consumers money and payers money.  And, it’s moving market share to CVS stores

This is the future.  This is what Walmart is focused on.  This is what Restat is focused on.  OptumRx (Prescription Solutions) just launched their limited network.  Humana is leveraging this in Medicare with Walmart

At the end of the day, isn’t it the payer’s option to decide how to design a benefit plan to offers a clinically effective solution at the lowest cost posible? 

Given that there are way too many pharmacies in the US today, someone (unfortunately) has to lose.  That is reality.  Based on the fact that there are more than 5x as many pharmacies as McDonalds in the US, we’re saturated.

Should You Pay Physicians For Medication Adherence?

I’d love to hear some physician perspectives on this. It’s a question that comes up every once in a while.

Let’s start with a few facts:

The question of course is what to do about that. Most of the programs focus on consumer or patient interventions.

  • Refill reminders
  • Gaps-in-care
  • Off-therapy reminders
  • Auto-refill programs
  • POS consultations by the pharmacist

But, interestingly, I’ve seen a few other studies recently that show that prescription programs targeting physicians can influence behavior (example here). I’ve also heard a few companies talk about paying physicians to keep patients adherent.

There are a few arguments that happen here:

  • Should the physician play a role in adherence?
  • Does the physician know if a patient is adherent? Should they get this data? From whom?
  • If the physician asks the patient, will they tell them to truth or will it simply be a case of “white coat” adherence?
  • Should this be a performance metric in a pay-for-performance environment?
  • Will PCMHs and ACOs structures change this and make adherence a critical issue for discussion between the patient and physician?

In general, I think most people believe that physicians (as indicated in studies like this one) don’t see prescription adherence as a big issue that they can or should influence. Is that true? Would “incentives” change that?

Of course, the debate isn’t limited to paying physicians as multiple companies are paying consumers to be adherent. Here’s a post from last year from another blogger called “Paying Patients To Take Their Medications Is Stupid” which is similar to one of my posts from last year.

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