The pharmacy lobby scored a major PR victory with a high-profile story in yesterday's Wall Street Journal that will surely attract the attention of legislators and the public. But I think that the article is not balanced because it ignores the economic and competitive realities of today's pharmacy industry.
CVS Caremark Corp. is apparently steering its pharmacy-benefits patients to its own drugstores by raising co-payments for some who fill their prescriptions at other pharmacies – and competitors are crying foul.
While preferred networks are a certainly a competitive challenge for an independent pharmacy, it's not clear that CVS Caremark's actions are anti-competitive in the sense of raising costs for consumers or payers – the customers of a Pharmacy Benefit Manager (PBM). The criticism seems to be more about profit levels at independent pharmacies.
Nevertheless, I'll be watching closely to see if the Federal Trade Commission (FTC) decides to make an example of CVS Caremark as part of a more activist antitrust strategy.
Other People's Money
You may not like the logic of preferred networks, but it's the reality of most American health care – and now it's coming to pharmacy.
If you pay cash for your prescriptions, then feel free to shop anywhere. You'll probably look for the best deal, which may not be the same as the lowest price.
But once you ask someone else to pay, then why is it controversial for the payer to influence your decision? There are no financial incentives for consumers to choose one store-based pharmacy over another when co-pays are equal. A consumer with third-party coverage via a PBM has no incentive to shop at the pharmacy with the lowest cost per prescription for the organization that's actually paying.
So why aren't pharmacies targeting Wal-Mart? Their deal with Caterpillar is not economically different. (See New Details on WMT-CAT Pharmacy Deal.) Caterpillar beneficiaries have no co-pay at Wal-Mart for generic drugs, but can choose to fill their prescriptions at other retail pharmacies for a $5 generic co-pay.
Maintenance Choice has admittedly gone one step further by limiting the consumer's ability to go outside the network – a "restricted network." But I see it as just one more point along the continuum:
Go anywhere – You can choose any pharmacy. (Example: cash pay customers)
Go almost anywhere – You can choose any pharmacy that participates in your plan's network. (Example: Many third-party plans.)
Preferred network – You have a financial incentive to choose the option that reduces the payer's costs. (Example: the WMT-CAT direct-to-payer deal)
Restricted network – You must use only pharmacies in the network. (Example: some Maintenance Choice arrangements)
Yes, we all like choice, but I don't understand why we expect to be free to choose if someone else is footing the bill. (Oddly, this argument does not get much traction when it comes to my daughter's choice of clothing, but that's a whole different blog!)
Three final questions to ponder:
Why do we like stores more than mail? The WSJ article did not comment on the general strategy of creating a channel-neutral option (mail vs. store) for consumers. If a Caremark client chooses to offer Maintenance Choice, then there is no out-of-pocket cost difference for the consumer between mail and retail for certain 90-day prescription. In my opinion, this offer becomes most feasible when there is common ownership of the store-based retailer and the PBM.
Apparently, consumers want to get maintenance scripts filled in a store rather than mail when given a choice between those two options – judging by the following chart from CVS Caremark's 2009 TrendRx report (page 12):
Are payers foolish? The final anecdote in the article highlights the case of a Medicare patient in which it appears that both the consumer and the payer got stuck with higher costs. I know that many Drug Channels readers are skeptical about PBM motives, but I'm skeptical that this situation is occurring on a widespread basis. Ask yourself: Are payers so foolish that 200 of them would sign up for Maintenance Choice if it would make them pay more for drugs? Really?
Will the FTC act? As I point out in Could the FTC undo CVS Caremark?, the National Community Pharmacist's Association (NCPA) is trying to get the Federal Trade Commission (FTC) to retroactively challenge the 2007 merger that formed CVS Caremark. The spokespeople for the National Community Pharmacists Association (NCPA) were "cautiously optimistic" after a meeting with FTC Chairman Jon Leibowitz yesterday. (See Group Targeting CVS Caremark 'Hopeful' After FTC Meeting). Hmmmmm.
So far, the pharmacy lobby is shaping the public debate much more effectively than CVS Caremark. I'm now extra-curious to see what CVS Caremark has to say about Maintenance Choice at its 2009 Annual Analyst/Investor Meeting.