The Drug Channels blog delivers timely analysis and provocative opinions on pharmaceutical economics and the drug distribution system. It is written by Adam J. Fein, Ph.D., one of the country's foremost experts on pharmaceutical economics and channel strategy. Learn more...

Friday, May 29, 2009

Pfizer Goes Behind the Rat

In January, I told you about Pfizer's UK ad campaign that aimed to educate consumers about the dangers of buying drugs online. See Pfizer Tries to Choke Demand for Parallel Imports to watch the video and get my take on Pfizer's strategy behind this campaign.

Oddly, the video of a man regurgitating a dead rat remains a very popular post here at Drug Channels. Ever wonder how they made it look so realistic?

Well, now you can find out:

Never fear – no actual rats were harmed according to the official Real Danger site:

All the rats used were sourced from a zoological supplier who provides pre-frozen animal food. None of the rats were killed for the making of the advert. The person who supplied the rats is a trained animal handler and is a founder member of the Animal Welfare Filming Federation.

Whew! I had been worried that some poor British actor swallowed an actual rat.

Thursday, May 28, 2009

Are Generic Drugs a Bad Bargain?

Katherine Eban, well-known author of Dangerous Doses, is back with another drug industry shocker called "Are generic drugs a bad bargain?"

The subtitle should get your attention: "All of us want cheaper medicine — but not if it costs us our health." (Cue scary music…)

What do you think? Responsible muckracking or irresponsible fearmongering?

Eban writes:

But a yearlong investigation by SELF — including more than 50 interviews and records leaked from one of the world's largest generic-drug companies, Ranbaxy Laboratories — raises questions about whether some new generics are as safe or effective as the brand names.

Eban focuses on the experiences of three women who claim to have had problems with generic drugs. (The plural of anecdote is data?) She also uses the problems at Ranbaxy to implicate the entire generic drug industry, the FDA, pharmacists, insurers, and just about anyone with scientific data that conflicts with the article's thesis.

I found the tone of the article to be unnecessarily sensationalistic and pejorative. She summarily dismisses any scientific evidence from peer-reviewed medical journals in favor of the comment board at the People's Pharmacy website. Example. (BTW, does anyone know more about the People's Pharmacy organization?)

Check out the snarky tone of this paragraph:

Anxious to cut costs, health insurers are stampeding to switch patients to drugs that are cheaper to make, test and ultimately buy because their manufacturers can piggyback on the research and marketing already done by brand-name-drug companies. Pharmacists in most states are also free to give patients whichever version of a drug is cheapest for them to supply, without telling the prescribing doctor; in some states, pharmacies are required to make this switch.
"stampeding"? "piggyback"? "without telling the prescribing doctor"?

And to make sure that SELF readers get the point:

Women who wouldn't dream of substituting Diet Pepsi for Diet Coke, simply because of the taste, eagerly swap vital medications, because the change can cut co-pays in half.

Last time that I checked, Diet Coke and Diet Pepsi had different ingredients, whereas generic drugs are chemically identical to branded drugs. Whatever.

FYI, Dangerous Doses started as an article in SELF magazine, so anyone with a vested interest in generic drugs should keep an eye on the anti-generics trend.

Tuesday, May 26, 2009

AMP: Salvation

A famous philosopher once opined: "The future's not set. There's no fate but what we make for ourselves."

The pharmacy lobby looks set to prove this aphorism true by preventing the use and/or publication of cost-plus Average Manufacturer Price (AMP) based reimbursement for generic drugs under Medicaid. Looking at two new pieces of evidence, I expect another legislative delay that will postpone implementation until at least late 2010 – and possibly repeal AMP altogether. Hasta la vista, AMP!

(Confused by the preceding paragraph? Read this post, this one, or go nuts and read everything tagged AMP.)

The latest evidence that judgment day will be postponed comes from the Senate Finance Committee. On page 27 of the recently released Expanding Health Care Coverage: Proposals to Provide Affordable Coverage to All Americans, the Committee proposes increasing the Federal Upper Limit (FUL) percentage for pharmacy reimbursement from 250% to 300% of AMP for generic drugs, which are technically referred to as "pharmaceutically and therapeutically equivalent multiple source drugs available nationally through commercial pharmacies." The document also proposes other unspecified "clarifications" and "modifications."

Here's another piece of evidence – it looks like CMS is not even planning for AMP implementation in FY2010. The Deficit Reduction Act of 2005 appropriated $5 million dollars for each of fiscal years 2006 through 2010 to carry out a survey of retail drug prices. If I am reading the budget document correctly (not sure), then the FY2010 budget for the Department of Health and Human Services (HHS) does not appear to be including the survey in HHS outlays. See the item labeled "Appropriation (Federal upper payment Limit for multiple source drugs)" (page 474).

The pharmacy industry continues to use its lobbying power, a trend that I have been following on Drug Channels for over two years. (See 2007 Trends: Lobbying for Pharmacy Profits from way back in January 2007.)

So here's some free advice – worth twice what you're paying.

If the pharmacy associations really want to get serious, they should send a cyborg back in time to terminate the AMP section from the Deficit Reduction Act of 2005, thereby avoiding this whole situation. Simple, really.

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I didn't get a chance to see T4 this weekend, but Terminator fans will get a chuckle from 5 Reasons The Terminator Franchise Makes No Sense. (Warning: The link contains profanity, sci-fi nerdiness, and excessive snark.)

Friday, May 22, 2009

Jim Gaffigan visits the Pharmacy

The last two posts have been sorta heavy, so let's bring the funny for Memorial Day weekend.

Here's a video clip from the hilarious and pale Jim Gaffigan riffing on a trip to the pharmacist. His new DVD King Baby is great. Yup, he's the Hot Pocket guy, too. Dispense yourself a chill pill and enjoy.

Gaffigan better watch out or the NACDS may go all medieval on him. The NACDS recently "fired back" at an editorial cartoonist from the Washington Post for a blasphemous depiction of a pharmacist. Um, just like Jyllands-Posten?

Have a great Memorial Day!

Thursday, May 21, 2009

The Odd Economics of Maintenance Choice

Thank you for posting so many thoughtful and detailed reactions to yesterday's post (Reality Check on Mail Economics). I appreciate your trust in allowing Drug Channels to be a forum for open discussion of complex topics in the industry.
Let's take a look at the mail versus retail tradeoff as framed by CVS Caremark. Frankly, I remain puzzled by the economics of CVS Caremark's Maintenance Choice program even after last Friday's 2009 Annual Analyst/Investor Meeting. Maintenance Choice may be a profitable business strategy for CVS Caremark, but I have a hard time understanding how retail dispensing is more profitable than mail dispensing. As always, I'd welcome your thoughts on what I'm missing here.

Wednesday, May 20, 2009

Reality Check on Mail Economics

I got a lot of comments and emails about last week's article on CVS Caremark (Debate Over CVS Caremark's Tactics Heats Up). Many people criticized me for not recognizing that mail pharmacy reimbursements are higher than retail pharmacy reimbursements.

Regular readers know my credo: "Everyone is entitled to his own opinion, but not his own facts." And as I show below, an independent data source shows that – on average – mail pharmacy reimbursements are actually lower than retail reimbursements.

Please take the time to read this article carefully before you accuse me of bias. I'm not defending or attacking anyone; I'm merely providing you with some independent data so you can make up your own mind. Let's keep the discussion going by leaving me your reactions and comments.

Friday, May 15, 2009

Weekend Update + Spinal Tap

In my recent Drug Channels reader survey, a few people requested occasional updates on past stories. Here you go!

1. Generic Drug Scandal Hits Wholesalers and Drug Makers in Canada (4/28/09) -- Some well-known wholesalers and manufacturers are being accused of participating in a drug recycling and duplicate reimbursement scheme in Canada. It now looks like the Canadian problems are multiplying faster than hockey penalties according to More charges laid in alleged Ontario drug reselling scheme:

A wholesaler, Kohl & Frisch Ltd., and an unnamed individual are facing criminal charges of providing false or incomplete information, or obstructing an inspector, health officials said Thursday. That brings the total number of charges laid in the case to 24 from 20. Another pharmacy has been put on notice that it may be cut off from the province's public drug plan, and three other pharmacy groups have been ordered to provide more information about the money they've collected from drug companies, which could trigger full-scale audits.
2. Walgreens to Washington: Make my day (3/31/09) -- Walgreens and others opposed a Washington (state) plan that would reduce brand drug reimbursements for Medicaid scripts. The state blinked according to Washington drops bid to cut drugstore Medicaid payments:

Washington state has dropped an attempt to cut Medicaid prescription reimbursement rates to drugstores to the lowest levels nationwide, ending a legal struggle. As a result of budget legislation the state will continue to pay 86 percent of the average wholesale price on name-brand drugs for Medicaid prescriptions through at least July 1…
3. Could the FTC undo CVS Caremark? (4/8/09) -- Representatives of the independent pharmacy industry, led by the National Community Pharmacist's Association, met with the Federal Trade Commission (FTC) to air their grievances about CVS Caremark. NCPA put out a press release with their POV on the event (Patients, Community Pharmacists Tell Federal Trade Commission of CVS/Caremark Merger's Costly Side Effects) and the following proposed remedies:

NCPA urged the FTC to take a number of steps, including investigating allegations of anticompetitive and deceptive conduct by CVS Caremark; requiring CVS Caremark to treat all pharmacies in a nondiscriminatory fashion; and ensuring that the company creates an ironclad barrier between CVS and Caremark so that competitively sensitive Caremark information cannot be used by its retail operations.

For my take on this issue, read yesterday's post Debate Over CVS Caremark's Tactics Heats Up. This post-meeting Dow Jones story gives the following lukewarm view of the meeting from NCPA's general counsel:

"Based on today's meeting, we're hopeful and encouraged, but we'll see what happens," said the group's general counsel, Joanne Thelmo.

However, this Reuters story has a more positive spin:

Association president Holly Whitcomb Henry said on a media conference call that Leibowitz told them the issues were "of concern" and that FTC staff would look into them.

4. Spinal Tap: Back from the Dead

Last night, I went to an AMAZING concert with the boys of Spinal Tap, who were (for a time) the unofficial mascots of California's e-pedigree legislation. Two hours of Tap and Mighty Wind songs, jokes, stories, and Q&A with the audience. On a scale from 1 to 10, I rate it an ... well, you know. Catch them when the Unwigged and Unplugged tour comes to your town!

Here's a blurry photo taken with my cell phone of them playing an acoustic version of "Hell Hole":

And a brief and funny video about their comeback:


That's the news. Goodnight and have a pleasant tomorrow.

Thursday, May 14, 2009

Debate Over CVS Caremark’s Tactics Heats Up

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.

Thursday, May 07, 2009

A Glimmer of Synergy at CVS Caremark

The famous British economist John Maynard Keynes once quipped: "When the facts change, I change my mind – what do you do, sir?"

Judging by CVS Caremark's latest financials (CVS Caremark Reports Results for First Quarter 2009), I need to change my mind on revenue synergies.

Wednesday, May 06, 2009

Wal-Mart Aims at PBM Mail Profits

Hot on the heels of Walgreens potential cost-plus deal, Wal-Mart just announced a new mail pharmacy pilot in Michigan. The program offers a 90-day supply of 300 generic prescriptions for $10 each via free mail delivery. Official details:

Although this is just a pilot, we have no reason to assume Wal-Mart will stop with Michigan. I bet Pharmacy Benefit Manager (PBM) executives tipped back a few extra margaritas during Cinco de Mayo yesterday.

Monday, May 04, 2009

Is Walgreens planning a direct-to-payer deal?


This morning's Wall Street Journal article about Wal-Mart's (WMT) pricing model with Caterpillar (CAT) drops a bombshell in the last paragraph. According to Wal-Mart Expands Drug Program:

"Walgreen has a growing relationship with Toyota, operating about a half dozen pharmacies at the auto maker's U.S. work sites. The car maker is discussing with Walgreen the possibility of setting up a program similar to Wal-Mart's project with Caterpillar, in which Walgreen would expand its drug program for Toyota employees."
If I am interpreting this paragraph correctly, then Walgreens (WAG) is proposing a direct-to-payer model (my term) with Toyota. FYI, Walgreens picked up Toyota's work site pharmacies with its acquisition of I-Trax in 2008. (Press Release)
Like it or not, Wal-Mart appears to be setting the new low-cost rules for the pharmacy industry. Direct-to-Payer is more than just a promotional price – it's a whole new revenue and profit model for a retail pharmacy. Wal-Mart's reimbursement for generic drugs from Caterpillar is explicitly cost-plus and based on Wal-Mart's actual invoice prices. No AWP or MAC required.
While we don't have details (or even confirmation that a Toyota-Walgreens deal will happen), Walgreens would surely sacrifice generic drug margin in exchange for volume. I wonder if Walgreen will now concede that a generic drug price war is underway. See Walgreens vs. Reality for January's denial.
And for the record, my April Fool's post was supposed to be a joke!
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There may be some new visitors today since Drug Channels is mentioned by name in the WSJ article. (Thanks, Ann!). Here are quick links to four popular articles from the blog about Wal-Mart's strategy: