Wednesday, February 24, 2010

The Politics of Pharmacy

“Politics is the art of looking for trouble, finding it, misdiagnosing it, and then misapplying the wrong remedies.”—Groucho Marx

Tomorrow’s the big day—the sure-to-bore Bipartisan Meeting on Health Reform. Anyone expecting the spirit of consensus to burst forth magically from Washington? Nope, me either.

Closer to home, The USA Today recently reported that the health industry's political giving rose 14% in 2009. Apparently, the National Community Pharmacists Association (NCPA) had the biggest jump in giving during the past 2 years. News to me, but not really surprising.

Alas, I fear the NCPA’s success signals a pharmacy marketplace that promises to become much less dynamic. The basis of competition is shifting away from innovation, efficiency and value and towards whichever group can curry favor with legislators and regulators. The stakes keep getting higher as government money crowds out private payers. See CMS' New Drug Spending Projections.

Here's what The USA Today said:
“The National Community Pharmacists Association had the biggest jump. Its political arm gave more than $1 million in 2009, more than triple its 2007 giving. The 13,000-member group worked successfully to insert favorable provisions in health bills that passed the House of Representatives and Senate last year, including a measure to roll back cuts in government reimbursements for generic drugs.”
Bruce Roberts, head of NCPA, was unapologetic about this increase: “We are now focused on making sure we are in the game and getting our voices heard. It has been a good investment." He went further in an NCPA blog post by boasting: “The NCPA PAC has risen from 963rd to the 40th largest association PAC in the country.” (Note: See comments below for comparison of NCPA PAC spending to PCMA PAC spending.)

H.R. 4489: The FEHBP Prescription Drug Integrity, Transparency, and Cost Savings Act is a good example of the ROI from NCPA’s cash. The bill—subject of a legislative hearing yesterday by the Federal Workforce, Postal Service and the District of Columbia Subcommittee—is nothing more than independent pharmacy’s anti-PBM wish list. John Calfee of AEI wrote a good point-by-point rebuttal of the bill’s many flaws.

The NCPA and others have every right to lobby for their own profits. But is it good public policy or good economics to tilt the playing field in favor of a particular dispensing channel (independent pharmacies) instead of letting the market decide? Seems like many independent pharmacy owners will say “of course” without hesitation.

As a citizen and an economist, I’m skeptical.

22 comments:

  1. It seems to me that the only way to get your voice heard in congress is to pay for it. The
    NCPA has finally figured that out. Check how much PBMs, drug companies and insurance companies pay for what they want in congress. It's probably not anywhere near what NCPA paid this year. It's our way of leveling the playing field and to get our voice heard.

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  2. I just looked it up at Open Secrets and the answer is surprising. NCPA has apparently spent 40X-50X of PCMA's spend during the past few years.

    NCPA PAC has spent $1,133,371 so far in the 2010 election cycle (source)

    PCMA PAC has spent $24,800 so far in the 2010 election cycle (source)

    Looks like PCMA needs to start copying NCPA!

    Adam

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  3. An astute reader pointed me to Health Care Lobby Database at the Center for Public Integrity.

    I searched the database embedded on this page and found the following lobbying totals for 2009:Q2 through 2009:Q4:

    NCPA = $660,000 (source)
    PCMA = $1,068,862 (source)

    So, my previous comment is not accurate because it only includes PAC campaign contributions, where NCPA is clearly in the lead. However, PCMA's total lobbying expenses were higher.

    Adam

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  4. Ok rush, errr Adam,

    As an Independent Pharmacy owner I have seen my reimbursement decline every year for the past 20 years, but I dont see that savings passed on to the purchasers of Healthcare. Lets talk about the legislation that you linked, here is a piece of it:
    `(e) Pricing-

    `(1) SPREAD PRICING-

    `(A) LIMITATION ON CHARGES TO CARRIER- The PBM shall not charge the carrier more for a drug that is covered under the PBM carrier arrangement than the amount that the PBM reimburses a pharmacy which dispensed such drug for the drug.

    `(B) DISCLOSURES-

    `(i) INITIAL DISCLOSURE- Before entering into a PBM carrier arrangement under this chapter, the PBM shall disclose to the carrier and the Office--

    `(I) the reimbursement basis that the PBM uses (including the type of benchmark price and the source of the data for determining such price) for reimbursing retail and mail order pharmacies; and

    `(II) the methodology that the PBM uses to compute reimbursements to retail and mail order pharmacies that dispense the drug.

    `(ii) UPDATES- Not later than 30 days after making a change to the reimbursement basis or methodology under clause (i), the PBM shall disclose such change to the carrier and the Office.

    `(iii) TRANSITION RULE- Under a PBM carrier arrangement under this chapter that is in effect on the effective date of the FEHBP Prescription Drug Integrity, Transparency, and Cost Savings Act, the PBM shall disclose the information under clause (i) not later than 1 year after such date."

    This part refers to the practice of "spread pricing" in which the pbm pays the pharmacy one rate, but bills the health plan a higher amount. This practice mainly occurs on generic medications. I see this everyday, I see plans getting billed 5-10x what the pharmacy is getting reimbursed.

    Answer these two questions, I dare you.
    1) How can you justify the pbm making more when a pharmacy fills a prescription, then the pharmacy itself. (this is refering to spread pricing)
    2) In closed networks like the cvs/caremark who protects the health plan from the pbm? (the pbm can set the price it pays itself).

    If someone opposes transparency, you really need to ask why?

    I'm not asking for one more penny, I'm just asking that the savings be passed on to the purchasers of healthcare, not the shareholders/execs of the pbm's.

    How can the pbm's think those types of actions are going to be able to be continued. Seems like a very poor business model.

    ReplyDelete
  5. So, let me understand. You are in favor of all the lobbying that is beign done in DC by BIG PHARMA, but Not in favor of NCPA doing the same thing.

    It's not the market that makes the calls, it's the money that is being spent in the pockets of Congress. It's like the churches they all need MONEY. You know it.

    Congress is the hidden prostitute of Big Pharma (include PBM & Chains) and they will do whatever they can to stop bills like HR 4489.

    So rest in peace and send your donations!

    ReplyDelete
  6. Adam, I am quite disappointed in your rhetoric. A man as intelligent as yourself has become a shill for big pharma, pbms, and chains. Though is is no surprise, as they are your biggest sponsors, i.e. contributors to your "think tank".

    ReplyDelete
  7. Dr. Fein,
    Since I began reading Drug Channels consistently – (about 3 months) I have enjoyed reading your “no-pulled-punches” approach to an industry that at times seems cloudy – at best - missing the transparency mantra that “we’re all in it together to do what’s ultimately right for the patient and better healthcare.”

    I have also noticed that on several occasions you seem to be ANTI-NCPA and certainly ANTI-Independent Pharmacy. (FYI: I capitalized the “ANTI” to accentuate it. Ha-ha) I don’t think – although I could be wrong – that you talk with independent pharmacies every day. I talk with 20 – 40 private business owners/ independent pharmacies every week. They are all – in some way – struggling to be profitable businesses and are constantly (and I do mean – every week) struggling with some new regulation, HIPAA challenge, discriminatory pricing model, new state-law mandate, Medicare Part B cuts, DME certifications costing thousands (One owner shared with me his small town pharmacy paid $30K), and the Mail-Order/ Walgreens/ CVS/ Wal-Mart Pharmacy Empires. The NCPA is one of the few national organizations helping the independent pharmacy owner – have a “voice” in the land of consumer pharmacy politics overall.

    I agree with your comments about lack of innovation – but not in the context that you referenced. Shame on the Independent Pharmacy owner who doesn’t get involved in the fight for their fair share of business – by supporting these national organizations – and demanding that some of their membership dollar be put forth to help steer a sub-committee for true independent pharmacy innovation.
    _
    The whole – purpose of being an independent pharmacy business is to not have to operate, look like, or be limited to the policies and practices of the BIG-BOX-FAST FOOD Walgreens / CVS pharmacy models. (Which is all part of a less caring healthCARE initiative to lessen the importance of the practice of pharmacy, right?)

    _
    You stated in your article: “But is it good public policy or good economics to tilt the playing field in favor of a particular dispensing channel (independent pharmacies) instead of letting the market decide? ” – this is the part that really made me re-read your statement at least twice and then realize you are wrong. Dr. Fein – are you joking?
    _
    Independent Pharmacy IS the way the public across our nation can decide and support the type of pharmacy care they receive. Don’t go to the national chains – and support your local pharmacy and – if that specific local pharmacy isn’t providing your with personalized healthCARE – then go to the next independent pharmacy down the street. Why would you want us to be force to use FAST-FOOD Pharmacy services - or worse yet – (pure) Mail-Order?
    __
    I am a proud supporter of a capitalistic society, the independent pharmacies throughout the country, and the NCPA – and that’s because I do not want to be force to go to Walgreens, CVS, or order my medications from a telephone line. (With the exception of refills, but even then I might want the pharmacist filling the order to “know” me and take the TIME (I do mean – taking his or her time) to review my medications for MY optimal HealthCARE.

    ReplyDelete
  8. I think there is a fundamental difference between:
    (a) lobbying on behalf of your own industry to gain an advantage or prevent a loss,
    versus
    (b) lobbying against another industry when the benefit to your own industry is non-existent.

    Everyone does (a). NCPA is doing (b) for reasons that I don't understand. Perhaps I'll explain more in a blog post tomorrow.

    Adam

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  9. To PTR:

    People can do whatever they want when they are paying with their own money. 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?

    Adam

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  10. Why do you avoid the 2 questions from the 4th post?

    ReplyDelete
  11. I have to eat dinner sometime, OK?

    I'll address #2 tomorrow. But consider the quote above: "I'm not asking for one more penny, I'm just asking that the savings be passed on to the purchasers of healthcare, not the shareholders/execs of the pbm's."

    Doesn't anybody else find it odd that pharmacists have decided to be the altruistic, self-appointed guardians of large insurance companies and big corporations?

    --

    #1 requires a lengthier response that is probably not interesting to many readers, so it's not worth a whole blog post. But the whole "spread pricing" discussion is quite misleading. Some observations:

    1. Based on what I've seen from Wall St. financial analysts, PBMs earn very small spreads for drugs dispensed by retail pharmacies in the PBM’s network.

    2. PBMs do earn larger spreads from drugs dispensed by mail-order pharmacies because the PBM also acts as the dispensing pharmacy for fulfillment to patients.

    3. Lest you forget, pharmacies earn most of their profits from “spread pricing," too. Dispensing fees don't cover the full cost of dispensing.

    4. Plan sponsors (the clients of PBMs) can choose how they want to compensate the PBM. All the big PBMs could write pass-through contracts, but most payers choose spread pricing contracts instead. Read "The PBM Purchaers Guide" from URAC to understand why a payer would make this decision. (Link on right side of PBM Purchasers Guide '>this page.

    Just my $0.02. YMMV.

    Adam

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  12. "Doesn't anybody else find it odd that pharmacists have decided to be the altruistic, self-appointed guardians of large insurance companies and big corporations?"

    I dont know about other pharmacists, but this pharmacist has.

    The spead pricing is not the same as mark-up. Mark-up is what I get over the price I purchase the medication for. The pbm does not purchase/carry the cost for the medication, they get spread pricing by telling plans a higher amount than they pay (remember the pbm sets the price the pharmacy is reimbursed and what the plan pays).

    I dont care what "Wall St. financial analysts" say, I see the numbers everyday. The spread on generics is huge and they try to hide it. That is why they hate transparency.

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  13. As a "patient" I do not see this concept of competition, my drug price is still defined by my insurance and whatever it really cost does not seem to influence my premium which always goes up. Traveling in many countries, I have not seen a place where drugs included generics are more expensive than in the US where the competition exists and where advertisement and marketing is so huge. I have not seen so many foreigners in research in the US because our University cannot produce enough talented people.

    ReplyDelete
  14. "the pbm sets the price the pharmacy is reimbursed and what the plan pays"

    And they do that in a competitive, free-market environment. Just as with any other business in a free market, they will not win business if their costs are out of line with their competitors.

    It's a commodity market (you're probably in one too) which means price can only differ from the norm if you differentiate in some other meaningful way. For example, people often pay more to go to an Indy because the like the better service than they will get at Wal-mart.

    "The pbm does not purchase/carry the cost for the medication, they get spread pricing by telling plans a higher amount than they pay"

    Well, of course! They are a service, not a retailer. It makes perfect sense that they make their profits differently than you do. I really don't get your point.

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  15. "And they do that in a competitive, free-market environment. Just as with any other business in a free market, they will not win business if their costs are out of line with their competitors"

    If it is competitive free market, why are they affraid of transparency? Because they can hide/play with the numbers.

    "Well, of course! They are a service, not a retailer. It makes perfect sense that they make their profits differently than you do. I really don't get your point."

    So, you would be ok with your c-c company adding 10/20/100% on to the price you purchase items from stores? They after all make their profits differently from the store.

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  16. Where to start...

    1 - (Adam) I'd love to see the lobbyist / PAC spend as a percentage of revenue (using just mail order revenue for the PBMs). That might be apples to apples.

    2 - (Anonymous) I've never heard of an example where the PBM makes more than the dispensing pharmacy.

    3 - (Anonymous) In a closed network, why does the payor need to be protected by the PBM? The only reason the PBM gets them to sign up for the closed network is to offer them a lower price. If they can make money at a lower price point, good for them...that's the benefit of scale.

    4 - (PTR) If independents offer more value to consumers than have the consumers pay more to use them. They can set themselves up as a "club" like Sam's Club. Just because they are higher touch, there has to be something that payors or consumers are willing to pay more for to justify their existence (if they can't survive at a competitive price with the chains). For example, I loved my neighborhood hardware store, but Home Depot and Lowes drove them out. Neither I nor my neighbors were willing to pay the higher price for the better service.

    5 - (PTR) I'm not sure most consumers want/need/take advantage of the pharmacist for any consultative services. Nor, do I think that it's often needed after they titrate and continue using the same drug for long term. Therefore, kiosks, mail order, and other efficiency plays are likely to be a reality.

    6 - Spread pricing exists in any industry. PBMs earn single digit margins on large volumes. When a payor goes to a PBM to manage their pharmacy benefits, they have to make money. Payors can pay for claims, based on spread, or link outcomes to pay. There are lots of options. Most / all of that is open to the payors and they evaluate and consciously choose. Even Caterpillar doesn't see the acquisition costs for Wal-Mart and Walgreens. They pay a spread above what the drug is acquired for.

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  17. "If it is competitive free market, why are they affraid of transparency? Because they can hide/play with the numbers."

    Because it's good business. If they can increase their margin with reduced internal costs and better efficiency while charging the same price as a competitor, why would they want to tell anyone that? Their business is to maximize profits in their market, not provide charity services.

    "So, you would be ok with your c-c company adding 10/20/100% on to the price you purchase items from stores? They after all make their profits differently from the store."

    Why would I care? If that 20% got passed along to me as a consumer because the store I shop at was silly enough to choose that CC company over a 2% competitor and expect me to pay the difference, can you make a guess as to what I'd do? Yep. Shop at the smarter business.

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  18. "Why would I care? If that 20% got passed along to me as a consumer because the store I shop at was silly enough to choose that CC company over a 2% competitor and expect me to pay the difference, can you make a guess as to what I'd do? Yep. Shop at the smarter business."

    You don't understand, thats what pbm's do in price spreading. I fill the prescription in the statin example, patient portion(copay) is 37.50-that is all the pharmacy collects. The pbm turns around and bills the health plan 187.50 for that prescription. The pbm make 150.00 in spread and doesnt even fill script/buy medication they just electronically process the script.

    I'll type slower, if credit card companies charged you more for a purchase then you would pay with cash....2.00 loaf of bread cash vs 10.00 loaf of bread c-c (store still only gets 2.00) how happy would you be?

    You want to blame the store(pharmacy), when its the cc company(pbm) that is jacking up the price so they get 8.00 extra on an electronic transaction.

    " not provide charity services."
    but I guess its ok for the pharmacy who actually buys the drug fills the prescription to do it for charity.

    You are missing the whole point, as we examine skyrocketing healthcare costs, should a middleman be paid more than the provider?

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  19. As a former independent pharmacist (but not owner), I believe it has come to the point that the independents can't imagine it being worse if there is true transparency. They are, in fact, tired of the consumer, whether that being the patient or the person/entity purchasing the insurance, accusing them of, "...charging so much" when a large percentage of the cost is due to a PBM. The PBM's have (to date) been great at making the numbers look in their favor. Remember that saying about statistics and lies? Some consumers are finally getting information and informed about the PBM market. Making an economic decision without full information (or misinformation in the PBM case) oftentimes leads the consumer to the wrong decision. I'm not a NCPA member, but I believe the argument that they are only lobbying to cause harm to the PBMs is inaccurate. I believe their lobbying is in an effort to tell the real story of how PBMs are acting as fiduciaries for their clients; and that they are not always acting in their client's best interests. This, in turn, has caused harm to their own members. This lobbying is in an attempt to reverse this harm. In my own personal opinion, it might be too little, too late.

    I'll be eagerly awaiting the FTC's probe of CVS/Caremark.

    Dr. Fein, when YOU are of the age that you need help purchasing YOUR healthcare, please let me send you a contract to provide your services. I'll be glad to get you some $187.50 statins, and I'll be glad to have my PCMA buddies send similar contracts so that we all look like we are doing you a favor. Better yet, I'll be the only pharmacy in town that also happens to own the 3rd party that sets the prices! You will really see the savings then!

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  20. "I'll type slower,"

    I'll type even slower.

    As a consumer, PBM spread DOES NOT CHANGE THE PRICE THAT I PAY.

    Spread changes the price that THE PAYER PAYS.

    If that price is too high, the PAYER WILL FIND A CHEAPER PBM.

    Sorry about the one polysyllabic word that I had to use - I hope you got it.

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  21. I'll type even slower.

    As a consumer, PBM spread DOES NOT CHANGE THE PRICE THAT I PAY.

    "Spread changes the price that THE PAYER PAYS.

    If that price is too high, the PAYER WILL FIND A CHEAPER PBM.

    Sorry about the one polysyllabic word that I had to use - I hope you got it."

    It does affect what you pay, % copays or the cost to your plan (which inturn will show up in your rates) Eventually you do pay for it.

    ReplyDelete
  22. But, as you reported, the number of independent pharmacies is decreasing. The number of chain pharmacies is increasing.

    Are you saying that the chains do not employ tactics that favor them?

    ReplyDelete

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