Wednesday, March 17, 2010

Pepsi, CVS Caremark, and the FTC

Dinah Brin at Dow Jones reports that a recent Federal Trade Commission (FTC) decision regarding Pepsi could have implications for the agency's ongoing probe of CVS Caremark (NYSE: CVS). See Pepsi Ruling May Have Implications For FTC's Review Of CVS.

An antitrust lawyer quoted in the Dow Jones article states: "There are parallels between the two cases.” Hmmm. I have no idea what evidence or documents the FTC will turn up in its investigation of CVS Caremark, but I’m skeptical of the Pepsi-as-precedent premise.

According to the FTC, PepsiCo must restrict its access to confidential business competitive information of rival Dr Pepper Snapple Group as a condition for proceeding with PepsiCo’s proposed $7.8 billion acquisition of its two largest bottlers and distributors, which also distribute Dr Pepper Snapple Group carbonated soft drinks. The supposed analogy is the business relationship between Caremark and CVS retail pharmacies.

Just to be clear, I'm not going to defend or defame CVS Caremark. Regular readers know I have been critical of how the CVS-Caremark combination is affecting the PBM business. However, Ms. Brin’s article does a very nice job of laying out the two opposing FTC storylines, so it’s worthwhile revisiting an issue I first addressed last April in Could the FTC undo CVS Caremark?


THE CHOICE OF A NEW GENERATION
I consider Maintenance Choice to be a “restricted network” design allowing the consumer to choose the channel (mail versus retail), but not the outlet. The consumer must use either a CVS pharmacy or a Caremark mail pharmacy for dispensing of maintenance medications.

The PBM client (payer) saves money whenever a consumer fills a 90-day prescription at CVS pharmacy (at mail pricing) instead of three 30-day scripts at a CVS or non-CVS retail pharmacy (at presumably higher retail reimbursement levels). As I understand the most common plan design, a consumer switching from Caremark mail to CVS pharmacy would have no financial impact on the payer.

SCENARIO A: BLAME THE PBM

Independent pharmacists claim CVS Caremark breached its “self-imposed firewall” by contacting consumers regarding the Maintenance Choice plan design. From the article:
“Community pharmacists and patients complain CVS Caremark used information about prescriptions for members in its pharmacy benefits manager, or PBM, to force them to buy their maintenance medications through CVS Caremark retail or mail-order pharmacies.”
In a September 2009 letter to FTC Chairman Jon Leibovitz, NCPA states: “We strongly believe that CVS Caremark is engaging in unfair and deceptive business practices that are causing harm to consumers, patients and local community pharmacies.”

SCENARIO B: BLAME THE PAYER

I don't think Scenario A describes the marketplace correctly. In reality, employers choose the specific designs of their prescription drug plans, including member cost sharing and any other limitations or restrictions.

Thus, Maintenance Choice is a benefit design decision made by the plan sponsor, not by CVS Caremark. As of February 8 2010, 412 PBM clients (5.1 million lives) are now in MC and 70 PBM clients (400,000 lives) are in the process of being implemented. (source).

From the article:
“CVS says that for Caremark PBM members whose employers use a "mandatory mail" benefit plan for maintenance drugs, it simply offers a choice to pay lower mail- order prices at its stores. CVS Caremark doesn't decide how much a copay should be or whether a prescription should be filled through the mail or at a particular retail pharmacy; the client makes those decisions in adopting a plan design, CVS said.”
The most recent Prescription Drug Benefit Cost and Plan Design Survey supports this view. According to a survey of 417 employers, the internal HR/Benefits staff is responsible for the drug benefit plan design at 46.3% of the employers compared to only 5.3% employers where the PBM made the decision. (source)

THE PEPSI CHALLENGE

If you are spending your own money, then by all means choose your own pharmacy.

But if you ask someone else—your employer or an insurance company—to pay for your drugs, don’t be surprised if they want you to save them money. Like it or not, Maintenance Choice saves money for the payer by providing mail order pricing in a retail format.

There are other ways for a payer to get lower costs in a retail format, but they also involve a more selective network design. Two obvious examples: the Walmart/Walgreens direct-to-payer model or Walmart’s $4 discount generic program. Both models require the consumer to use a specific pharmacy so that the payer can get the discounts. The consumer is the payer in the Walmart $4 model.

---

Please note that I have no business or financial relationship with CVS Caremark. I am not involved in this legal matter and am not privy to any internal documents. As always, I reserve the right to change my opinions as additional information becomes known.

10 comments:

  1. Hi Adam - great post, but I have one small nit to correct.

    You stated, "The PBM client (payer) saves money whenever a consumer fills a 90-day prescription at CVS pharmacy (at mail pricing) instead of three 30-day scripts at a non-CVS pharmacy (at presumably higher retail reimbursement levels)."

    Actually, I believe that the payer saves money whenever a plan member fills a 90-day prescription at CVS pharmacy instead of three 30-day prescriptions anywhere (CVS/pharamcy included.) If the plan member chooses to continue to fill 30-day prescriptions, he won't see the benefit of lower mail pricing at any pharmacy at which he shops. A small point, but one that the NCPA also continues to miss with their claims of unfair and anticompetitive business practices.

    ReplyDelete
  2. Very interesting post Adam. Thanks.

    ReplyDelete
  3. Jim,

    Yes, you are correct. Thanks for the clarification. I edited the text above.

    Adam

    ReplyDelete
  4. I totally agree with your comments, Adam. I highly doubt that any any of the 412 plan sponsors mentioned above would have elected Maintenance Choice if there was a negative impact on 1) bottom line benefit plan expense or 2) plan member satisfaction. It seems to me that the impact on benefit plan expense is neutral - depending on the plan sponsors contract with Caremark - and the impact on member satisfaction is highly positive (there are still a large number of people who will not order 90 day meds through the mail).

    ReplyDelete
  5. "But if you ask someone else—your employer or an insurance company—to pay for your drugs..."

    Well, I don't explicitly ask, do I? It's not like I'm offered a choice. Perhaps in a small company I might actually know the person who's making these decisions, but in a Fortune 100 that is very unlikely.

    Note that I do get your point - I'm simply registering a minor nit to the semantics used.

    - Oppressed by The Man

    ReplyDelete
  6. In my situation, the employer chose the prescription benefit without any choice on the part of the employee. CVS/Caremark will not provide any discount on maintenance prescriptions after three 30 day supply refills at a local pharmacy. CVS/Caremark determines the benefit and will only discount the price of the prescription if the drug is bought mail order from CVS/Caremark. It is obvious that there is data sharing between the two parts of the company and the benefit is definitely to the company and NOT the member.

    ReplyDelete
  7. I have a question regarding CVS and Caremark.

    Can Caremark force us into buying our prescription drugs from CVS?

    We have always gotten out prescriptions from Walgreens and now we are receiving letters from CVS about our meds and asking if we've stopped taking those meds because we aren't buying them at CVS.
    (We don't want to switch as our Walgreens is closer and has a drive-thru).

    How can CVS be allowed to know what prescription medicines we are taking?
    Isn't that against the law? To divulge such personal information when we've never once ordered any prescription medicines from them?

    Thank you for your time in this matter.

    ReplyDelete
  8. Becky,

    I don't know the specific details about your situation.

    However, you should think about this situation as a "preferred" network--a common benefit design for your doctor or hospital.

    As I note in the post above, whoever pays for your drugs (insurance company, health plan, employer, et al) chooses the pharmacy benefit design. This payer may require you to get your drugs at a location that gives them lower costs and/or more visibility into the spending. As I see it, this philosophy is behind programs such as CVS Caremark's Maintenance Choice. See Maintenance Choice Update: CVS Gain, Caremark Same for some additional perspective.

    You can always choose to pay for prescription drugs with your own money, in which case you can buy your drugs wherever you want. Of course, this may not be a realistic option.

    Adam

    ReplyDelete
  9. AnonymousMay 22, 2011

    Adam,

    Come on now, we all now that CVS/Caremark is sharing information in one way or another. Ive had many many patients come in with the letter from CVS/Caremark. We are all turning a blind eye on this one. And i could see if the employers were picking up 100% of the tab, but in many cases the maintenance choice patients had copays and pay premiums; give them some choices for petes sake!

    ReplyDelete
  10. AnonymousJune 29, 2011

    Adam,

    Come on now, we all now that CVS/Caremark is sharing information in one way or another. Ive had many many patients come in with the letter from CVS/Caremark. We are all turning a blind eye on this one. And i could see if the employers were picking up 100% of the tab, but in many cases the maintenance choice patients had copays and pay premiums; give them some choices for petes sake!

    ReplyDelete

Related Posts Plugin for WordPress, Blogger...