Here’s a summary of the non-Medco-specific story, as I see it.
- The old world of brand-name formulary access and rebate negotiations is rapidly fading as generics come to dominate traditional drugs. In a world of low-cost generics, the quality of care—adherence, compliance, appropriate utilization—becomes much more important than the unit price per pill.
- Generic introductions will slow sharply after 2015, putting enormous pressure on PBM profits. The mail-pricing-at-retail trend adds further risk to the PBM profit model.
- Until biosimilars appear and the formulary game restarts, PBMs will use the cash river from the near-term generic wave to develop new services for plan sponsors. These clinical and health care services will (theoretically) improve patient outcomes and lower a plan sponsor’s total health care costs.
- Cancer care is the area of specialty drug spending with the greatest patient care component and the biggest share of spending under a medical benefit.
See Insights from the 2011 Medco Drug Trend Report for my general discussion the trend report. The Cancer Care 2020 section appears on pages 93-104. Here’s my own selective interpretation of the key themes.
Pain for Payers—Drug trend for oncolytics is high and growing. One in five specialty drugs is a cancer medication. Look at the two products that drove oncology and transplant trend for Medco’s book of business in 2010:
- Revlimid, which had a 27% increase in utilization and an 8% increase in AWP
- Gleevec, which had a 7% increase in utilization and a 17% increase in AWP
Patient Care—PBMs and pharmacies are aggressively competing for a privileged position as consumer and clinical access agents beyond traditional dispensing. Check out Medco’s discussion of its Medco Specialist Pharmacists in its Oncology Therapeutic Resource Center (TRC) on page 102 or the description of high-end decision support tools for information-empowered patients, as pictured below. The typical retail store-based pharmacy will lack the expertise or scale to provide this level of care or data.
Oral Oncology—The percentage of oncology drugs available in oral form is projected to reach 25% by 2013, up from 10% today (per the State of the Industry Report 2009 from Walgreens Specialty Pharmacy). This shift will make these products more convenient to dispense at both mail-order and store-based pharmacies, because the handling and temperature storage requirements will be easier than for products requiring cold chain distribution. Payers overwhelmingly prefer oral oncology drugs, at least according to a recent survey by the Zitter Group.
Medical Channel Management—Non-pharmacy spending on specialty drugs is the next frontier for PBMs, as I discuss in Express Scripts' Disruptive Specialty Strategy. Medco is a bit late to the party but appears to be catching up by leveraging its strength in personalized medicine for clinical pathways (physician counseling) and patient counseling. Medco seems less eager than Express Scripts to actually get involved in fulfillment, perhaps because it doesn’t (yet) own a specialty distributor. However, the shift to oral oncology therapies will make it easier for PBMs to play here.
Clinical Pathways—The underlying premise of pathways is pretty scary: Your doctor may not be following clinically-proven best practice standards of care. Insurers such as UnitedHealthcare are already attempting to manage the medical (buy-and-bill) channel by linking reimbursement to pathways, as I discuss in UnitedHealthcare: Cost-Plus for Cancer Drugs. Cardinal Health (NYSE:CAH) bought P4 for a pretty penny to ride this wave and perhaps even sell a few specialty drugs along the way. Medco sees itself participating, too, especially as specialty drugs migrate from medical to pharmacy benefit coverage.
A FINAL THOUGHT FOR WHOLESALERS
BTW, the PBM’s strategy should presumably worry specialty distributors like AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK), per my comments last year in Channel Strategy at the PBM-Wholesaler Intersection. Certain executives at these wholesalers seem unusually confident in their current business models, at least based on their public statements. Interesting.