Drug Channels 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. Drug Channels reaches an engaged, loyal and growing audience of more than 20,000 subscribers. Learn more...

Wednesday, August 31, 2011

The Counterfeit Counterfeit Drug Count (rerun)

I’m taking a break from blogging this week and rerunning some of my favorite posts from 2010. Click here to see the original post and comments from September 2010.

Have you ever wondered about the statement that "10% of all drugs worldwide are counterfeit"?

The 10% figure has been cited by the World Health Organization (WHO), which has become the de facto source for the statistic. Just about every technology vendor involved in pharmaceutical supply chain security still touts the 10% figure as often as possible.

Alas, it turns out that the 10% figure has no factual basis in reality. Carl Bialik, the Wall Street Journal's Numbers Guy, published a fantastic piece of journalism this weekend entitled Counterfeit Drug Count Is Tough to Swallow. You should also read Dubious Origins for Drugs, and Stats About Them from The Number Guy's blog for some additional background.

The lesson? Always check the references. And don't believe everything you hear from technology vendors.

Tuesday, August 30, 2011

Pharmacy's MTM Challenge (rerun)

I’m taking a break from blogging this week and rerunning some of my favorite posts from 2010. Click here to see the original post and comments from March 2010. Sorry that I couldn't get to NACDS in Boston due to Irene!

President Obama signed the Patient Protection and Affordable Care Act into law on Tuesday. Section 3503 describes new programs for Medication Therapy Management (MTM) services provided by licensed pharmacists. I’m a fan of the MTM concept because it should improve health care outcomes and reduce costs.

But many pharmacies will have to rethink their businesses to allow store-based pharmacists to take full advantage of MTM opportunities. The latest National Pharmacist Workforce Survey (NPWS) shows pharmacists perceive themselves as overworked and not able to spend enough time on patient care services.

MTM money will presumably provide the financial incentives to fix this misalignment, but money won’t be enough. The pharmacy industry will have to rethink its business model while simultaneously navigating an increasingly competitive environment focused on low-cost prescription fulfillment, pharmacy automation, and call-center counseling from mail-order pharmacies.


The big 3 Pharmacy Benefit Managers (PBMs) with mail pharmacies have already figured this out. Manufacturers should be thinking about how to support pharmacy-based MTM services that will benefit adherence and compliance.

Thursday, August 25, 2011

Walmart’s Booming Preferred Network Models

Remember Walmart’s (NYSE:WMT) quest to dominate the pharmacy industry using price as a competitive weapon? Well, it’s gaining momentum based on an industry presentation made this week.

Walmart now claims to be working on preferred network models with 400 employers directly as well as with 20 Pharmacy Benefit Managers (PBMs). These network design models encourage or require consumers to use Walmart pharmacies and narrower pharmacy networks in exchange for lower costs to the plan sponsor.

Walmart states that employers see average savings in the 13-18% range, but savings "can be as high as 45%." As far as I know, this is Walmart’s most detailed public statement on its success with these models. Read on for more on these newly-released details.

Wednesday, August 24, 2011

Omnicare Bids for PharMerica to Surf the Generic Wave

Omnicare (NYSE:OCR) made a surprise hostile bid for competitor PharMerica (NYSE:PMC) yesterday. See Omnicare Proposes to Acquire PharMerica for $15.00 Per Share in Cash.

The combined companies would have more than half of the long-term care pharmacy market IF the deal happens. (PharMerica rejected the bid.) Wall Street signaled initial comfort with the antitrust risk when PMC’s stock price jumped 27% yesterday.

The real juice behind the deal is generic drugs. Once again, we see two major players combining to get more scale ahead of the coming generic wave.

Pity poor AmerisourceBergen (NYSE:ABC), which finds itself on the losing side of yet another big pharmacy market share shift.

Tuesday, August 23, 2011

Drug Shortages and Gray Market Profiteering

Premier Healthcare Alliance just released Buyer beware: Drug shortages and the gray market, a fascinating but disheartening report on the secondary market for drugs facing shortage.

The report gathers innovative data about the financial underbelly of the gray market. The results aren’t pretty, with mark-ups on key generic oncology and critical care drugs averaging 650%.

It’s really depressing to see the illegitimate secondary market thriving. Someone out there must be buying drugs with questionable heritages and sky-high price tags. Otherwise, the gray market would vanish.

Fans of irony will appreciate the FDA’s July 14 decision to back away from full pedigree information due in part to a lawsuit by secondary wholesalers. Really?!?

Read on for some reflections on this crisis.

Thursday, August 18, 2011

The Pharmacy Industry's Future in an AAC World

Yesterday, I looked at the momentum behind the collection and publication of Average Acquisition Cost (AAC) data for brand and generic drugs. See Coming Soon: Average Acquisition Costs for Pharmacies.

What will happen to the pharmacy industry as these data get adopted by public and private payers? My $0.02:
  • Average cost reimbursement will accelerate consolidation in the pharmacy industry.
  • Bigger and/or more efficient pharmacies will get a natural advantage that doesn’t exist (or is very weak) with list-price models.
  • Payers will need to evaluate the potential negative impact on generic dispensing incentives, especially as we enter the coming generic wave.
Portions of the text below are excerpted from The 2010-11 Economic Report on Retail and Specialty Pharmacies.

Wednesday, August 17, 2011

Coming Soon: Average Acquisition Costs for Pharmacies

The Average Acquisition Cost (AAC) revolution in pharmacy reimbursement is evolving rapidly. Today, I take a look at three recent developments:
  • The Center for Medicare and Medicaid Services (CMS) recently held a public meeting to describe how it will conduct its survey of pharmacy price and acquisition costs. CMS may publish its first data file by the end of 2011.
  • The Office of Inspector General (OIG) released a survey on how state Medicaid programs are planning to replace First DataBank’s the Average Wholesale Price (AWP) data. Most want to use AAC.
  • California reversed course (again) on AAC in Medi-Cal in its latest budget.
Go bananas and read on for details.

Tomorrow, I’ll discuss the potential impacts of AAC on the pharmacy industry.

Tuesday, August 16, 2011

Drug Channels News Roundup: August 2011

Here is my monthly look at noteworthy news stories for your reading pleasure. Perfect for a lazy afternoon in August! In this issue:
  • The PBM Roll-Up Begins: SXCI makes a move
  • After Heparin: A worthwhile study on the pharmaceutical supply chain
  • Et Tu, NACDS? A surprising attack on PBMs
Plus, The Onion asks some average Americans for their thoughts on the upcoming generic pipeline.

Thursday, August 11, 2011

A Controversial New Study on Mandatory Mail

While we're on the subject of mandatory mail this week, here’s a new article from The American Journal Of Managed Care that's sure to cause controversy: Adherence to Medication Under Mandatory and Voluntary Mail Benefit Designs.

Why? The study found that patients who were new to mail had much lower adherence with mandatory mail compared to a voluntary mail benefit design.

The results will surely be exaggerated by foes of mail order pharmacy, although the negative findings only apply to patients “without previous mail service pharmacy experience” and with benefits managed by CVS Caremark (NYSE:CVS). Patients with previous experience using a mail pharmacy had similar levels of adherence whether the use of mail was voluntary or mandatory.

The results highlight a challenge for Pharmacy Benefit Managers (PBMs) in growing mail pharmacy participation rates. Or perhaps the results show an as-yet-unrecognized problem in the way CVS Caremark introduces patients to mail order?

UPDATE: Read Express Scripts' response to the article.

Tuesday, August 09, 2011

FTC Slams NY Anti-Mail Bill; Insights for ESRX-MHS?

The Anti-Mandatory Mail Order Pharmacy Bill (New York Assembly Bill 5502-B) now sits on Governor Cuomo’s desk awaiting his signature to become law. The lobbying has been intense from both sides.

Yesterday, the Federal Trade Commission (FTC) weighed in with a letter to New York State Senator James Seward. Their conclusion? “We are concerned, however, that the Bill will have the unintended consequence of harming consumers.”

Here are at least two good reasons why you should pay attention to the FTC's letter:
  • Certain statements in the letter reaffirm my view that the FTC will eventually approve the Express Scripts (NASDAQ:ESRX) / Medco Health Solutions (NYSE:MHS) merger per ESRX-MHS: Antitrust Issues.
Read on for highlights and additional analysis. Your comments are welcome and encouraged.

Friday, August 05, 2011

Meet with me at NACDS in Boston

I will be attending the 2011 NACDS Pharmacy and Technology Conference on August 28 and 29.

I have a few meeting slots still open, so please send me an email if you’d like to arrange a one-on-one meeting in Boston. I'd be pleased to catch you up on some of the things I have been working on with my pharmaceutical manufacturer clients, such as:
  • Channel and contracting strategies for specialty drugs
  • Training to increase the business acumen of national account teams
  • Deep-dive economic analysis of key customers
Today's video bonus (embedded below) is Crucial cancer drugs in critical short supply, Wednesday's CBS Evening News story on DOXIL®. The video features a brief cameo by a mysterious "drug supply expert" whom you may recognize. (Hint: my wife is very proud.)

Wednesday, August 03, 2011

Who Will Pay for Prescription Drugs in 2020?

Yesterday, I looked at CMS' Bright Future for Drug Spending in 2020. Now let’s see who will be paying for all of these drugs.

In a major reversal from its pre-health care reform forecasts, CMS projects that private insurance will pay for a greater share of retail prescription spending than public funds will pay.

Hmm, how can this be?

Well, it turns out that CMS classifies coverage via state-run Health Insurance Exchanges (HIE) as "private insurance." While technically true, it is a bit misleading about the sources of payment. A big chunk of "private" coverage will actually be paid for by the government through subsidies.

Read on for a look at the past, present, and future of payers, along with some thoughts on what the forecasts means for manufacturer contracting and PBM strategy.

Tuesday, August 02, 2011

CMS' Bright Future for Drug Spending in 2020

The boffins at the Centers for Medicare and Medicaid Services (CMS) just released their new, post-health care reform forecasts for national health expenditures (NHE). You can read the full Health Affairs article here: National Health Spending Projections Through 2020: Economic Recovery And Reform Drive Faster Spending Growth (free download).

My number crunching highlights the good news for the pharmacy and pharmaceutical industries:
  • Annual prescription drug expenditures will double in the next 10 years to $512.6 billion by 2020.
  • Drug spending growth will grow at a compound average rate of 7.1% from 2010 to 2020—faster than overall health expenditures. As a result, prescription drug spending is projected to be 11.1% of NHE vs. 10.1% today.
  • Health care reform will add an extra $35.2 billion in annual drug spending by 2020.
Despite the near-term patent loss gloom, CMS provides plenty of reasons to be cheerful about the future of the pharmaceutical industry, even if you don't study nuclear science and love your classes.

Tomorrow, I’ll look at the surprising changes in payer mix buried in the CMS data.