Express Scripts CEO's Take on the Drug Market.
In the interview, Mr. Paz weights in on Medco's cost structure, the value of pharmacist dispensing, and the Walgreen's (NYSE: WAG) dispute. Depending on your point of view, you will be either appalled or impressed by his viewpoints.
Read on for highlights along with commentary from your friendly neighborhood blogger.
The interview was conducted by Timothy Martin, a knowledgeable WSJ reporter who covers the pharmacy and PBM industries. As always, I encourage you to read the complete interview and make up your own mind.
"[Medco] had a different culture with respect to spending money."
Mr. Paz starts off the interview with a swipe at Medco's business model. Although the companies had different business mixes, his comments are supported by the economic facts. In 2011, Medco had revenues per employee of about $3.0 million vs. Express Scripts' revenue per employee of about $3.5 million. Adjusted scripts per employee were also about 25% higher at Express than Medco.
The FTC's decision to approve the merger was controversial, although consistent with U.S. antitrust policy. See ESRX-MHS: Analysis of the FTC Decision. Cost savings were a premise of the deal and a key factor behind the FTC's approval.
"I said one time that it shouldn't matter who counts to 30 for filling up retail prescriptions, and I caught a lot of grief for that, and probably rightfully so."
Here, Mr. Paz is sort of apologizing for the following comment he made during a February earnings conference call: "At the end of day, as I said earlier, Nexium is Nexium, Lipitor is Lipitor, drugs are drugs and it shouldn't matter that much whose counting to 30." (source). The NCPA took him to task in Express Scripts Continues Its Assault on Community Pharmacy. Read the comments below NCPA's blog post for insight into how pharmacy owners view PBMs.
However, he continues:
"But that wasn't the point. The point is that putting pills in a bottle doesn't change health outcomes. It doesn't matter whether you get your pills at Walgreen or CVS or Kroger. The reality is: What happens with that process? Who is taking care of that patient? It's not counting pills and sticking them in bottles. That doesn't add any value."
This is the more challenging issue, and one that is sometimes hard for pharmacy owners to accept. Pharmacists don't add value from the physical act of dispensing. Instead, they add value from their knowledge, counseling, patient care, and other factors. In fact, retail pharmacists want to be more involved in patient care services compared to their current workload, but medication dispensing crowds out those activities. See Pharmacy's MTM Challenge.
"One of the bigger issues was the way Walgreen defined generic drugs. That would have been a billion-dollar effect on my book of business. That would've been a huge windfall back to Walgreen that doesn't exist in any of my other [pharmacy] contracts."
Since there has been no public disclosure of behind-the-scenes negotiation details between Express Scripts and Walgreen, I have been quite careful not to discuss which side is right or wrong. Based on public statements, I believe that the real debate comes down to the definition of "multisource." Does it mean 2 suppliers? Up to 3 suppliers? 3 or more suppliers? Or more than 3 suppliers? See Ranbaxy Makes Three: The Battle for Generic Lipitor Profits for insight into why this definition matters to a retail pharmacy's profits.
That said, I do believe that Walgreens will be forced to settle, as I controversially noted in Walgreens is Losing Its Battle with Express Scripts.
By posting this article, I'm surely encouraging criticism from pharmacy owners. While I permit and encourage dissenting comments, please be respectful and professional. Comments with profanity or ad hominem personal attacks will not get posted on Drug Channels.