Wednesday, May 23, 2012

Express Scripts' George Paz Opines on Medco, Pharmacists, and Walgreen

Today's Wall Street Journal has a provocative interview with George Paz, CEO of Express Scripts (NASDAQ: ESRX). See 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.

ON MEDCO

"[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.

ON PHARMACISTS

"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.

ON WALGREEN

"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.

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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.

12 comments:

  1. PUTT-Dave Marley, PharmDMay 23, 2012

    Good pharmacists do more than just spit candy out of a super hero's mouth like a "Pezz" toy. Also, by keeping the focus on us, Paz is successfully deflecting careful scrutiny of his own business practices. Just because a room full of crafty attorneys can hide spread pricing in the contract language does not make it "okay".

    Besides MTM (which is good, but I have yet to see a viable financial model presented yet) much of a pharmacist's value comes from the RELATIONSHIP we have with our patients. Something not possible with a mail-man. It is often these interventions based on those relationships that save lives and reduce overall healthcare costs.

    For example,  there's is the patient whose life I saved by noticing a VERY aggressive melanoma on his face that was "just a mole" the month before. Or the e-script (which is a debate on safety all in itself) error for a blood thinner that was caught by a simple conversation. Or how about the patient who was having a heart attack in my store, and thought it was indigestion. If he was home waiting on the mailman he would be dead.

    Look, I get why Mr. Paz wants to make drugs a commodity, he makes an insane amount of money in doing so. The simple fact is he is wrong, pharmacists matter. Yes, there are mediocre pharmacists and excellent pharmacists (and mail men who are neither). This is where FREE CHOICE and FAIR COMPETITION come into play, you know those important pieces of a free market system that are necessary for our capitalist economy to work.

    Getting Mr Paz on camera to discuss his industry's smoke and mirrors deceptive contracts, lack of fiduciary responsibility and hiding all this behind a benefits consultant that takes an undisclosed sum from the PBM would be a much more interesting interview.

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  2. Omar FernandezMay 23, 2012

    Dr. Fein,

    That was a very interesting interview/article in the WSJ with Paz. My question is where does Specialty Pharmacy fit in? Obviously the cultures at ESI and Medco are very different, which leads to a bigger question of how and why this deal was really made; but my understanding is that Accredo as a wholly-owned subsidiary of Medco was autonomous in how it operated and CuraScript obviously is not. So, what is the new Specialty Pharmacy at ESI going to look like? Accredo was a much larger organization with a different operating model that clearly was successful for them, more so than CuraScript. I think this would be an interesting upcoming article to look at Specialty within ESI. What are your thoughts?

    Thanks,Omar Fernandez

    ReplyDelete
  3. Is Express Scripts showing signs it is an aging dinosaur? Will new evidence-based models of pharmaceutical care nix the value of PBMs? If reducing utilization, which I now you don't quite understand that just yet, the tranaction-based industry and all the behind the scenes rebate games gets pummeled. Mr. CEO says couting to 30 doesn't add value. Neither does jerkin' around with rebates and formularies and not putting the patient (person) at the center.

    ReplyDelete
  4. AnonymousMay 23, 2012

    There is a lot of smoke and mirrors in the PBM business and the example I will use is I had a patient bring in a medication he received from mail order pharmacy so I decided to process the NDC number for the same drug I stock on my shelf for a 90 day supply I had a profit of about 4$ when I used the NDC number they used and processed it the profit inflated to 34$ big difference so it would be nice to learn what NDC they used for there medications to get the same reimbursement

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  5. Jim FieldsMay 23, 2012

    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 and Independent Pharmacy about $350,000.00 per employee. Thus economic fact states that PBMs are 10x more profitable than retail pharmacy.

    ReplyDelete
  6. AnonymousMay 23, 2012

    There is a lot of smoke and mirrors in the PBM business and the example I will use is I had a patient bring in a medication he received from mail order pharmacy so I decided to process the NDC number for the same drug I stock on my shelf for a 90 day supply I had a profit of about 4$ when I used the NDC number they used and processed it the profit inflated to 34$ big difference so it would be nice to learn what NDC they used for there medications to get the same reimbursement 

    ReplyDelete
  7. As far as I know, the company has made no public comments about the respective fates of CuraScript and Accredo. Specialty will be a big part of the PBM's future, as I point out in Decoding the Clues to Express Scripts' Strategy.

    ReplyDelete
  8. Stephen BuckMay 23, 2012

    Today's system reflects the fact that 90% of medications are paid for by a third party who is not consuming the product (employers and the government).  The greatest fear of PBMs and Pharmacies will always be a system where the consumer's "bottom line" is directly impacted by choice of plan/medication/pharmacy.  High deductible plans are trying to do this but PBM/Pharmacy/Insurer collusion is figuring out ways to prevent real transparency and competition, so it is not a threat yet. 

    Here are a few ideas to give you PBM/Pharmacy folks a few nightmares.. what if:

    1) PBMs do not compete for business from employers but from employees (if I can choose between Cigna and Blue Cross, why not between PBMs)
    2) Pharmacies have real price lists for products(drugs) and services (dispensing, DUR, MTM) that consumers can elect to purchase (or not)
    3) Consumers can get low cost maintenance generics over the counter 
    4) If I want to buy a maintenance medication directly from a manufacturer in a blister pack sent from a FDA approved plant in India/Israel or even New Jersey, I'm free to "get it wholesale".
    5) Taking a high cost specialty drug always involves a % based co-insurance where consumer is incentivized to shop the doctor vs pharmacy vs clinic.

    ReplyDelete
  9. Owls1981May 24, 2012

    Dr. Fein,

    ESI appears to view pharmacists also as a commodity. It is unfortunate that more large employers and health care systems do not use their size and staff do perform the same non-adjudicating functions as a PBM and then use another entity to adjudicate claims. This would bring true savings to employers which could also be passed through to patients.

    ReplyDelete
  10. Bill BerditzmannMay 25, 2012

    Good choice!  Let's not forget the main tag line, 
    I can help but think the long term impact on health care is not good for the consumer. 

    ReplyDelete
  11. This comment has been removed by a blog administrator.

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