Tuesday, September 30, 2014

Drug Channels News Roundup, September 2014: WAG, Generics, NADAC, and Alliance Boots

Autumn has arrived! Time to gather your acorns, make fantasy football trades, and read my thoughts on these Drug Channels stories:
  • Walgreens wants to sell its infusion business?!?
  • New evidence that generic drug inflation is creating multiple generic tiers
  • Texas Medicaid will base pharmacy reimbursement on acquisition costs
  • Alliance Boots’ Stefano Pessina is not a fan of tobacco in pharmacies
Plus, the American Medical Association announces an innovative new cost-saving program: placebo doctors!

Walgreen explores sale of $1.5 billion infusion business: sources
Reuters reported that Walgreens wants to sell a majority stake in its infusion services business. Walgreens built the business with its 2007 Option Care acquisition and a 2010 Omnicare deal. My $0.02: I don’t understand the strategic rationale for divesting out of a fast-growing channel for specialty drugs. Looks to me like Walgreens is backing away from a differentiated business, thereby further exposing the company to commoditized retail dispensing. For an alternative strategic approach, read my analysis of the 3 Reasons Why CVS Caremark Absorbed Coram.

Is All “Skin in the Game” Fair Game? The Problem With “Non-Preferred” Generic
This fascinating American Journal of Managed Care article describes how some insurers are splitting their all-generics tier into a bottom tier consisting of “preferred” generics, and a second tier consisting of “non-preferred” generics. The authors note: “We think it is apparent that designation of these generic drugs as ‘non-preferred’ was based on cost considerations alone; indeed, a number of insurers unabashedly refer to their second tiers as consisting of ‘higher-cost generic drugs.’” Unfortunately, this article confirms my belief that consumers are the real losers from generic drug inflation, per Winners and Losers from Generic Drug InflationL

Texas will move to NADAC-based reimbursement methodology
Here’s some more momentum for new pharmacy reimbursement models. At IIR’s recent Medicaid Drug Rebate Program (MDRP), Andy Vasquez, Deputy Director of Texas' Medicaid/CHIP Vendor Drug Program announced that that Texas will move to a NADAC-based reimbursement methodology. (NADAC = National Average Drug Acquisition Cost) As of 2013, six state Medicaid programs—Alabama, Colorado, Idaho, Iowa, Louisiana, and Oregon—were relying on their own acquisition cost surveys for pharmacy reimbursement. A 2011 OIG report found that 44 state programs had asked CMS to develop a single national benchmark to set Medicaid reimbursement rates. For more fun NADAC background and its implications for the pharmacy industry, see the sections starting on pages 86 and 136 of the 2013–14 Economic Report on Retail, Mail, and Specialty Pharmacies.

Boots will never sell cigarettes, vows boss
An eagle-eyed reader sent me this 2013 interview with Stenafo Pessina, the billionaire businessman and soon-to-be largest individual shareholder of Walgreens Boots Alliance, Inc. Per the article: "Absolutely not!" was Stefano Pessina's forceful response when asked whether customers would start seeing cigarettes sold behind the counter at Boots stores. Put that in your pipe and smoke it.

American Medical Association Introduces New Highly Effective Placebo Doctors
The Onion, America’s Finest News Source, reports on the American Medical Association’s introduction of new placebo doctors to administer general practice medical care to the American public. Physicians and other professional care account for more than 25% of U.S. health expenditures, so this move should help slow spending growth. Well done, AMA!


  1. Loved the Onion link! Thanks for sharing, but I want to review the statistics.

  2. I have a theory re wag sale of infusion biz. They have a big accounting loss created by an aspect of the boots deal. But for tax purposes I believe that loss can only be used to offset capital gains, not income. Which means top take advantage off it they have to create gains. Infusion is now a sizable asset. What if they sell it to private equity and entry into a long term operating agreement, etc?. Then they can use the tax loss against the gain, raise cash to help pay for boota deal and still try to lever infusion from a strategic/operating perspective.

  3. Adam-

    Do you think Walgreen's is leaving the infusion space because of a possible decrease in reimbursements? I know of a number of specialty pharmacies that are saying that insurance companies are beginning to cut them out/reduce the reimbursements.

  4. Not surprised at the Texas Medicaid move. I just wonder how many pharmacies will be forced to drop those patients, joining the many in the medical community (like our practice) that cannot afford to absorb the 60% on the cost reimbursement.

  5. The NADAC pricing with $9 dispensing fee only affects those very few FFS patients. I would take the $9 professional fee any day of the week vs what we are getting with the managed care plans in Texas Medicaid, which averages about $4.60 per rx.

  6. Precisely Sean. The Canadian's already use a similar model whereby the Pharmacy owners are paid a flat dispense fee in the $8-9 range and a fee for the drug product that is roughly 2-3% MORE than their Province dictated AQ price for a particular medication.


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