Thursday, November 19, 2015

After the Valeant-Philidor Blowup, PBMs Clamp Down on Network Pharmacies

The initial fallout from the Valeant-Philidor kerfuffle has hit the pharmacy industry. Over the past few weeks, the major pharmacy benefit managers (PBMs) have begun dropping pharmacies from their networks. Some PBMs are also reminding retail pharmacies that they are prohibited from acting as mail pharmacies.

Below, I highlight the high-profile network pruning by the top three PBMs—Express Scripts, the Caremark PBM business of CVS Health, and the OptumRx business of UnitedHealthcare. I also speculate on the factors that would lead a PBM to clash with a pharmacy in its network.

An as-yet-unanswered question: If PBMs routinely monitor their networks, why did it take a highly publicized pharmacy meltdown before PBMs finally cracked down?


To understand the post-Philidor era, it’s helpful to review the basics of a PBM’s pharmacy networks.

A PBM establishes a network of pharmacies so that consumers with prescription drug insurance can readily fill their prescriptions. A consumer with a prescription drug benefit plan must use a pharmacy that accepts payment for that plan. Retail pharmacies enter into contracts with a PBM to participate in the PBM’s retail network and to provide prescriptions to a plan’s beneficiaries. Prescription claims from store-based retail pharmacies constitute about 80% of a PBM’s adjusted prescription claims.

In exchange for access to a plan’s members, network pharmacies start wearing the blue and brown by accepting discounted pricing and the plan’s rules. Nearly all community retail pharmacies participate in every major PBM network. Most PBM networks, meanwhile, include nearly all of the more than 60,000 retail community pharmacies in the U.S.

In most networks, a consumer’s out-of-pocket costs and copayments are typically identical regardless of which pharmacy in the retail network dispenses the prescription. The growth of narrow network designs is changing this historically open pattern. Benefit designs are using financial incentives or explicit restrictions to direct consumers to the specific pharmacies that agree to meet the PBM's conditions. In 2016, for example, 85% of Medicare Part D plans will have a preferred pharmacy network.  Pharmacies have had to grow up and calm down.


In Valeant, Philidor RX, and the Uninformed Attack on Specialty Pharmacy, I predicted that pharmacies would face much greater oversight, as both manufacturers and payers work to validate the business operations in drug channels.

Well, it didn’t take long for the PBMs to kick over the wall:
  • The three largest PBMs—Express Scripts, the Caremark PBM business of CVS Health, and the OptumRx business of UnitedHealthcare—have all removed the Valeant-affiliated Philidor pharmacy from their networks. Express Scripts said: “We routinely monitor our network and take action when we see pharmacies trying to circumvent solutions, like formulary management, that protect payers and patients from wasteful drug spend.” 


As I told Reuters in U.S. Drug Benefit Managers Clamp Down on Specialty Pharmacies:
"The Valeant-Philidor relationship woke payers up to potential problems in their pharmacy networks," said Adam Fein, president of Pembroke Consulting, which follows the drug distribution industry. "We are now seeing much greater scrutiny of the independent pharmacies that may not be complying with payer requirements."
I suspect that young believers at the PBMs are scrutinizing pharmacies that:
  • Generate a disproportionate share of sales from a single manufacturer’s products
  • Dispense primarily non-specialty branded generics
  • Process a large number of co-pay offset programs for non-specialty products
  • Operate as a mail pharmacy, but participate in a PBM’s network as a retail community pharmacy
The recent PBM actions also help clarify the voices in your head calling: What does it mean to be a “specialty pharmacy?” True specialty pharmacies focus on self-administered specialty drugs covered under a patient’s pharmacy insurance benefit. Such specialty drugs are almost always highly differentiated brand-name drugs for patients undergoing intensive therapies for such chronic, complex illnesses as cancer, rheumatoid arthritis, multiple sclerosis, and HIV.

Unfortunately, Valeant confused the issue by referring to Philidor and others as specialty pharmacies, when in reality Philidor was nothing more than a manufacturer-controlled mail pharmacy that dispensed comparatively undifferentiated traditional drugs. As far as I know, the PBMs  are not terminating actual specialty pharmacies.

Yeah, I'm working hard near Harrisburg. Gitalong!


Did you know that The Clash’s "Clampdown"—from London Calling, one of my all-time favorite albums—is actually an anti-capitalistic rant? Savor the irony by buying this album right now (Amazon link)!

Click here if you can’t see the video below.

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