Comments on Drug Channels: Walgreens’ $4.33 Surrender to Wal-Mart

Re: the new comment added on Dec 22

You are...

2008-12-22T16:24:00.000-05:00

Re: the new comment added on Dec 22

You are correct that the U&C of a pharmacy is not changed by these plans. In contrast, Wal-Mart's $4 plan does establish a new U&C for the generics on its list, which is why Wal-Mart may receive lower reimbursement from a third-party payer (such as Medicaid) than other pharmacies

For more on this topic, see my post The Price Might Be Right and the comments below the post.

Adam

I don't even know where to start, but I will t...

2008-12-22T13:43:00.000-05:00

I don't even know where to start, but I will try to cover some areas that haven't been mentioned without rambling too much.

U&C was mentioned. these new "membership" cards by walgreens get around this issue. they are actually issuing their own insurance plan for their generic list of drugs. they can still charge anything they want to the rest of the pbms and cash paying patients not enrolled into their membership plan. Financially this really helps to keep the bottom line intact better than the wal-mart philosophy (they don't use memberships). The biggest issue from this standpoint is PBM's allow pharmacists to see what other medications are being filled at other pharmacies. If these medications are filled through the membership program, they will not be seen on the persons electronic pbm file if they fill a prescription somewhere else. We can talk about cost savings with drugs, but a drug interaction that causes hospitalization because of a drug interaction not seen is a big hole in these new programs.

the other thing to keep in mind is that these $4 rx's do effect gross margins, but if someone is on 6 different medicines they are not all on the list. Wal-mart will usually pick up the patients entire profile of medications. This will help to offset the low margin on the generics they are providing. Finally, everyone in pharmacy world knows that some of the worst service provided is from wal-mart. I don't know what their average sales volume was before the $4 program, but I'd wager that it was at the bottom compared to the rest of the chains. In other words they had nothing to lose.

I guess I did ramble, but I would love to get adams thoughts on this.

As always, thanks to everyone for the comments. <...

2008-06-25T21:43:00.000-04:00

As always, thanks to everyone for the comments.

A few quick responses to the questions above:

1) I did not discuss the profits of PBMs or manufacturers because the post is about the changing profit levels within the pharmacy industry. See Drug Channel Profits in the Fortune 500 for my perspective on comparative profits between different types of companies in drug channels.

2) Tom C is correct in pointing out the U&C wins when it is below other reimbursement rates. See my February post The Price Might Be Right and its comments for more on this point.

3) It's hard to generalize about the shakeout, but I do believe that independent pharmacies will survive. However, lower volume and less efficient independent pharmacies without a differentiated niche face a tough future. See my January post Pharmacy Profits & Part D.

As of 9:30 PM today, this post is the second most read article in Drug Channels history. I must have struck a nerve!

Adam

Every PBM contract I ever saw says the pharmacy wi...

2008-06-25T19:51:00.000-04:00

Every PBM contract I ever saw says the pharmacy will be reimbursed at contracted price or usual and customary price, whichever is less. So if the Super Duper Drug Barn is selling generics for $4.00, they are contractually obliged to charge the PBM the same $4.00.

Several PBMs have sent out letters reminding pharmacies of that clause.

Tom Connelly
Sun Pharmacy

Adam,

Do a viewpoint of what you think the ...

2008-06-25T18:21:00.000-04:00

Adam,

Do a viewpoint of what you think the retail distribution channel will look like in 5-7 years. Will we have any stand alone phamacy locations owned by small business ?? You have commented about the "shakeout" that is coming but could you be a little more descriptive??

One thought..

What happens when the generic...

2008-06-25T17:32:00.000-04:00

One thought..

What happens when the generic distribution channels decide they have lowered prices too much? By simply raising prices to a level where Walmart's (or anyone else in the game) cost of goods is more than the $4.00 retail? Plausible??

Is Walmart then going to buy all of the generic manufacturers??

I don't quite understand why we aren't talking abo...

2008-06-25T17:15:00.000-04:00

I don't quite understand why we aren't talking about PBM transparence, or the high profits of the Drug manufacturers. Their profits are much higher than any retail drug store.

Are any of these $4 scripts being run through a cu...

2008-06-25T16:29:00.000-04:00

Are any of these $4 scripts being run through a customers insurance plan?