Comments on Drug Channels: Healthcare Reform: Bullish for PBMs, but Not Pharm...

Tom, The '57 Civil Rights Act was proposed by ...

2009-10-20T18:17:25.612-04:00

Tom, The '57 Civil Rights Act was proposed by a Republican President to a Democratic Congress, and passed both houses by huge margins. The Civil Rights Act of 1964 took considerably more effort on behalf of progressives, but also had hundreds of thousands of people marching in the street, carrying out sit-down strikes, and anything else to disrupt daily life and call attention to a noble cause.

Whether I'm for it or not, I really can't see that kind of broad support happening for healthcare reform, be it now or 7 years from now.

Dr. Fein, You need to go one step further in you...

2009-10-20T09:36:00.878-04:00

Dr. Fein,

You need to go one step further in your analysis. A big cause for all of our health care dollars is chronic disease. Pharamcists need reasonable compensation to provide services to the patients that drive so much of healthcare spending. We also need to stay in business.

If you are correct, then I can look forward to reimbursement getting cut to the bone. If healthcare reform means more margin pressure for those of us on the front lines of patient care, then we will all end up paying more. Does that make sense to you?

I don't know what kind of health care reform w...

2009-10-20T09:29:59.444-04:00

I don't know what kind of health care reform will come out of this session, but I strongly suspect it won't be much. There is, however a silver lining behind this very dark cloud. I am reminded of the Civil Rights Act of 1957. Don't be embarrassed if you've never heard of it, there really isn't a hell of a lot to remember about it; a mere pittance, really - a scrap of leftovers tossed out to "American Negros" (in the parlance of the age) in order to appease them. But it made the passing of the Civil Rights Act of 1964 - the one we remember - all-the-more easier seven years later.

We'll live to fight another day.

http://www.tomdegan.blogspot.com

Tom Degan
Goshen, NY

Adam is right on with today's post. It's m...

2009-10-20T09:28:17.801-04:00

Adam is right on with today's post. It's murky times in the retail pharmacy industry. Maybe not today, and maybe not tomorrow. But slowly, over time, we'll see even more increased margin pressure from PBM's and the payer sources behind them.

New generics are indeed on the way and though they help with the GM %, again it's the dollars that the drug stores take to the bank. With newer pricing mechanisms, pass through savings, and some sort of "AMP" pricing in front of us, the GM $ will be heading south.

Those chains which have initiated "club pricing" will have little flexibility in adjusting generic pricing as it will all be handled for them by the PBM's and payer sources.

Chairs up!

Thx Adam.

Yes, I agree that utilization will be a big benefi...

2009-10-20T09:07:32.568-04:00

Yes, I agree that utilization will be a big benefit especially in combination with the big wave of generics on the way.

I just want to highlight an oft-ignored downside to greater coverage. I also see substantial risks to the future profitability of generics for pharmacies with greater third-party insurance. See Trend #3 in my new pharmacy report.

For the benefit of other readers, keep in mind that CVS Caremark does not disclose gross margins for the prescription portion of their pharmacy business, so the margin figures cited above include many offsetting effects.

Adam

I can't disagree with your comments on the imp...

2009-10-20T08:53:33.742-04:00

I can't disagree with your comments on the impact of cash pay customers dropping out. However, I think the benefits of the increased utilization more than swamp the impact. In the Part D example, CVS' Gross Margins went from 26.8% in 2005 to 27.2% in '06, 29.1% in '07 and 30.1% in '08. There is a lot of other stuff going on in those numbers (simvastatin, the acquisition of Caremark and Savon Osco) but they were able to increase margins by over 300 bps while getting less cash pay. I think utilization will carry the day.