Tuesday, January 02, 2007

2007 Trends: Lobbying for Pharmacy Profits (2 of 4)

This is the second of four posts about major health care trends that I am watching for 2007. The first trend is:
Trend 2: Lobbying for Retail Pharmacy Profits

I believe that we are on the verge of a political debate about the most cost-effective way to dispense drugs. Profits on generic drugs now subsidize the branded pharma supply chain for wholesalers, retail pharmacies, and PBMs products. Generic margins are under pressure, most immediately under the proposed AMP rules for Medicaid. (I’ll comment more on AMP shortly.) Wal Mart Stores Inc (WMT) generic price war, which is premised upon this retail profit model, will heat up once it adds newer blockbusters such as generic Zocor (simvastatin). Independents continue to claim harm due to the “low and slow” (their words) payments by PDPs under Medicare Part D. BTW, I still maintain that Wal-Mart's $4 generic program will hurt supermarkets and independents more than major chains such as CVS Corp (CVS) or Walgreens (NYSE WAG).

The retail pharmacy industry now realizes that the reimbursement debate will not be fought solely on the basis of economics. Just look at the TRICARE situation. NACDS and NCPA lobbied successfully to remove mail order provisions from the 2007 National Defense Authorization Act even though the Congressional Budget Office estimated that the Pentagon could save $1.5 billion from 2007 to 2016 if the mail-order-pharmacy option was signed into law. Similar efforts are now underway to mitigate the effects of the projected $8.4 billion savings from the Deficit Reduction Act.


  1. Surely, Dr. Fein, you don't believe that mail order drugs will save the government $1.5 billion dollars. Actually there are two things here one could disbelieve: 1) a government report; 2) mail-order lowers cost.

  2. Your statement that generic profits are proping up most drug stores is very accurate. If this goes away (or seriously limited), then the drug chains will be in big trouble. It is very hard to pay today's pharmacists salaries on true drug cost plus a small dispensing fee.

    The future is in automated dispensing, central fills and mail out pharmacies (highly automated).

    The good news for pharmacists is that this will allow them to get into more clinical roles and truly help patients with diseases that need close monitoring (diabetes, CHF, hypertension, Alzheimer's, Parkinson's, etc). Pharmacists are very well equipped to monitor and titrate drug therapy where it is important that the disease requires it.

  3. Dr. Fein:

    Retail drug stores will continue to struggle until they focus on customer service. For anyone in healthcare, this means Improving Outcomes.

    Retailers have added Photo Kiosk's, In-Store Clinics and $4.00 generics. CVS called In-Store Clinics a Game Chaqnger. "Ha"
    Were is the innovative solution?
    Wal-mart started a $4.00 generic program that only sqeezes margins without providing any real health benefit to the consumers that use these products.

    Remember, people only get a Prescription filled to fight an illness, manage a condition or simply stay alive. The foundation for Retail Pharmacy is Prescription Medication. Convienence, Selection, pricing are only secondary requirements to be competitive.

    We know that medication works great in clinical studies. We also know that people are not acheiving the same clinical results. Real life results are not indicitive of the true benefits of prescription medicine. This results in reduced customer satisfaction and lower script yield.

    Companies that manufacture, market or sell Pharmacetical Treatments know that consumers are not good medicine takers yet they continue to ignore the "Golden Goose".

    Helping their customer's become better medicine taker's will result in higher script yields and Improve Outcomes in Pharmaceutical Outpatient Therapy.

    If someone in Pharmacy want's to implement a Game Changing event, they only need to help their customer's with a problem that has plagued healthcare. Improving consumer Compliance, Adherence and Persistence improves outcomes, generates more revenue and garner's customer appreciation and loyalty yet this issue remains largerly ignored. Safety Matters. Outcomes matter. ADE affect real people AND their families yet the most profitable game changing event in Pharmacy remains ignored.

    Until Then.

    Craig Schreiber

  4. I received the following email from a pharmacist in repsonse to this post. He did not want to post himself, so I am reproducing it verbatim:

    "Dr. Fein: I read your blog on a regular basis and I think you are very correct in most of your opinions about the Wal-Mart generic situations and the impact on pharmacies.

    I would like to take it a step further and give you my opinion on what impact this will have on the practice of pharmacy in the US. I have been in Pharmacy for 35 years.

    It appears that drug stores (primarily chains) receive most of their profit from generics today. This is very different than 15 years ago. As AWP pricing goes away, so will profits. Chains will not be able to put a pharmacy on every corner and pay pharmacists $100,000+ in this new environment. They presently make most of their profits in the pharmacy department (not the front end)

    So, what will this lead to? A quick interest in automation will result. Fewer stores, higher volume of RXs, fewer pharmacists will be the result of this transition. Interest in “Central filling” in large towns, more mail-out pharmacies (utilizing technology from the Veteran’s Administration automation) and a drug dispensing machine in every store.

    And this will lead to…an excess supply of Pharmacists in the retail world.

    Fortunately, the newer pharmacists (PharmD trained) are well equipped to be patient care managers. This job will be much more satisfying for them and will add value to our healthcare system. Talk to any serious diabetic today and they get very little attention from their primary care provider---they are just too busy to talk to them, encourage them, and tinker with their medicine regimen. Pharmacists are very well equipped to titrate doses, educate patients and monitor them on a regular basis. Many studies have shown that pharmacist-based Coumadin clinics provide much better outcomes (patient bleeds, achieving therapeutic levels) than those run by Cardiologists or family practitioners. Pharmacists could handle the routine care (monitoring and dose titration) of these diseases: Diabetes, Parkinson’s, CHF, Epilepsy, Hypertension, Lipids, and Alzheimer’s.

    Thanks for allowing me to give you these comments. Please feel free to use them but I would prefer that my name not be mentioned (the retail pharmacy world may view me as a traitor). I am convinced that the generic profit issue will lead to many changes for the retail pharmacy industry and pharmacists who work in it---and they will not be all bad."

    Great comment!