This is the second of four posts about major health care trends that I am watching for 2007. The first trend is:
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.