New Comments on PBMs from FTC Staffers

There is an interesting battle brewing down in Mississippi over Senate Bill 2445 (SB-2445), which would shift regulatory authority over Pharmacy Benefit Managers (PBMs) from the Insurance Commissioner to the Board of Pharmacy.

What’s unusual is that Mississippi State Representative Mark Formby asked the Federal Trade Commission (FTC) to opine on the likely competitive effects of SB-2445.

The FTC’s unambiguous conclusion? “We are concerned that SB-2445, if enacted as passed by the Mississippi State Senate, may increase pharmaceutical prices and reduce competition.” Read the complete letter.

There are at least two reasons why you should spend a few minutes reading the letter:

• Here we have another prominent example of aggressive state-level lobbying to enact legislation that is anti-mail, anti-pharma, anti-PBM, and in my opinion, anti-competitive. See The Crazy Battle to Outlaw Mail Pharmacies for a related example from Pennsylvania.

• While the letter to Rep. Formby isn’t an official FTC position, it offers useful insights into the current thinking on PBMs from certain key offices and bureaus of the FTC. I even saw some clues on how the FTC will think about CVS Caremark (NYSE:CVS) or further PBM consolidation.

See below for some choice excerpts from the new letter, along with a bonus trivia question.

Sales Force Effectiveness Summit (sponsor)

I am pleased to welcome eyeforpharma’s 9th Annual Sales Force Effectiveness Summit conference as a Drug Channels sponsor. The conference will be held at the Hyatt Regency in New Brunswick on May 18 and 19. Read more in the official description below or download the brochure.

This event should be particularly valuable for Drug Channels readers with commercial, managed markets, or contracting responsibilities. The sessions cover topics such as key account management, demonstrating value to the payor, and specialty drugs. eyeforpharma has lined up an impressive roster of speakers from companies such as Astra Zeneca, Curascript, Genzyme, Google, Merck, Pfizer, Purdue Pharma, Sanofi-Aventis, Shire, and more.

Please take a moment check out this worthwhile event.

Send me an email if you want to learn more about reaching the Drug Channels audience with your own message.

Walgreen Talks PBM Conflicts, 90-Day Rx Profits, and AMP

Walgreen (NYSE:WAG) reported its latest quarterly earnings on Tuesday. Earnings rose due to cost controls but gross profit growth was below Wall Street expectations. Gross profit margin was unchanged versus the previous year’s period. See Walgreen Profit Rises 10% on Prescription-Sales Growth from The Wall Street Journal or the links below to the original source materials.

Going beyond the financials, I heard some very intriguing statements on the call regarding three timely topics:

• Walgreen sold its PBM in part because of “the inherent conflict of owning a PBM.”
  

• The 90-day at retail program is gaining traction, but will likely have a slightly negative profit impact.

• AMP doesn’t appear to be freaking anyone out, although management claims it’s “too early to speculate on the eventual timing and impact.”

Don’t feel like wading through whole transcript? Never fear, dear reader. Below you’ll find the choicest selections, hand-picked for your perusal.

Get Your Specialty Strategy Ready for the End of Buy-and-Bill

I counsel my biopharmaceutical manufacturer clients that commercial strategies for specialty drugs are much more complex than strategies for traditional drugs. The options for service, financial, and channel flows are highly varied and must be customized for each product.

A new payer survey—The 2010 ICORE Healthcare Medical Injectables & Oncology Trend Report (free download)—provides intriguing new data about the buy-and-bill physician market to support my assertion.

Insurance coverage for specialty and injectable drugs is migrating from a medical benefit to a pharmacy benefit. As I highlight below, the combination of "brown bagging" and "white bagging" is already making major inroads at the physician office.

Why should you care?

• Biopharmaceutical manufacturers will need more complex contracting and commercialization strategies to avoid overlapping discount structures, prevent diversion, and manage regulatory risks.

• Specialty pharmacies that are subsidiaries of the big three PBMs—CVS Caremark (NYSE:CVS), Express Scripts (NASDAQ:ESRX), and Medco Health Solutions (NYSE:MHS)—have a large emerging business opportunity after the generic wave.

• The specialty distribution businesses of AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK) will lose influence as the traditional physician “buy and bill” channel fades.

Pay close attention. The future has already arrived, whether you are prepared or not. Email me if you are a manufacturer and want to chat privately about how these developments could affect your plans.

Medco Responds to the CalPERS Situation

On Friday, Medco Health Solutions (NYSE:MHS) formally responded to allegations about the company's actions related to the California Public Employees' Retirement System (CalPERS) PBM business. Click here to read the 8-K filing with the response.

Below are links to a few news stories about this situation in case you haven't heard about it yet. Briefly, Medco was mentioned in a report on alleged corruption at CalPERS, which then terminated negotiations for renewing a contract with Medco. Chairman and CEO David Snow has unambiguously defended Medco's "integrity."

Medco's latest response suggests that the relationship with an outside consultant was appropriate. More significantly, the independent directors of Medco's Board have determined not to conduct an internal investigation at this time.

At this point, I do not expect a broader impact for the PBM industry as a whole, but reserve the right to change my mind as the story unfolds.

Meet Me at the PBM and Specialty Pharmacy Summit

As an FYI to Drug Channels readers, I want to let you know that I will be at PCMA's PBM & Specialty Pharmacy Summit on March 28 through 30. The meeting is sold out, so this is unfortunately just an informational post.

I'll be speaking on "The Future of Co-Pay Discount Cards." For a taste of the controversy on the topic, see How Bargain Lipitor Could Raise Health Costs from Forbes. Drop me a line if you want to share your opinion about co-pay offset programs with me. Your comments will be off the record, on the QT, and very hush-hush.

You can also send me an email if you’d like to arrange a one-on-one meeting in Florida. And if you happen to run into me, please introduce yourself. I'm always interested in chatting with Drug Channels readers.

Pharmacies Raise Prices Faster Than Manufacturers: GAO Report

Today's Wall Street Journal reports that manufacturer list prices for many top drugs keep rising. Coincidentally, the U.S. Government Accountability Office (GAO) just released its latest analysis of prescription drug prices: Trends in Usual and Customary Prices for Commonly Used Drugs (GAO-11-306R).

Here’s a surprise buried in the GAO report: Retail pharmacies raised the prices of brand-name drugs to cash-pay consumers faster than manufacturers raised the list prices of those same drugs. (See the chart below.)

As Chief O'Hara would say: Mother McGillicutty!!

Before you scribe a nasty comment about how I hate pharmacies (which I don’t), please take a wee moment to look at the GAO's data sources and my observations below.

The Fight Against Counterfeit Drugs (video)

Last night, 60 minutes ran a 13 minute story called "The Fight Against Counterfeit Drugs," narrated by America's favorite medi-journalist Dr. Sanjay Gupta. The video is embedded below.

The story is reasonably well told, with examples of counterfeit drugs from Pfizer, Lilly, and others. Dr. Gupta cites the fact that an estimated 36 million people from the U.S. have purchased medicines from "rogue" online pharmacies, many of which claim (falsely) to be from Canada. As one U.S. customs officer says, fake drugs are "a big threat and an exploding threat."

The last third of the story gets a bit muddled because it intermingles the dangers of knock-offs with the risks of contamination in the legitimate supply chain. As a result, offshore production looks more dangerous than it really is.

Nevertheless, the video is worth watching. Check it out below and let me know what you think.

SOLD! Thoughts on the Catalyst-Walgreen Deal

Yesterday, Catalyst RX (NASDAQ:CHSI) agreed to purchase Walgreens Health Initiatives (WHI), the PBM subsidiary of Walgreen (NYSE:WAG), for $525 million. Here are the respective press releases:

• Catalyst Health Solutions to Acquire Walgreens Health Initiatives for $525 Million
  
  
• Walgreen Co. to Sell Pharmacy Benefit Management Business to Catalyst Health Solutions, Inc.

This is a big move for Catalyst, which vaults ahead of its competitors to become the fifth largest PBM behind the Big 3 PBMs—CVS Caremark (NYSE:CVS), Express Scripts (NASDAQ:ESRX), and Medco Health Solutions (NYSE:MHS)—and United Health’s (NYSE:UNH) Prescription Solutions. Even so, Catalyst will have less than 5% of the total U.S. prescription volume vs. about 70% for the top four. The company’s stock price jumped 19% yesterday on the news.

I want to highlight a few implications of the transaction for the PBM and pharmacy industries:

• What does the deal mean for Walgreens?

• What does this signal about the PBM industry?

• What does the deal mean for CVS Caremark?

The Crazy Battle to Outlaw Mail Pharmacies

Here’s the newest anti-mail strategy from pharmacy owners: If you can’t beat mail, just make it illegal in your state!

Friday’s New York Times describes anti-mail legislation in Pennsylvania and New York that is being marketed under the banner of “freedom of choice.” See Pharmacists Fight the Rise of Mail Order, which features comments from yours truly.

In reality, these bills would prohibit just about every tool available to plan sponsors and governments to manage dispensing and distribution costs. If the law passes, say goodbye to differential co-payments for mail-order pharmacies, preferred networks, and just about anything else that could possibly make a retail store-based pharmacy compete for a payer's business.

In addition to raising costs for payers, the bills would hurt Pharmacy Benefit Managers (PBMs) and at least two major pharmacy chains. Manufacturers of specialty pharmaceuticals should care because your limited distribution strategy would become illegal in Pennsylvania. See my comments below for the unpleasant details.

How are these bills anything more than a self-interested and anti-competitive attempt by pharmacy owners to protect their profits at the expense of taxpayers and employers?

Drug Channels News Roundup: March 2011

Time for a post-Oscars rundown of noteworthy news stories from the Drug Channels universe. In this issue:

• True Grit: GPOs question Medtronic’s recent move

• The Fighter: Hal Rosenbluth departs Walgreens

• Inception: NCPA tries to implant a bogus idea about generic dispensing rates

• Toy Story: A sneak peek at Apple’s next major product release—the iHand!
  

Medtronic Dumps Novation: Why GPOs Should Worry

In case you missed the big news, medical device manufacturer Medtronic (NYSE:MDT) canceled five contracts for cardiovascular and orthopedic products with Novation, the largest healthcare Group Purchasing Organization (GPO). The total annual value of the canceled contracts is reportedly $2 billion. Here’s the official announcement from Novation: Medtronic Inc. Cancels Cardiovascular and Orthopedic Contracts with Novation.

As I see it, Medtronic is questioning the core of a GPO’s business model—pooling member purchase volumes in exchange for lower prices from manufacturers and wholesalers. Medtronic is the first company to make such a bold public move against GPOs, but other manufacturers are already rethinking their channel and contracting strategies.

So, you can add "direct contracting" to the list of existential mega-threats facing the GPO industry. My list of the top four challenges appears below. Email me if you want to chat about the strategy implications.

And if you’re curious about second derivatives, a weaker GPO industry would likely be a net positive for wholesalers, particularly Cardinal Health (NYSE:CAH).