Tuesday, December 18, 2012

Drug Channels News Roundup: December 2012 (Gangnam Style)

The holidays are here. Before you hit the mall, check out this hand-picked selection of notable news stories from around the Drug Channels universe.
  • A Lump of Coal—Should plan sponsors be saving even more money when brands lose exclusivity?
  • Anti-Stocking Stuffer—90-days supplies can be wasteful, but mail is no better (or worse) than retail
  • The Ghost of Health Reform Future—A look at EHB benchmarks show skimpy coverage in some states
  • Reindeer Games—Walgreen sells a small wholesale business
Plus, the inevitable pharmacy-themed "Gangnam Style" video has arrived, courtesy of some UCSF pharmacy students with waaaaaay too much time on their hands. Enjoy?

Focus on the Patent Cliff To Maximize Generic Savings
Here’s a fascinating behind-the-scenes look at how retail prescription prices translate into plan sponsor costs. Linda Cahn, a long-time critic of Pharmacy Benefit Managers (PBMs), advises plan sponsors on PBM contracting. She argues that PBMs are not passing through the savings from newly-launched generics. While Ms. Cahn criticizes certain PBM business practices, she also highlights the fact that payers have the opportunity to make well-informed business decisions about PBM contracts. In a free market economy, the operative lesson is Caveat Emptor (Let the buyer beware). Bigger question: Do people even need prescription insurance for generic drugs that end up costing so little?

Comparing Medication Wastage by Fill Quantity and Fulfillment Channel
You may be familiar with the NCPA’s "Waste Not, Want Not" anti-mail campaign, which argues that mail pharmacies are wasteful. The NCPA’s argument is fundamentally incomplete because the NCPA assumes near-zero waste from retail-dispensed prescriptions. In contrast, this peer-reviewed new study finds no significant wastage difference between retail or mail pharmacies for 90-day supplies. However, there was more overall waste from 90-day prescriptions in 8 of the 14 therapeutic categories. A rebuttal argues that 90-day supplies are more wasteful, regardless of channel. Ironically, the study was funded by Walgreen, which has been pushing 90 day scripts.

EHB Benchmark Formularies Vary Greatly State to State
In Prescription Drugs in CMS' New Essential Health Benefits Proposed Rule, I point out that actual pharmacy benefit design will be linked to each state’s definition of its benchmark plan. These requirements will apply to plans within health insurance exchanges as well as non-grandfathered private health insurance options in the individual and small group markets. The policy wonks at Avalere Health created an informative map showing the variation around the country. Twenty-two states will require formulary coverage for more than 90% of drugs, while twelve states will require coverage for only “45% to 76%” of all drugs. California is one of the states with the skimpiest coverage. Crazy.

L&R Distributors Acquires SAJ Distributors from Walgreens
In Shopping Spree! Walgreen Snaps Up USA Drugs, I note that Walgreen (NYSE: WAG) picked up SAJ Distributors, a small wholesaler with its acquisition of regional drugstore chain USA Drugs. Given the many rumors flying around about Walgreen’s plan for wholesaling, it’s interesting to note that Walgreen divested this small wholesaler. The move makes sense, as it would be mighty tricky for Walgreen’s to own a wholesaler that supplies competing pharmacies. Or would it?

Oppa Pharmacy Style
I suppose this video had to happen sooner or later. Credit goes to Tony Huynh and Johnny Rau. Hopefully, 2013 will see a marked reduction in Gangnam Style parody videos. Click here if you can't see the video.


  1. Here's a thought, have employees utilize their drug benefit for brands and specialty, but put a block on all generics. Yes, they are so cheap that employees can/should pick up the tab and shop around. In the end the employer and employee save as overall plan costs go down.

  2. Sorry had a second comment about buyer beware.  HR-VPs are generally clueless about health benefits and have therefore come to rely on benefits brokers/consultants to do that part of their job for them. The consultant/ brokers are generally clueless (truly unaware) or crooked (aware, involved, and profiting from it) when it comes to PBM shenanigans. Therefore, most everything that employers know about "the game" comes from bad guidance. How in the world can they make an informed decision?

    Further, the "game" has not been fully exposed in the media because the media can't figure out to tell it and/or make money off it. The many facets around fully understanding and comprehending  "the retail drug channel" is too hard....which goes back to the problem of crooked/clueless consultants.....and the bands play on

  3. That is a very corny video!!!

    Thanks for another great year of insights, Dr. Fein!!

  4. Adam- You frequently hype the importance and applicability of 'Caveat Emptor' in a free market economy, usually when defending PBMs. Since our economy is not purely free market, would you address the different ways the courts have shifted some of the responsibility to sellers (PBMs)? For instance, the frequently higher standard that sellers have been held to when a casual inspection fails to identify the flaw, defect, or (in some cases) fraud. Since Caveat Emptor is not ironclad, I think there is some real value in digging deeper to start a dialogue about PBM-sponsor relationships as well as PBM-pharmacy relationships. Thank you.

  5. Rudolph,

    Thanks for taking from your busy preparations to comment.

    I really don't understand your point about the courts. It is common sense that plan sponsors should be smart shoppers and good negotiators. They could also hire people like Ms. Cahn to help.  Frankly, "caveat emptor" is  good advice, regardless of what you are buying.

    Enjoy your ride next week!


  6. Adam- Here is my point. If Santa buy a new sleigh, and takes it for a test drive, checks under the hood, reads the consumer reports and overall performs his due diligence, then drives away and immediately some component breaks that isn't covered under warranty (let’s say the radio breaks), Caveat Emptor is not the law or the final word in that situation. The seller actually has a responsibility to operate in good faith and provide some guarantee that the product is whole and is representative of what was offered in the sales pitch.
    Basically, I am wondering what obligations the PBMs have, because based on what Linda Cahn has written, and what I have seen personally, the plan sponsor often negotiates carefully, is told they will get retail pass-thru pricing, signs the contract with a company who is supposed to ‘manage their prescription benefits’ and then finds out the contract was not negotiated in good faith and indeed the product (contract) they received was defective, even though the buyer was beware. Or where the PBM classifies a drug as a brand when charging the plan sponsor then pays the pharmacy as if it was a generic. At what point in the negotiations should the purchaser request that a definition included in the contract not change in the course of one transaction?
    I feel there have been times that you hide behind caveat emptor, which everyone agrees is a good rule of thumb when you are the buyer, but the point that many people have made is caveat emptor is not the only operative factor in these negotiations. What is the PBMs responsibility or who is regulating them to actually protect the buyer in these negotiations where the buyer WAS AWARE? What do the courts say? Thanks, Adam.

  7. step therapy, prior auth, formulary, tier, preferred/non preferred, narrow network, rebates... Who outside pbm employees have clear idea as to what all these mean?  The fact that providers can get away with rolling out these "programs" suggest that they have too much power.  There will be a tipping point, and it will come within 5 years.  And it will be ugly.

  8. Ms. Cahn may disagree with your characterization of her as "crooked/clueless."