Tuesday, March 26, 2024

Drug Channels News Roundup, March 2024: My $0.02 of CarelonRx/Kroger & CVS, Provider-Owned Pharmacies, Shady AFPs, 340B Deception, and Lilly’s GLP-1 Ad

It’s finally spring in Philadelphia, home of Drug Channels. Along with sunshine and fine weather, the vernal equinox has ushered in a crop of new and noteworthy stories:
  • What the CarelonRx/Kroger specialty pharmacy deal means for CVS Health
  • Provider-owned specialty pharmacies expand in Medicare
  • Payers are not keen on shady alternative funding programs (AFP)
  • Hospitals’ association spreads 340B misinformation
Plus, Lilly trolls our nation’s celebrities.

P.S. Join my nearly 54,000 LinkedIn followers for daily links to neat stuff.

What’s ahead for the drug channel? Find out during Drug Channel Implications of the Inflation Reduction Act, a new live video webinar with Adam J. Fein, PhD. Click here to learn more and reserve your spot at our April 5 webinar.

Kroger Announces Definitive Agreement for Sale of Its Specialty Pharmacy Business, PR Newswire

CarelonRx, the PBM (formerly known as IngenioRx) that is owned by Elevance Health, is buying Kroger’s struggling specialty pharmacy.

For 2023, Kroger was the ninth-largest dispenser of specialty drugs. (See Exhibit 51 in DCI’s new 2024 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.) DCI estimates that specialty prescription revenues at Kroger stores and Kroger Specialty Pharmacy were $3.2 billion for 2023—down -19% compared with the 2022 figure. The two biggest factors behind Kroger’s shrinking specialty position have been the company’s exit from the Express Scripts pharmacy network and its minimal access to limited specialty pharmacy networks.

Meanwhile, Elevance Health is getting ready to replace CVS Health. Since 2019, CVS Health has provided such PBM administrative functions as claims processing and prescription fulfillment services for CarelonRx. That’s why CVS Health currently includes the CarelonRx prescription claims within its financial reports, as shown in our PBM market share analyses. This agreement runs through 2025.

Consequently, CarelonRx has announced multiple investments and initiatives that will expand its internal dispensing capabilities and reduce its dependence on CVS Health. These activities include its acquisitions of BioPlus Specialty Pharmacy and Paragon Healthcare, the launch of CarelonRx Pharmacy, and its investments in the DomaniRx PBM claims administration platform currently in development. (See Section 5.2.2. of our new pharmacy/PBM report.) Get ready for the breakup!

Trends in Integration Between Physician Organizations and Pharmacies for Self-Administered Drugs, JAMA Network Open

Hospitals, physician practices, and other healthcare providers have become significant participants in the specialty pharmacy marketplace. According to DCI’s analyses, they now account for 40% of all accredited specialty pharmacies.

This neat study examined pharmacies owned by independent and hospital-owned physician practices. The authors examined dispensing to Medicare beneficiaries by five specialties: medical oncology, urology, infectious disease, gastroenterology, and rheumatology. As you can see below, the share of Medicare Part D spending filled at in-house pharmacies grew substantially from 2011 to 2019.

[Click to Enlarge]

You won’t be surprised to learn that 340B hospitals were much more likely to have an in-house pharmacy, consistent with my observations in Vertical Integration Lessons: The Economics and Strategies of Hospital-Owned Specialty Pharmacies.

Payers Troubled by Rise of Alternative Funding Programs, MMIT

In Employers Expand Use of Alternative Funding Programs (AFPs)—But Sustainability in Doubt as Loopholes Close, I highlighted intriguing survey data showing that a majority of employers and health plans believed that AFPs are not sustainable.

This MMIT article provides deeper context by highlighting payers’ specific problems with shady alternative funding programs. Payers’ concerns included:
  • Negative financial impact on payers
  • Reduction in the payer’s ability to control access and manage the cost of expensive drugs
  • Disruption of clinical strategies, including problems with therapeutic interchange
  • Lower patient adherence to prescribed medications
  • Long-term availability of funding
  • Compliance risks over AFPs’ legal status
I encourage you to read the full article, which includes troubling verbatim commentary from medical and pharmacy directors.

Collective giving by the largest 12 pharmaceutical manufacturers’ charitable foundations was about $27 billion in 2022. With so much money sloshing around, we can expect AFP vendors to keep pitching their services. But plans seem to be figuring out what’s really going on.

The 340b Drug Pricing Program: A Small Part of The Prescription Drug Market, Delivering Large Benefits To Patients And Communities, Report prepared for the American Hospital Association by Healthsperien

When the facts are too inconvenient, I guess the ideal strategy is to misrepresent the data. That’s exactly what the American Hospital Association (AHA) has done.

AHA wanted to show that the 340B Drug Pricing Program is “a small share of drug company revenues.” So, it hired consulting firm Healthsperien to quantify the size of hospitals’ 340B discounts compared with manufacturers’ revenues.

Healthsperien dutifully complied by sourcing “Total Drug Company Revenues” using the “overall pharmaceutical expenditures” figure of $633.5 billion reported in National trends in prescription drug expenditures and projections for 2023, an article published in AJHP.

Alas, the $633.5 billion figure does *not* actually equal manufacturer revenues. That’s because this figure was based on IQVIA’s National Sales Perspective (NSP), which reflects purchases by hospitals, pharmacies, and other pharmaceutical purchasers. However, NSP excludes such off-invoice price concessions as manufacturer rebates to PBMs and other payers.

Consequently, Healthsperien's denominator does not reflect net manufacturer revenue (because it excludes rebates but includes distributor margins), nor does it equal what U.S. payers spent for pharmaceuticals (because it excludes margins earned by hospitals, pharmacies, et al.)

Here’s a comparison of the Healthsperien figures vs. manufacturers’ total net revenues (as computed by IQVIA). As you can see, the value of hospitals' 340B discounts actually equaled 11% of manufacturers’ net revenues. But since hospitals fall within the non-retail category of the IQVIA data, the value of hospitals' 340B discounts equaled a whopping 29% of manufacturer non-retail net revenues.

[Click to Enlarge]

P.S. Attentive readers may have noticed that Healthsperien also failed Pie Chart 101, since the sum of the slices equals $680.5, rather than the incorrect figure of $633.5.¯\_(ツ)_/¯

Big Night, Lilly

Check out this intriguing new Lilly ad, which pushes back on people using GLP-1s "never meant for them...for vanity" vs. people taking obesity drugs for health.

Here’s the best part: The ad was released on the night of the Academy Awards. LOL!

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