Drug Channels News Roundup, February 2025: Part D vs. Pharmacies, Accumulator Madness, Wholesaler Vertical Integration, IRA vs. MDs, and a 340B Cartoon

Winter—or at least February—is almost over. Celebrate the imminent return of spring with our selection of noteworthy news from around the drug channel. In this issue:

• How Part D plan sponsors responded to pharmacy DIR changes

• Troubling new data on copay accumulators in marketplace plans

• DCI’s latest vertical integration visualization

• How the IRA will hurt physician practices

Plus, cartoon cats explain the 340B Drug Pricing Program.

P.S. Join my more than 60,000 LinkedIn followers for daily links to neat stuff along with thoughtful and provocative commentary from the DCI community.

CVS Pharmacy Downsizes: 10 Industry Trends Driving the Retail Shakeout

ICYMI, CVS Health recently announced that it will close about 900 of its retail pharmacies. This downsizing complements the company’s shift toward its healthcare delivery future.

This long-overdue move highlights the retail industry’s fundamental economic headwinds. The pharmacy shakeout is accelerating, as smaller competitors exit and larger companies reduce store count.

To help you make sense of CVS’s move, below I outline 10 crucial forces of change reshaping the retail pharmacy industry.

For more on pharmacy’s future, please register for Drug Channels Outlook 2022, my live video webinar that will air on December 17, 2021.

Drug Channels News Roundup, August 2021: OptumRx’s New GPO, Pharmacy DIR Fees, State Biosimilar Laws, UM Views, and a Newspaper Delivers

Our not-quite-post-pandemic summer is coming to an end. Time to pack away the bathing suit and get serious again—with these curated curiosities combed from the now-barren Drug Channels beach:

• OptumRx joins the PBM GPO game

• Pharmacy DIR fees hit $11 billion

• A terrific resource on state biosimilar laws

• Patient views on utilization management

Plus, my social media success…from a (print) newspaper ad!

P.S. Please join the more than 12,100 consumers of my daily commentary and links to neat stuff at @DrugChannels on Twitter. You can also find me on LinkedIn, where I have more than 19,500 followers. Recent topics have included: Express Scripts’ 2022 formulary exclusion list, Amazon’s pharmacy, generics in Part D, 340B research, zero-dollar copay, pass-through rebates, PBMs’ spread pricing, Rite Aid’s Bartell deal, healthcare pricing trends, the DSCSA, John Venn, and more.

Pharmacy DIR Fees Hit a Record $9 Billion in 2019—That’s 18% of Total Medicare Part D Rebates (rerun)

This week (Monday through Thursday), I’m rerunning some popular posts. Click here to see the original post and comments from February 2020.

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Pharmacy-related price concessions in Medicare Part D—known as pharmacy DIR fees--have grown faster than most people realize.

We estimate that these payments reached $9.1 billion in 2019. This figure indicates that about 18% of total Medicare Part D rebates are now paid by pharmacies, not manufacturers. Details below.

To address concerns about how these fees are computed, the Centers for Medicare & Medicaid Services (CMS) has proposed some minimal transparency requirements for monitoring the metrics behind DIR fees. I suspect that the proposal will have no near-term impact on slowing the growth trends.

Our long time readers know that I’ve been skeptical about pharmacy owners’ claims regarding the impact of DIR fees. But it does now appear that these payments have become a significant economic burden. When the facts change, I change my mind. What do you do?

The State of Retail Pharmacy 2020 (video)

Thanks to everyone who joined me for DCI's Industry Update and COVID-19 Impact video webinars. I enjoyed putting these events together and hope you benefited from watching them. If you missed these two live events, click here to find out how you can watch the replays.

Below is a brief video excerpt from my May 1 video webinar. In this clip, I summarize the perilous competitive dynamics facing retail pharmacies.

P.S. We are still experimenting with how best to use our new Drug Channels Video platform. Please drop me a line with any feedback or suggestions.

Pharmacy DIR Fees Hit a Record $9 Billion in 2019—That’s 18% of Total Medicare Part D Rebates

Pharmacy-related price concessions in Medicare Part D—known as pharmacy DIR fees--have grown faster than most people realize.

We estimate that these payments reached $9.1 billion in 2019. This figure indicates that about 18% of total Medicare Part D rebates are now paid by pharmacies, not manufacturers. Details below.

To address concerns about how these fees are computed, the Centers for Medicare & Medicaid Services (CMS) has proposed some minimal transparency requirements for monitoring the metrics behind DIR fees. I suspect that the proposal will have no near-term impact on slowing the growth trends.

Our long time readers know that I’ve been skeptical about pharmacy owners’ claims regarding the impact of DIR fees. But it does now appear that these payments have become a significant economic burden. When the facts change, I change my mind. What do you do?

The State of Retail Pharmacy: Independent Pharmacy Economics Stabilize—But Dropping, Owner Salaries Are

Time for Drug Channels’ exclusive look at independent pharmacy owners’ business economics. For Episode XI of our annual review, we again draw upon the latest data from the National Community Pharmacists Association (NCPA) Digest, Sponsored by Cardinal Health. Here's the press release for the recently released 2019 edition.

Below, I update our estimates of pharmacy economics and margins. Our analysis reveals that profits per prescription in 2018 were unchanged from the 2017 figures. However, the average pharmacy in the NCPA sample filled fewer prescriptions, causing the average pharmacy owner’s salary to decline for the fifth consecutive year.

Read on for our look at pharmacy profits and my comments on the competitive dynamics of retail pharmacy. How many independents will survive? Difficult to see. Always in motion is the future.

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Drug Channels Institute will host an exclusive live webinar, Drug Channels Outlook: What You Need to Watch in 2020, on Friday, December 13, 2019, from 12 p.m. to 1:00 p.m. ET. Get ready for what will certainly be another year of change for U.S. healthcare. CLICK HERE TO LEARN MORE AND SIGN UP.

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Winning? CVS, Kroger, and Walmart Expand in 2020 Part D Preferred Pharmacy Networks

In Preferred Pharmacy Networks Rebound in 2020 Medicare Part D Plans, I highlighted how those networks will again dominate next year’s Medicare Part D prescription drug plans (PDP).

Today, I examine chain pharmacies’ participation in the major 2020 Part D preferred networks that the nine largest plan sponsors offers. Some highlights:

• CVS will retain its position as a preferred pharmacy in many 2020 networks, while Walgreens will pull back on its preferred pharmacy participation. 

• For the first time in years, Rite Aid will expand its participation in plans that are independent of its EnvisionRx subsidiary.

• Walmart will regain its position as the chain most committed to preferred networks. Kroger and Albertsons will maintain the strong positions that they have established over the past few years.

Below, we provide you with a handy table for scoring each chain’s participation and all changes from 2019 to 2020.

The winners will gain and/or retain Part D prescription volume, but profits will suffer due to direct and indirect remuneration (DIR) price concessions, a.k.a., DIR fees. The retail chains have never clearly disclosed how they tradeoff prescription volume for profits. Remember: you can’t spell “pyrrhic victory” without victory.

Preferred Pharmacy Networks Rebound in 2020 Medicare Part D Plans: Details on WellCare, CVS Health, Humana, Cigna, and More

The Centers for Medicare & Medicaid Services (CMS) has released its data on the 2020 Medicare Part D plans.

Our exclusive analysis of these data reveals that preferred cost sharing pharmacy networks will maintain their dominance as an established component of Part D benefit design. For 2020, 95% of Medicare Part D regional prescription drug plans (PDP) will have a preferred network. In 2019, 92% of plans had such a network.

Below, I provide historical data on preferred networks’ growth and then discuss the top nine companies offering the 2020 plans. Humana is the only major plan sponsor to offer a national plan with an open network for 2020.

The prominence of preferred networks will again pressure pharmacy profits. That’s because pharmacies must pay direct and indirect remuneration (DIR) price concessions, a.k.a., DIR fees. In my next post, I’ll examine chain pharmacies’ participation in these plans and what it means for pharmacy profits.

P.S. Today’s post is brought to you by the letter D.

Drug Channels News Roundup, August 2019: Amazon Insanity, Diplomat’s Final Days, Express Scripts DIR Fees Exposed, and a Rebate Cartoon

Another news-laden summer is coming to an end. Time to pack away your bathing suit, send the kids back to school, and savor these curated curiosities that have washed up on our Drug Channels shore:

• Amazon, PillPack, and collective insanity

• For Diplomat Pharmacy, the end is nigh

• Fresh info on Express Scripts’ DIR fees

Plus, a cartoon about … rebates?

P.S. @DrugChannels on Twitter is approaching 8,000 followers. Recent tweets have explored generic drug prices, importation, the retail pharmacy shakeout, hospital economics, ICER, Yoda, and more. Follow me for daily insights and cool links.

Independent Pharmacy Economics Keep Deteriorating (rerun)

This week, I’m rerunning some popular posts while I attend Asembia’s 2019 Specialty Pharmacy Summit.

Click here to see the original post and comments from January 2019.

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Time for Drug Channels’annual look at independent pharmacy owners’ business economics, drawn from the recently released 2018 National Community Pharmacists Association (NCPA) Digest, Sponsored by Cardinal Health. Here's the press release: NCPA Releases 2017 Digest.

Below, I update our estimates on pharmacy economics and margins. Our analysis reveals that independent pharmacy owners have faced another year of deteriorating finances.

What's more, we estimate that in 2017, the average pharmacy owner’s salary fell to a level comparable to that of an employed pharmacist. Owning a pharmacy, with all of its hassles and additional obligations, now brings the same reward as being an employee. I wonder how many owners will conclude that it’s barely worth the risk and effort.

Read on for our look at pharmacy profits and some comments on the industry’s competitive dynamics, including the financial impact of direct and indirect remuneration (DIR) fees.

The pharmacy consolidation endgame is getting closer. The next time you see a pharmacy owner, offer your condolences.

The Road to 2020: Understanding the Regulatory Timeline for Part D Rebate Reform

The Department of Health & Human Services (HHS) keeps signaling that it wants to move us toward a world without rebates. Right now, it is evaluating comments on its proposal to remove rebates from federal programs. HHS wants to implement this rule in time for the January 1 start of the 2020 Medicare Part D plan year.

I would like, if I may, to take you on a journey through the 2019 regulatory timeline for both Part D and the proposed rule. As you will see, there is still a viable—but narrow—window for regulatory reform of rebates.

Despite our assessment, you should know that in the Medicare program, there are many implementation and logistical challenges in shifting rapidly toward a world without rebates. I outlined some of these issues in last Friday’s webinar: Preparing for a World Without Rebates. Don’t worry if you missed the live event. You can watch a replay and download the complete slide deck. CLICK HERE TO WATCH THE REPLAY.

In the meantime, read on for our look at the rest of 2019. I can see you shiver with antici...pation.

Drug Channels News Roundup, January 2019: Part D Plan Profits, Hospitals vs. Drugs, and BS in Healthcare

L.A. vs. New England! Youth vs. experience! Kale vs. chowdah! Yes, it’s time for a weekend of blow-out commercials, occasionally interrupted by a football game.

Before you start training to gorge at your Super Bowl-party, tackle this month’s selection of notable news stories, intercepted for you from the Drug Channels gridiron.

• Touchdown: The little-known ways that plans profit from Medicare Part D

• Trick play: Hospital care vs. prescription drugs: My best tweet ever!

• Offensive lines: A must-read guide to BS in healthcare

Plus, we here at Drug Channels have just released our 2019 media kit. Check it out and let us know how we can help you appear on the site.

P.S. Follow my curated links to cool stuff at @DrugChannels on Twitter.

Independent Pharmacy Economics Keep Deteriorating

Time for Drug Channels’annual look at independent pharmacy owners’ business economics, drawn from the recently released 2018 National Community Pharmacists Association (NCPA) Digest, Sponsored by Cardinal Health. Here's the press release: NCPA Releases 2017 Digest.

Below, I update our estimates on pharmacy economics and margins. Our analysis reveals that independent pharmacy owners have faced another year of deteriorating finances.

What's more, we estimate that in 2017, the average pharmacy owner’s salary fell to a level comparable to that of an employed pharmacist. Owning a pharmacy, with all of its hassles and additional obligations, now brings the same reward as being an employee. I wonder how many owners will conclude that it’s barely worth the risk and effort.

Read on for our look at pharmacy profits and some comments on the industry’s competitive dynamics, including the financial impact of direct and indirect remuneration (DIR) fees.

The pharmacy consolidation endgame is getting closer. The next time you see a pharmacy owner, offer your condolences.

CMS Considers Point-of-Sale Pharmacy DIR: Another Prelude to a World Without Rebates?

Last week, the Centers for Medicare & Medicaid Services (CMS) released a new rule for Medicare Parts B and D. It proposes changes to protected classes, e-prescribing, and other issues. Links and background below.

Notably for the Drug Channels audience, CMS also announced that it is considering—but not yet formally proposing—changes to how pharmacy price concessions are handled within Medicare Part D. These payments currently function like pharmacy rebates to Part D plans. They are therefore considered to be direct and indirect remuneration (DIR) and often called “DIR fees.”

Thanks to new CMS disclosures, we can now see why pharmacy owners hate these payments. Pharmacy DIR was $4 billion in 2017—about 1.5% of the retail pharmacy industry’s prescription revenues.

As I explain below, pharmacy DIR negatively affects the Medicare program and its beneficiaries in a manner similar to the impact of the rebates that manufacturers pay to plans. CMS wants the pharmacy DIR passed through to beneficiaries at the point of sale, i.e., when a prescription is dispensed.

Below, I explain this proposal, provide DCI's new analysis of DIR, and review the financial impact on drug channel participants. Keep in mind that the CMS proposal would *not* eliminate DIR fees or alter the financial impact of these payments on pharmacy profits. However, it’s clear that CMS wants plans and PBMs to change how these fees are computed and levied.

Pharmacy DIR is an important issue, because CMS is sharing some its views for a world without Part D rebates. The tough political question: Should taxpayers spend more to fix this problem?

The State of Specialty Pharmacy 2018: Reflections from #Asembia18 (rerun)

This week, I’m rerunning some popular posts before the Labor Day weekend. Click here to see the original post and comments from May 2018.

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Last week, Paula and I had the pleasure of attending Asembia’s 2018 Specialty Pharmacy Summit.

The Specialty Pharmacy Summit remains the most important forum in the specialty marketplace. This year, a record 6,500 people learned, networked, and connected in Las Vegas. It was another year of record attendance. (Here’s the official press release.) Drug Channels again salutes Larry and Robert Irene for sustaining and growing an annual event that unites the entire industry.

Today marks the eighth year that I will violate Vegas code and tell you what happened there.

Below, I offer reflections on the meeting and highlight key specialty industry trends. You’ll also find a link to the conference’s Featured Session slides and a few cool photos. Feel free to add your own observations and photos in the comments section below.

Reflections from #Asembia18: The State of Specialty Pharmacy 2018

Last week, Paula and I had the pleasure of attending Asembia’s 2018 Specialty Pharmacy Summit.

The Specialty Pharmacy Summit remains the most important forum in the specialty marketplace. This year, a record 6,500 people learned, networked, and connected in Las Vegas. It was another year of record attendance. (Here’s the official press release.) Drug Channels again salutes Larry and Robert Irene for sustaining and growing an annual event that unites the entire industry.

Today marks the eighth year that I will violate Vegas code and tell you what happened there.

Below, I offer reflections on the meeting and highlight key specialty industry trends. You’ll also find a link to the conference’s Featured Session slides and a few cool photos. Feel free to add your own observations and photos in the comments section below.

New Data: Pharmacy Owners' Profits Fall As Industry Competition Rises

Time for my annual look at independent pharmacy owners’ business economics, drawn from the recently released 2017 National Community Pharmacists Association (NCPA) Digest, Sponsored by Cardinal Health. Here's the press release: NCPA Releases 2017 Digest.

Below, I review our latest estimates on pharmacy economics and margins. Our analysis reveals that independent pharmacy owners are now performing poorly. In 2016, we estimate that the average pharmacy owner saw their salary decline by more than 20%, to about $156,000. The number of independent pharmacies and gross margins also are trending downwards.

It’s the third consecutive year in which owner’s compensation declined. Read on for my look at pharmacy profits, comments on the industry’s competitive dynamics, and advice to pharmacy owners.

When times were good, pharmacy owners and their lobbyists complained bitterly about low pharmacy profits. Now that the endgame is truly beginning and reality matches the rhetoric, don’t be surprised that policymakers and others are skeptical.

Will CMS Pop the Gross-to-Net Bubble in Medicare Part D With Point-of-Sale Rebates?

Last week, the Centers for Medicare & Medicaid Services (CMS) released its 713-page proposed policy changes and updates for the Medicare program. See the links below.

Buried in this document is a radical concept: Part D plans would be required to recognize the value of manufacturer rebates and pharmacy payments in retail prescription prices. These amounts are two key components of Direct and Indirect Remuneration (DIR) that are currently paid to plans. CMS is asking for feedback for future rulemaking but did not propose any specific changes. Any program modifications would not occur until at least 2020 or later.

However, it’s clear that CMS views the high-list-price/high-rebate system—what I term the gross-to-net bubble—to be a fundamental source of warped incentives and cascading problems. Before you check out for the holiday weekend, I unpack the complex structure of Medicare Part D to explain why CMS is proposing its pass-through solution. This will help you digest CMS’s proposal for disruptive change to pharmacy benefit managers’ (PBM) profit model and our current drug channel system.

A personal observation: Medicare Part D, like commercial pharmacy benefit plans, now operates like reverse insurance. The sickest seniors taking medicines for chronic, complex illnesses generate the majority of manufacturer rebate payments. These funds are then used to subsidize the premiums for healthier seniors. To me, this structure is the opposite of how insurance is supposed to function. It seems as if CMS concurs.

How Independent Pharmacies Will Participate (Or Not) in 2018's Part D Preferred Pharmacy Networks

In a previous analysis (CVS Bets Big: Our Exclusive Analysis of Pharmacy Chain Participation in 2018's Part D Preferred Pharmacy Networks), I highlighted how the largest pharmacy chains will participate in next year’s Medicare Part D prescription drug plans (PDP).

Today, I examine independent pharmacies’ participation in 22 major 2018 Part D preferred networks. Our analysis focuses on the pharmacy services administration organizations (PSAOs) that represent these pharmacies in negotiations with plans.

As you will see below, the profit pressures from narrow networks have made smaller pharmacies much choosier about contracting for preferred status. For three of the four largest PSAOs, smaller pharmacies will have preferred status in fewer than half of the major plans. By contrast, members of AmerisourceBergen’s Elevate PSAO will not have preferred status in the largest plans, although they will be preferred in some smaller plans.

I wonder: Will 2018’s surprising pharmacy participation patterns trigger a rethink of preferred networks in Medicare Part D?