Pharmacy and PBM Trends for 2011

Hard to believe, but this is my 140th post of 2010. Thanks to everyone who read, commented, or forwarded the articles on Drug Channels. I hope you’ve had a fun and educational year. There's a special holiday video from my good friend MC Ad-Elf at the bottom of today's post.

To wrap up the year, here are four big trends that we'll be talking more about in MMXI:

• Market Growth and the Shift to Specialty
• Boom-to-Bust for Generic Drugs
• Cost-Plus Pharmacy Reimbursement
• Preferred Pharmacy Networks

Below is an overview of each trend along with a summary of the drug trend forecasts provided by CVS Caremark (NYSE:CVS), Express Scripts (NASDAQ:ESRX), and Medco Health Solutions (NYSE:MHS). If you're curious to know more, I devote the final third of the 2010-11 Economic Report on Retail and Specialty Pharmacies to analyzing these trends.

FYI, the introductory discount on my new pharmacy report ends tomorrow. It’s the perfect stocking stuffer for all the executives on your Christmas list!

Drug Channels News Roundup: December 2010

Here's my final 2010 round-up of noteworthy news stories from the Drug Channels universe. In this edition:

• The Battle for Specialty: Express Scripts goes after buy-and-bill specialty drugs
• Direct to pharmacy, mate: Pfizer plans to bypass Australian wholesalers
• Pharmacy Price War Update: More pharmacies join UnitedHealthcare’s preferred Part D network
• Thumbs up! Reviews of my new pharmacy report from the blogosphere

Hope you've been nice, not naughty, in 2010!

Are You Saving from Wholesaler Efficiencies?

The Center for Healthcare Supply Chain Research, the research arm of the Healthcare Distribution Management Association (HDMA), recently released its 2010-2011 HDMA Factbook.

IMHO, the Factbook is an invaluable guide to the economics of the pharmaceutical wholesale industry. The report will be particularly useful if you sell to or buy from pharmaceutical wholesalers because it reveals a lot about wholesaler economics—perhaps more than the participating wholesalers may realize.

As I highlight below, you could credibly use the data in the new Factbook as a rebuttal whenever a wholesaler complains that “their costs have gone up.” You may also question the basis-point economics of your fee-for-service agreement.

The report’s price is lower this year, but I can only give it a qualified recommendation because HDMA stubbornly refuses to make the report available in a convenient downloadable format. More on this subject below, too.

How to Stop Medicaid from Overpaying for Drugs

A fascinating new study from the Lewin Group estimates how much Medicaid overpays for prescription drugs. You can download this lengthily-titled report for free here: Potential Federal and State-by-State Savings if Medicaid Pharmacy Programs were Optimally Managed.

Lewin estimates that Medicaid spending would drop by 14.8% ($2.5 billion) in 2011 if fee-for-service Medicaid prescriptions were “optimally managed,” which means at levels comparable to private plans. A ten-year extrapolation estimates more than $30 billion in savings.

Shocking? Not really. I’ve long been critical of the overly political nature of pharmacy reimbursement under Medicaid. Just look at the windfall to South Carolina pharmacies versus their neighbors (in A Victory for Pharmacy Profits in South Carolina) or the excessive payments to pharmacies under the old Federal Upper Limits (in Won’t get FULed again). Lewin found that higher payments to pharmacies are not even associated with higher generic dispensing rates.

The data seem clear to me. But as always, I encourage you to read the study for yourself and make up your own mind.

The 2010-11 Economic Report on Retail and Specialty Pharmacies

I am pleased to announce the availability of The 2010-11 Economic Report on Retail and Specialty Pharmacies, my brand-new report on the U.S. pharmacy industry. We are offering 10% off the regular price if you order before December 21, 2010.

I worked hard to make this report a comprehensive resource with the latest facts and data about all aspects of the U.S. pharmacy distribution and reimbursement system—product movement, financial flows, and contractual relationships. The report also does a deep dive on 4 key trends that will affect the market structure and economics of the retail and specialty pharmacy industries:

• Market Growth and the Shift to Specialty
• Boom-to-Bust for Generic Drugs
• Cost-Plus Pharmacy Reimbursement
• Preferred Pharmacy Networks

There's a lot of new material since my last update in September 2009. And as always, I’ve packed enough into the report to make it valuable to both newbies and grizzled veterans. You can get all the details here:

• Download a free Overview of the Report
  
  
• View the Table of Contents
  
  
• View the List of Exhibits

I hope you enjoy reading it as much as I enjoyed writing it!

Join Me at the PBMI Drug Benefit Conference (sponsor)

I want to let the Drug Channels audience know about PBMI's 16th Annual Drug Benefit Conference to be held at the Arizona Biltmore Hotel in Phoenix, AZ, on February 16-18, 2011.

I will be delivering the keynote address on The Future of the Pharmacy Industry. My talk will outline the dramatic changes impacting the pharmacy industry and discuss how payers should prepare for dramatic shifts in the current business model. Check out the complete event details below.

BTW, I featured the most recent PBMI's most recent 2010-11 Prescription Drug Benefit Cost and Plan Design Survey in October's Pharmacy Reimbursement Drops Again…or Does It?

Hope to see you there!

If Donald Trump Becomes U.S. President...

...then I will hold Stewart Rahr personally responsible.

Why?

Stewart Rahr, who recently got a $1.3 billion check from Cardinal for Kinray, has created the website ShouldTrumpRun.com. The site states: "We need to convince Donald Trump to run for President in 2012 and end all of the old rhetoric occurring in Washington."

The footer on every page of the website states: "This site paid for by: Michael Cohen, Stewart Rahr and Bradley Gerstman & David Schwartz of Gotham Government Relations." See below for the email that Mr. Rahr reportedly sent to his personal email list.

Hmm, Trump vs. Palin in 2012?

2010 Market Share of Top Retail and Specialty Pharmacies

NOTE: For fresher data, see 2011 Market Share of Top Pharmacies.


On December 7, I’ll be releasing a new report called The 2010-11 Economic Report on Retail and Specialty Pharmacies. I want to give you a sneak peek at my list of top pharmacies in 2010—a piece of data that generates many email requests.

The exhibit below, one of 40 in my new report, shows my estimates for market share of prescription revenue by company for calendar year 2010. I estimate that the top six dispensing retail and specialty pharmacies—CVS Caremark, Walgreens, Medco Health Solutions, Rite-Aid, Walmart, and Express Scripts—will account for 62.2% of U.S. pharmacy dispensing revenues in 2010. These data reflect the industry-level trends highlighted in New Data on Pharmacy Industry Market Share.

Don’t get too frightened by the data. Almost one-third of revenues still come from retail and specialty pharmacies beyond the 11 companies in the table. Total revenues from this more numerous group are a still-substantial $85.5 billion.

Cardinal Gets to China First

This morning, Cardinal Health (NYSE:CAH) continued its growth-by-acquisition strategy by entering the Chinese distribution market. See Cardinal Health Acquires Leading Pharmaceutical Distributor in China. Click here to view Cardinal's slide deck describing the deal.

The era of global wholesale is dawning. The acquisition represents the first major distribution investment outside of North America by one of the Big Three U.S. wholesalers. I've long pointed to China as a logical growth platform for U.S. wholesalers as in my January 2007 post 3 Ways for Drug Wholesalers to Grow. See below for my initial thoughts on this deal and what it means.

The 2010-11 Economic Report on Pharmaceutical Wholesalers has details on Cardinal's economics and strategy. As always, Pembroke Consulting and Gerson Lehrman Group clients can schedule phone calls with me for additional insights.

Giving Thanks for the Cherpumple and the TSA

Perhaps you’ll get to spend some time off with your family this week. And perhaps one of them will serve you the latest contribution to America's Type II diabetes epidemic—the cherpumple!

What is the cherpumple, you may ask? Well, dear reader, it’s nothing more than a three-layer cake with an entire pie baked into each layer—a cherry pie baked inside a white cake, a pumpkin pie baked inside a yellow cake and an apple pie baked inside a spice cake. Just stack the layers and seal them with cream-cheese frosting.

Yup, it's the turducken of desserts. To my amazement, the cherpumple was recently featured in a Wall Street Journal cover story along with its inventor, Charles Phoenix. Genius or loony? Watch the video below and decide.

As for the TSA? Watch the second video and decide. 'nuff said.

Drug Channels News Roundup: November 2010

Time to get ready for Thanksgiving with these noteworthy news stories from the Drug Channels universe. In this edition:

• Say what?!? Kinray sells to Cardinal Health
  
• The Perils of Discount Generics: Big Brother can’t watch!
• Pedigree Referee: Will wholesalers control your pedigree strategy?
• Waiting for Pigs to Fly: A plea for rational debate about health care policy
• Dirty Deeds: The Onion examines GSK’s manufacturing problems

Enjoy!

New Study Finds Small AMP Impact, But Trouble in Six States

Regular readers know the unofficial motto of Drug Channels: "Everyone is entitled to their own opinion, but not their own facts."

Last Thursday, I posited that the forthcoming Average Manufacturer Price (AMP)-based Federal Upper Limits (FULs) for Medicaid reimbursement of multisource (generic) drugs would have only a moderate impact on the pharmacy industry’s profits. See What’s Happening with AMP and Pharmacy Profits.

I'm now pleased to bring you the results of a new study that confirms my opinions with actual facts. Ricky Goldwasser and her colleagues at Morgan Stanley conducted a valuable and original analysis computing how the new AMP-based FULs will affect pharmacy profits. Their methodology is much more rigorous and quantitative than my more informal explanation, but the conclusion is the same: "New AMP based reimbursement for generic drugs will have only limited impact on supply chain participants."

The Morgan Stanley research also makes an important contribution by showing that the impact of the new AMP-based FULs will vary based on geography. As the chart below shows, AMP-based FULs will be a non-event in most states, but pharmacies will face a painful adjustment in six key states that still rely on inflated FULs. Pharmacies in California and Connecticut will be hit the hardest.

When the facts change, I change my mind. What will the pharmacy industry's lobbyists do?