ASP History Lessons

Well, it turns out that the introduction of Average Sales Price (ASP) reimbursement for Medicare Part B did not signal disaster for community oncologists or their patients. Might I be so bold as to suggest some parallels to the current doom-and-gloom over Average Manufacturer Price (AMP) reimbursement for Medicaid?

My question is sparked by two recent studies that assess ASP with the benefit of hindsight.

1. Patients perceive cancer care to be unaffected by the lower Medicare reimbursements. A new study in the peer-reviewed journal Cancer found: “[R]egardless of age, patients treated pre- and post-MMA reported a median wait to treatment time of 21 days and an average travel time of 30 minutes. Overall, there was no significant difference in treatment location between the groups.”


2. Most oncology practices are purchasing products below ASP. A June 2007 OIG study found: “Nine of the twelve practices reviewed could generally purchase drugs related to the 15 selected payment codes for the treatment of cancer patients at or below the MMA-established reimbursement rates from April 1 through June 30, 2005.”

Guess what was predicted back in 2003?

No surprise -- community oncologists were furious about the 2004 introduction of the Average Sales Price (ASP) methodology for Medicare Part B.

See if the following quotes from the American Society of Clinical Oncology (ASCO) in November 2003 evoke a sense of déjà vu:

• “The legislation shifts reimbursement for cancer drugs to a system that will not cover the prices of chemotherapy drugs available to many community practices, ASCO contends.”


• “We remain concerned that this legislation will hinder access to cancer care for many elderly Americans.”


• "The impacts on practices will be far-reaching and severe. Some practices will have to cut back on the number of Medicare patients they treat, or stop treating Medicare patients all together. For some patients, treatment will be delayed, if it can be done at all."

At one level, ASCO was correct. The existing system changed as individual practices modified their businesses. Yet the new payment methods also created new care delivery business models. (See my comments on creative destruction in the pharmacy supply chain from June.) The two studies cited above show that many of the devasting effects never happened.

ASCO’s doom-and-gloom should be familiar to readers of this blog because today’s pharmacy industry is making the similar arguments about AMP. Just look over the Reactions to AMP and read about "reckless disregard for patient welfare" or the "assault on neighborhood pharmacies." All this for a change that will reduce pharmacy reimbursement by less than 0.5% in 2008.

Similarly, I'm skeptical about patient access fearmongering. As I point out in Heretical Questions about the AMP War, consumers using independent pharmacies have access to many pharmacies within a reasonable driving distance.

Mark Twain once said: "History doesn't repeat itself, but it rhymes." With that quote in mind, what do you think we will reading in 2011 about the impact of AMP on retail pharmacy?

The Trouble with Florida

What the %$#@&! is wrong in Florida?!

Maybe you'll ask the same question after reading three stories sent in by intrepid Drug Channels readers:

I'll have a Viagra Chimichanga, extra salsa
La Mexican is a Fort Myers restaurant/pharmacy/check cashier that serves you real Mexican food along with your counterfeit drugs -- mostly fakes from Mexico and Europe. According to the article: "The illegal distribution of prescription drugs is an increasing problem in Southwest Florida, said Larry Long, spokesman for the FDLE in Fort Myers." Overall, we've seen an increase in people obtaining prescription medicines illegally," he said. "People are dying from overdoses of prescription medicines." Senator Byron Dorgan is reportedly going to hold hearings to make sure La Mexican did not use Canadian beef.

#1 in Medicare Fraud
According to a new OIG report, Florida is now the leader in Medicare fraud for HIV/AIDS drugs. (See Aberrant Billing In South Florida For Beneficiaries With HIV/AIDS.) Providers in just three south Florida counties -- Miami-Dade, Broward, and Palm Beach -- accounted for 8 percent of Medicare beneficiaries with HIV/AIDS but billed Medicare more than 22 times as much as the entire rest of the U.S.! The OIG glumly notes: "CMS has had limited success in controlling the aberrant billing practices of South Florida infusion therapy providers." Oh.

Still #1 in Diversion!
In August, Florida's Diversion Response Team reported another banner year in its 2006-07 Annual Report. According to the report, the DRT opened 50 new diversion cases from in the 12 months ending June 30, 2007. Yes, that's the first year of Florida's pedigree law. Alas, no report from the year before the pedigree law.

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Unfortunately, these are just the two most recent episodes in Florida's shameful drug distribution history.

Think about it. Florida was the setting for Dangerous Doses: A True Story of Cops, Counterfeiters, and the Contamination of America's Drug Supply, an expose of drug diversion by essentially unregulated drug wholesalers. (Great book, especially if you want to know why Florida passed a pedigree law.) AmerisourceBergen (ABC) had its DEA license suspended in Orlando earlier this year. It was recently reinstated.

Apparently, Florida is losing population, prompting The Wall Street Journal to ask: Is Florida Over? Maybe they are fleeing the rampant counterfeits in that swampy state.

Anyone care to defend the sunshine state?

Fresh Consolidation in the Oncology Channel

McKesson (MCK) just announced a deal to buy Oncology Therapeutics Network (OTN) for $575 million.

Although the move looks like nothing more than a horizontal distribution acquisition, it actually represents the ongoing vertical consolidation of the specialty channel. And as the channels to the non-retail customer gets narrower, combined distributor-GPO entities gain leverage.

Owning the Customer

After this deal closes, the two largest community oncology GPOs for physician practices will be under common ownership of specialty products distributors. Such forward integration makes it virtually impossible for a manufacture to bypass and sell directly to the customer -- because the distributor and the customer are the same company!

AmericourceBergen (ABC) uses this strategy to great success. ION, the largest community oncology GPO, has a prime vendor distribution arrangement with Oncology Supply. Both organizations are part of AmerisourceBergen’s Specialty Group, which has accounted for almost all of the entire company’s revenue growth over the past five years.

Did you know that more than 40% of Amgen's (AMGN) U.S. sales go through ABC? McKesson and Cardinal Health (CAH) combined represent less than 30% of Amgen's U.S. sales.

The acquisition of OTN now links McKesson with Onmark, which I estimate to be the second largest community oncology GPO behind ION. Note that McKesson also acquired National Oncology Alliance, a small GPO, in April 2006.

Unanswered question: where does this deal leave Cardinal Health (CAH)? They sold their oncology distribution business to OTN last year and became a minority owner in OTN’s parent company Oncology Holdings, Inc. No word yet on their role, if any, in the new organization.

No More DIY Logistics

Another observation – OTN moved to self-distribution in June ’06 by announcing that UPS Supply Chain Solutions would be handling distribution for their oncology network members. I presume that this logistics deal will be unwound and the volume moved to McKesson.

If so, it represents further evidence of wholesalers’ strength in smaller, high service customers such as physician offices and clinics. Large retail chains can (and increasingly do) use their own warehouses to bypass wholesalers. In contrast, smaller customers genuinely benefit from the services provided by a wholesaler and are much more difficult for a manufacturer to serve directly, even with the help of a third-party logistics company.

BTW, this trend is being repeated in many industries outside health care. In my new book Facing the Forces of Change®: Lead the Way in the Supply Chain, I surveyed manufacturers from a range of industries about their perceptions of logistics companies versus wholesalers. (If you have the book, see Exhibit 3-4.) The past 3 years have not noticeably advanced the perceived competitiveness of third-party logistics providers versus wholesalers compared to a similar survey that I conducted in 2003.

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As I predicted back in January, consolidation within the U.S. pharmaceutical infrastructure – the network of companies that facilitate dispensing and payment of pharmaceuticals -- keeps moving ahead.

Wal-Mart's Gain is not Walgreen's Pain

I’ve been warning about the attack on generic pharmacy profits since I launched my blog 16 months ago. I even nominated Lobbying for Pharmacy Profits as a trend to watch in 2007.

Wal-Mart’s announcement of its expanded generic drug program and Walgreen’s weak profits are further evidence of this trend. But contrary to some press reports, I don't see a direct cause-and-effect relationship between these two events.

Walgreen’s Pain

Yesterday, Walgreen Co (WAG) announced a rare profit decline driven in part by lower reimbursements on generic drugs. (See Walgreen's Earnings Fall Spurs Concern in Sector.) The company’s stock dropped by 15 percent – a $7 billion loss in market cap.

But as I noted last week, chains such as CVS Corp (CVS) or Walgreens (WAG) are not really vulnerable to Wal-Mart’s program because customers with third-party insurance do not save much versus standard co-pays.

My take: payers and pharmacy benefit managers now recognize the generic profit potential, so they are squeezing pharmacies sooner and harder than ever before.

Wal-Mart's Math

In contrast, Wal-Mart’s program highlights the high generic margins embedded in the pharmacy business model, especially for cash-pay customers. Yet Wal-Mart’s $4 generics program is neither a loss leader nor a “classic bait-and-switch,” as the National Community Pharmacists Association claims.

Still not sure? Then let’s do some math!

OIG reported average pharmacy acquisition costs for a set of generic drugs in its June report Deficit Reduction Act of 2005: Impact on the Medicaid Federal Upper Limit Program. The cost data were collected from the three largest national drug wholesalers plus two regional wholesalers.

Six of the generic drugs in the OIG study also appear on Wal-Mart’s list. Here’s what I found:

Weighted average margin = 24%. These calculations dramatically underestimate Wal-Mart’s actual gross margin because Wal-Mart's product acquisition costs are much lower than the independents, supermarkets, and small chains that buy through wholesalers. (See my January post for background.)

Add in Wal-Mart’s minimal incremental costs of dispensing and it's clear that the $4 generics program could be very profitable.

BTW, these margins are below what retail pharmacies were earning when dispensing generics under Medicaid in 2002. But isn’t that what led to Average Manufacturer Price (AMP) in the first place?

For fun (?), I searched for a few drugs on the New York State Attorney General’s Office Prescription Drug Price Website. Example: the cash-pay, no-insurance price for Metformin 500 mg ranges from $4 at Target or Wal-Mart to more than $50 at many independents. CVS charges $24.89 and Walgreen (WAG) charges $29.99. I checked some online prices and found similar numbers – Drugstore.com charges $39.99.

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Last week, NCPA accused Wal-Mart of "devaluing and destroying the practice of pharmacy." From my perspective, it looks like retail pharmacy is finally facing the consequences of their own business decisions. Wal-Mart is merely targeting an area of excess profits, to the ultimate detriment of less-efficient retail pharmacies. Stay tuned – this will get uglier!

Tidbits from September

As always, I’ll close out the month with a few tidbits that didn’t merit a full post in September.

Please keep emailing me your story ideas and links. I don’t have time to cover every topic that I receive, but I respond to anyone who takes the trouble to send me something.

1) Supply Chain Ethics
In case you missed it, I was recently quoted in the Wall Street Journal’s In the Lead column regarding supply chain ethics. See Recent News Events Should Have Executives Reviewing Priorities. My main comment: “Supply-chain management has moved from the back room to the board room and become an ethical issue.” My point: How much do you know about what your distributors or resellers are doing with your products? Johnson & Johnson did not, as I noted last month. (BTW, my kids love to see me in the paper, but to be honest I think a guest spot on Hannah Montana would impress my tween daughter more -- the best of both worlds!)

2) Blog Kudos from a Pharmacist
I was very gratified to read this review of Drug Channels in the 9-21 issue of Illinois Pharmacists Association e-newsletter: “One of the more interesting blogs I have run across. It is a thoughtful examination of the drug delivery system in the country and how Pharmacists are reacting to AMP and Medicare and the viability of Pharmacy. It is not always a comforting examination (from the Pharmacist’s viewpoint, anyway), but it is thoughtful and in a lot of ways hard to argue with. He is worth reading and perhaps arguing with as he will take comments from all. Worth a look.” Thanks!

3) Raise a Glass to the Beer Hunter
Beer and scotch guru Michael Jackson (a.k.a The Beer Hunter) recently passed away. I had the privilege of meeting Mr. Jackson in May, discussing a memorable bottle of scotch with him (The Macallan Gran Reserva from 1982), and getting him to sign my copy of Complete Guide to Single Malt Scotch. Please join me in the national toast to Mr. Jackson this Sunday at 9 PM EST in honor of his unique legacy.

Wal-Mart adds some $4 generics (yawn)

Wal-Mart Stores (WMT) announced an expansion of its (mostly) $4 generic drug program this morning. The 8 AM call was hosted by Dr. John Agwunobi, senior vice president and president for the Professional Services Division, and Bill Simon, executive vice president, chief operating officer, both from Wal-Mart Stores, Inc. The company also published a 4-page fact sheet.

I listened to the call (and even got to ask the final question). There was not much new news here, but here are my initial reactions:

Old news in a new pill bottle
This announcement is much less significant than the September 2006 announcement. Wal-Mart has expanded the list of drugs on their $4/$9 (a new tier) generics list, but is not fundamentally changing the program. Contrary to my earlier expectations, some of the blockbuster generics of brands such as Zocor and Zoloft are still not on the expanded list. No real explanation. They will probably still get some good press, especially because health care is becoming part of the Presidential election.

The program has generated profitable growth for Wal-Mart’s pharmacies.
Wal-Mart confirmed that they have increased pharmacist staffing more slowly than script count growth. In other words, my December 2006 analysis was correct in concluding that the program is generating incremental prescription volume to a typical Wal-Mart pharmacy by leveraging a relatively fixed pharmacy overhead. They stated that this profitable growth is "fully loaded" pharmacy profit, not just gross profit (revenues minus cost of goods).

Loads of of data, but little information
The company claims to have saved consumers $613,581,398.70 (!) as of September 24, 2007. The math was “simple” according to the speakers: They computed the difference between the old sell price and the new price ($4 or $9), and then multiplied it by the number of scripts filled. But this simple math doesn’t really tell us some key numbers, such as incremental script volume or where the scripts came from. They did note that dollar growth comps have been mid-teens for pharmacy, but “script counts are a multiple of that.”

Wal-Mart can still hurt independents where it counts
Last year, NCPA issued a series of blistering press releases, the first of which claimed that Wal-Mart was using a classic bait-and-switch. On this morning’s call, one of the speakers contrasted Wal-Mart’s generics program approach with the strategies of companies that have a “profitable, vested interest in the status quo.” Hmmm, wonder who they are talking about? Don’t forget that generics are much, much more profitable for pharmacies than brands.

What’s up with third-party payers and PBMS?
Chains such as CVS Corp (CVS) or Walgreens (WAG) are presumably not very vulnerable to Wal-Mart’s program because customers with third-party insurance do not save much versus standard co-pays. So I asked the speakers how Wal-Mart’s generic plan is working for patients with third-party coverage. Surprisingly, one of the speakers stated that Wal-Mart always files a claim on behalf of patients, but will often choose not to seek reimbursement. They even mentioned waiving dispensing fees offered by Medicaid. Presumably, Wal-Mart’s total reimbursement (dispensing fee plus their share of the co-pay) is less than a $4 cash payment, plus Wal-Mart gets the payment immediately instead of waiting a few weeks. I'd like to know more, but didn’t get a chance to ask a follow-up question.

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Pharmacists had a generally negative view of Wal-Mart’s program in an October 2006 Drug Topics survey. Any pharmacists care to comment (anonymously, if you want) on Wal-Mart’s latest announcement?

Chinese Take-Out

The Sunday Times (London) has a fascinating peek behind the scenes of a Chinese drug counterfeiting operation. See Factory for Fake Prescription Drugs.

One of their reporters posed as a UK drug wholesaler (!), which was apparently a very convincing disguise. It's easy to locate a counterfeit supplier – just post an online ad. The initial order: 200,000 packs a month of three drugs (Plavix, Casodex, and Zyprexa).

Is this all true? Since the Times reporter is not law enforcement, the Chinese businessman denied making or selling any counterfeit drugs. Of course, he was forced to admit that he did happen have machines to make counterfeits. And the photo gallery for the story shows his factory making much more than the standard Poison Me Elmo dolls. Look carefully at the last few pictures.

The Times says: “One of the problems appears to be Britain’s reliance on drugs bought through parallel trade – the system in which drugs are bought and sold several times because prices vary between different European countries.”

Importation Illusions, I say.

PDUFA & Supply-Chain Security

Like you, I spent Sunday reading through the just-passed Food and Drug Administration Amendments Act of 2007, a.k.a. Prescription Drug User Fee Act (PDUFA), which now awaits the President’s signature. What, you had something better to do on the last Sunday of the summer?

In case you missed it, section 913 is entitled “Assuring Pharmaceutical Safety.” See page 355 of H.R.3580 (424 pages) or simply print this handy-dandy 4-page extract.

Subsection (a) states: “The Secretary [of HHS] shall develop standards and identify and validate effective technologies for the purpose of securing the drug supply chain against counterfeit, diverted, subpotent, substandard, adulterated, misbranded, or expired drugs.”

Ah yes, just what the industry needs – more standards! Standards must be totally awesome because we have so many of them in the pharma industry.

In plain English, the Act requires the following:

• The development of a standard numerical identifier at the package or pallet level
• The identifier must link repackaged products back to the original product
• The standard must be developed within 30 months (September 2010?)
• The evaluation of “promising technologies,” including RFID, nanotechnology, encryption technologies, and “other track-and-trace or authentication technologies.”
• Interagency cooperation by FDA with Federal and State agencies

I asked a few people around the industry for their opinions. No one wanted to be quoted on the record (‘natch), but here are a few reactions:

• “As a manufacturer, I am pleased with the 30 month timeframe to evaluate/develop a standardized numerical identifier. I also like the fact that it encourages some degree of harmonization with coding requirements outside the U.S.”


• “I don't know who drafts this language, but either (A) they intentionally include vagaries so that makes it impossible to execute, or (B) they don't really understand what their talking about. I think it is the latter.” (AJF: ROTFL!)

Adding to my confusion is that fact that H.R.3850 raises a whole new set of state vs. Federal preemption issues regarding our drug distribution system. States have been moving forward in multiple directions on pedigree while the FDA struggles to implement the 20-year old PDMA. Yet the FDA is now supposed to lead them all?

We are already dealing with California law, which requires a “unique identification number…that is uniformly used by manufacturers, wholesalers, and pharmacies.” Pedigree in California must be at the “smallest package or immediate container,” but probably only for high-risk products. (See California Dreamin'.)

So, how will the new Federal ID number relate to the numbers developed in California? Or interact with the mysterious Rx SafeTrack initiative being pursued by HDMA, NACDS, PhRMA, and GPhA? Will this Act upsize the smallest package to a pallet because of the pesky "or" written into the legislation?

Brenda Kelly of SupplyScape, which is helping companies get ready for California’s January 2009 deadline, strikes an optimistic note: “This reinforces patient safety efforts like California’s. With two and a half years to define a standardized numerical identifier and consider a wide range of technologies, the Agency can benefit from the states’ initiatives.”

I certainly hope that Brenda is right. Since my web logs show many visitors from State and Federal agencies, anyone care to post some comments on the new Act for their benefit? (Yes, you can post anonymously, if you want.)

The Real Wal-Mart Effect

Inflation in drug prices has dropped to its lowest rate in three decades, as reported in Helped by Generics, Inflation of Drug Costs Slows from today’s New York Times. Bonus for fans of Drug Channels: I’m quoted in the article.

BLS economists cite the effect of Wal-Mart’s $4 generics program:
A Labor Department economist, Francisco Velez, said his office noted a drop in generic drug prices shortly after the large stores’ promotions began, particularly in the South, where Wal-Mart started its program.

To be honest, I’m not sure how much of the drop is attributable to Wal-Mart versus the overall market penetration of new generics and resulting shorter life cycle of brands. A 1998 CBO study found that the average market share of 21 generic drugs launched from 1991 to 1993 was 44% after one year. Today, blockbuster generics get 80%+ substitution within one month due to the efforts PBMs, wholesalers, and chains. Wal-Mart is a relatively small part of the overall pharmacy market, as I note in the article.

I suspect that the real Wal-Mart effect has been the negative impact of its $4 generic program on supermarkets, independents, and other discount chains.

Exactly one year ago, I correctly predicted that Wal-Mart’s $4 generics would shift generic market share away from independents, particularly in rural counties that have low chain pharmacy penetration. In the article, I discuss the increase in Wal-Mart’s pharmacy traffic due to its $4 generics program, which come from Sloppy reporting about Wal-Mart. (Ironically, my original post is highly critical of the Times!)

Perhaps NCPA should look at the companies competing with independents before blaming Part D and PBMs for the all of the marketplace challenges facing their members.

CAH + AB = ??

Cardinal Health (CAH) and Alliance Boots (AB) just announced an agreement to bring AB’s Almus brand of generic drugs to the U.S. market. See Alliance Boots, Cardinal Health Announce Joint Sourcing and Marketing Agreement.

This agreement could be merely routine – or the beginning of something very significant.

Private Labels Come to Pharma
If Almus is merely another generic supplier to Cardinal, then today’s announcement is only mildly interesting. AB’s success with Almus should not shock anyone who read my new book Facing the Forces of Change®: Lead the Way in the Supply Chain. I found that private label products (products branded by a wholesaler) will be expanding substantially in all industries over the next five years.

The economics are straightforward. A private label generic drug increases profits because the channel captures the margin that would otherwise flow to an upstream generic drug maker. The wholesaler—Alliance Boots in the case—also gains the ability to control the entire profit stream from production to sale, allowing for more flexible internal sales compensation models and higher commissions to drive sales.

Going Global
The big three wholesalers—AmerisourceBergen (ABC), Cardinal Health (CAH), and McKesson Corp (MCK)—already have active private label programs in other parts of their business. In fact, McKesson’s private label EverFRESH toothpaste got caught up in this summer’s tainted food recall after laboratory tests found small amounts of diethylene glycol.

From my point of view, it’s inevitable that wholesalers will be moving closer to production in order to source products for which there is limited brand preference. It’s not a stretch to imagine the combination of a generic manufacturer and wholesaler.

Seen in this light, today’s announcement may signal that Cardinal is gaining a bigger foothold in the global sourcing market. Such a move would give them the opportunity to sell generics in high volume to large pharmacy buyers sourcing directly from generic drug makers. (See CVS' Channel Power.)

Here's another idea to ponder. Alliance Boots recently entered the Chinese market and is planning to enter India. I already warned you over the summer that The British are Coming. So, could this agreement signal the beginning of a more significant relationship between Cardinal and Alliance Boots?

AMP: Unloved and Unwanted

Average Manufacturer Price (AMP) gained a new set of enemies. The three major manufacturer associations -- PhRMA, BIO, and GPhA – just submitted a joint letter asking CMS acting administrator Kerry Weems to delay implementation of the AMP Final Rule. (Source: FDANews. The letter has not been made public yet.)

It’s pretty clear to me why pharmacists hate this rule, hence their swift and universal condemnation for AMP shortly after the Final Rule was published. But manufacturers have their own reasons to dislike the rule. Here are three that come to mind:

• Compliance – Any new government rule will inevitably create implementation headaches, as the folks behind the Pharma Compliance Blog point out. The risk level went up last week when Weems highlighted compliance with regulations as a major priority.


• Reimbursement risks – As the AWP litigation slogs on, private payors will look to AMP as a new, credible benchmark for pharmacy reimbursement. See The ASP Future is Here for details on my prediction. It’s not clear what will happen when the product price (revenues to the manufacturer) gets unbundled from the costs of the distribution system (revenues to pharmacies, wholesalers, PBMs, and providers).


• Transparency – As currently implemented, AMP data will be made public for both brands and generics on a website at the 11-digit NDC level and updated monthly. Average Sales Price (ASP) data are already available for Medicare Part B drugs.

The Medicaid Commission’s September 2005 report helped to legitimize AMP as the debate over the Deficit Reduction Act was heating up. But does anyone still like AMP 24 months later? Even the U.S. Chamber of Commerce has jumped on the anti-AMP bandwagon!

Please post a comment (anonymously, if you choose) and tell me the pro-AMP story because I can’t locate any AMP fans outside CMS right now.

Pharmacists React to Drug Channels

Last week’s posts on UT’s pharmacy reimbursement study generated an unprecedented number of thoughtful comments from pharmacists. The comments are listed below the two original posts:

• Hype vs. Research
  
• A Misleading Study on Pharmacy Reimbursement

Here are some highlights.

Tom Connelly took issue with my comment about how independents have been financially hurt because cash pay customers now have access to a comprehensive drug benefit. I responded that the shift from cash-to-third party payment has been a double-edge sword for pharmacy. The loss of cash pay (which has 0 days DSO) is traded off against the increased script volume b/c more people have access to drugs.

I doubt that NCPA would directly claim to oppose Part D, but that is indeed the implication. Ironically, Monday's Washington Post published Small-Town Pharmacists Closing Doors, in which pharmacist Dave Redden complains that the Part D benefit was good for consumers, but not for his business.

Joe argues that pharmacists should be paid within 5 business days. Unfortunately, eliminating “float” would undermine profit models throughout the pharmacy supply chain. For example, the wholesalers’ economic model would collapse if they accepted 30 days terms from pharmacies, even though NCPA criticizes wholesalers for requiring 14 day payment terms.

Right now, pharmacy customers pay wholesalers about two weeks before the wholesaler has to pay the supplier (drug manufacturer). Wholesalers earn interest income on the “float,” which can be meaningful given the large dollar amounts involved. Hmmm, I wonder if wholesalers could be the next target of pharmacy’s wrath?

PBMGuru suggested that pharmacies have a reconciliation problem, not a reimbursement problem. He cites an example of a small mail order pharmacy that had underinvested in technology resources to manage claims. He also cites payment problems related to “failure of the pharmacy to keep their tax ID current, failure of the pharmacy to keep their Medicare Provider Number current, or mismanagement by the NCPDP (once).”

Finally, one owner of an independent pharmacy is especially bitter about chain pharmacies, essentially accusing chains of treating pharmacy as a commodity and of professional malpractice (“…an error due to an overworked pharmacist mislabeling or giving the wrong medicine.”)

All in all, a fascinating and thought-provoking series of comments about an alleged dark side to the Medicare Part D benefit.

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Did anyone else notice that Monday's Pink Sheet reported on the CVS-Prasco lawsuit, which is the story that I broke almost two weeks ago? Ed Silverman at Pharmalot also did some nice coverage of my story (and added a cool graphic, too.)