Can CA's e-pedigree law be Implemented?

Welcome back, my friends, to the enforcement debate that never ends!

The California Board of Pharmacy (CA BoP) is meeting today to consider the January 1, 2009, implementation deadline for e-pedigree along with the new CA pedigree legislation. (Read the agenda.) Similar to my prediction prior to the last meeting in CA Pedigree: Going to '11?, I think the Board will pontificate about “the industry as a whole” and once again avoid a vote on delaying implementation until 2011.

However, I have a new theory for you about why the Board will not be able to implement e-pedigree even if they decline to adjust the deadline. I also have a few connect-the-dots ideas suggesting that the Board is not even planning to enforce anything.

If you attend the meeting, drop me a line and I’ll post a synthesis of perspectives. As always, your anonymity is guaranteed.

IS PEDIGREE AN UNDERGROUND REGULATION?

As you may know, pedigree is covered in sections 4034 and 4163 of the California Business and Professions Code.

According to California’s Office of Administrative Law, all state agencies are required to adopt regulations following the procedures established in the Administrative Procedure Act (APA). If a state agency issues, enforces, or attempts to enforce a rule without following the APA, the rule is called an “underground regulation.” State agencies are prohibited from enforcing underground regulations.

I’m no lawyer, but California’s pedigree laws still seem “susceptible to interpretation,” a key test for APA procedures. (See What is a Regulation?) The CA Board of Pharmacy is using a great of judgmental discretion in carrying out its duties, as I point out in Pedigree and Obscenity.

Bryan Liang went further last week in his editorial “Protection against counterfeit drugs too important to rush” when he wrote: “Those participating in the supply chain — from pharmaceutical companies to community clinics to mom-and-pop drugstores — are greatly concerned about implementing a law that won’t work because of the unanswered questions of what an e-pedigree would entail — including what standard is right for the entire chain, what technology to use, what frequencies are mandated, how pill containers versus injectables would be treated, how to weather the costs of pedigree readers and writers, and, critically, who would be the owner, guardian and steward of the information.”

Similarly, David Fong, Pharm.D., senior VP of pharmacy & family care at Safeway, echoed these comments in a recent Drug Topics article: “We don’t believe that on January 1, 2009, the supply chain will be ready to comply with the rule.”

So has the CA Board of Pharmacy followed APA? If there are reasonable grounds to suspect that the Board has not followed APA, then a simple legal challenge will prevent the Board from enforcing pedigree laws on January 1, 2009. (Fair warning: This is not legal advice. See disclaimer below. Your mileage may vary.)

GETTING READY FOR … NOTHING?

Through my work with Secure Symbology, I have seen first-hand that an integrated serialization/e-pedigree solution can be implemented on a high-speed packaging line using 2-D bar codes. However, many (most?) manufacturers, wholesalers, and pharmacies will not be ready by the arbitrary deadline of 1/1/09. While counterfeit drugs remain an ongoing threat, there seems to be little logical or fact-based rationale for rushing ahead with a law that is still susceptible to interpretation.

So, does the Board (privately) expect a delay?

Clue #1: The Board of Pharmacy’s budget will increase by only 2.5 percent and they will add no new positions in the fiscal year during which it implements e-pedigree. (See Pedigree and Obscenity.) Huh?

Clue #2: Judith Nurse, Supervising Inspector at the CA Board of Pharmacy, spoke by telephone at the SecurePharma conference in February. I wrote down the following quote: “We do not want to be the pedigree police.” Does this statement mean that the Board plans not to enforce the pedigree law?

Clue #3: I asked Ms. Nurse the following question at SecurePharma: “It seems likely that many manufacturers and wholesalers will not be able to comply with the pedigree laws by January 1, 2009. What contingency plans has the Board of Pharmacy prepared to handle such a situation?” Ms. Nurse replied: “We have not developed any contingency plans.” If this is supposed to make consumers feel safer, then I’m really worried!

DO AS I SAY…

According to its own assessment, the CA BoP’s staffing is “insufficient to perform mandated duties at desired levels.” Perhaps that explains why the CA Board of Pharmacy has not yet bothered to post the minutes from January’s Public Board Meeting on the Board and Committee Meetings section of its own website (as of March 24).

Guess they need more time to comply.

The FDA and EC Dive into Supply Chain Security

Today, the Food and Drug Administration (FDA) began soliciting comments and information about technologies behind pharmacy supply chain security. Here are the links for your commenting and informing pleasure:

Standards for Standardized Numerical Identifier, Validation, Track and Trace, and Authentication for Prescription Drugs (Request for Comments)

Technologies for Prescription Drug Identification, Validation, Track and Trace, or Authentication (Request for Information)

In an interesting coincidence of timing, the European Commission (EC) recently made a similar request regarding closely related issues. See the EC’s just-issued Public Consultation In Preparation Of A Legal Proposal To Combat Counterfeit Medicines For Human Use.

These requests provide a good opportunity to educate regulators about the progress being made in our industry along with the real-world implementation hurdles. So far, the clarity and professionalism of the questions posed by the EC and FDA offer an interesting contrast with a certain Board of Pharmacy’s approach to information gathering and assessment.

What’s Going On?

In the U.S., states currently have the greatest influence over the wholesale and retail distribution of drugs, presenting some practical hurdles for any manufacturer, wholesaler, or pharmacy that operates in multiple states. Say hello to 50 different pedigree requirements!

Last September's Food and Drug Administration Amendments Act of 2007 (or FDAAAAAAAAAAA) empowered the FDA to take a stronger hand in these matters with Section 913, entitled “Assuring Pharmaceutical Safety.” Download this handy-dandy 2-page extract to read this section for yourself. I first discussed the importance of this Act in PDUFA & Supply-Chain Security.

In plain English, Section 913 requires the FDA to “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.” The deadline is March 2010. The most notable requirements include:

• The development of a standard numerical identifier at the package or pallet level; and


• The evaluation of “promising technologies,” including RFID, nanotechnology, encryption technologies, and “other track-and-trace or authentication technologies.”

Well, this first item should be a breeze since we are only 9 months away from having all products sold in California serialized at the unit of use level for use in e-pedigree, right? Just kidding! (I’ll have more on the CA 2009 deadline next week.)

Let’s Get It On

I’ll admit to being just a wee bit critical of the FDA’s love affair with RFID. As I see it, the FDA has not always demonstrated an understanding of business realities within the pharmacy supply chain. Drug Channels readership has grown dramatically in the past year, so new readers may want to check out two RFID posts from a year ago: RFID Un-Hype and More RFID Un-Hype.

Back in June 2006 (when I had about 11 subscribers), I wrote that the FDA was blind to the supply chain’s evolution, stating: “I guess it’s easier to blame companies for not spending enough money on premature solutions than to understand the real-world complexity of having 160,000 unique points of drug dispensing.” Hopefully, we’ve all come a long way since then.

Comments are due to the FDA by May 19, 2008 and due to the EC by May 8, 2008. Happy submitting!

WSJ Hypes McKesson Buyout (Again)

John Hammergren, Chairman of the Board, President, Chief Executive Officer of McKesson (MCK), just co-authored a new book called Skin in the Game: How Putting Yourself First Today Will Revolutionize Health Care Tomorrow.

I’ll be reviewing this book in an upcoming post. But in the meantime, I want to check in on the prospects for a buyout of McKesson in advance of Mr. Hammergren’s presumably higher visibility in 2008.

I last speculated about the possibilities for buyout of McKesson in October in Chatter about a McKesson Buyout based in part on a Wall Street Journal article by Greg Zuckerman.

Apparently, Mr. Zuckerman likes to fan these flames periodically because Sunday’s online WSJ featured his article called As the Market Falls, It's Time to Shop. The article states:

“Other stocks that investment pros are keeping their eyes on? One is McKesson (MCK), the largest U.S. drug distributor, which has fallen more than 20% since late November. McKesson's business isn't impacted as much as some others in an economic downturn, and its profit is expected to rise 16% in the next year. When the economy stabilizes, some analysts say McKesson could be an acquisition target.”

McKesson’s closing price was $52.05 yesterday, which is more than double the October 2004 low of about $24 per share but 10% below the closing price on the date that the October WSJ article ran.

So far in 2008, McKesson’s stock price has fared the worst among the big wholesalers – Cardinal Health (CAH) and AmerisourceBergen (ABC). See an interactive chart of Big 3 YTD stock price performance. However, this year’s comparatively weaker performance actually reflects larger relative gains following McKesson’s Halloween rally. See an interactive chart of Big 3 stock price performance since November 1, 2007.

I still view McKesson as the most logical LBO target among the Big 3 wholesalers, especially given its business mix, current operating platform, age (and stability) of its management team, and potential for a value-creating restructuring. However, the turmoil in the credit markets makes a near-term deal seem unlikely as the credit crunch grips private equity.

Luckily, Mr. Hammergren can rely on his book royalties to tide him over until the private equity firms can get back on their feet.

The DEA's Anti-Diversion Strategy

I am getting a lot of questions from Drug Channels readers about the recent uptick in enforcement activities to combat diversion of legitimate controlled substances. As I see it, the increase stems from a combination of changing political priorities, new detection capabilities, and new approaches to the pharmacy supply chain.

Congressional testimony by the DEA on Wednesday shed some light on their strategy behind license suspensions at seven (not four) wholesale distribution centers. Expect more, not less, enforcement action in the future.

As background, you may want to browse the DEA’s list of Drugs and Chemicals of Concern.

POLITICAL FOCUS

There has been growing political pressure to stop the abuse of prescription drugs.

• President Bush recently used his weekly radio address to highlight the “growing availability of highly addictive prescription drugs online.”


• Senator Dianne Feinstein (D-CA) introduced S.980 Online Pharmacy Consumer Protection Act of 2007 in March 2007. The HDMA recently affirmed its support of this bill.


• Similar legislation aimed at rogue pharmacies is also part of S 2237 Crime Control and Prevention Act of 2007. (Look for the section called “Subtitle E--Online Pharmacy Bill” a.k.a. The Ryan Haight Online Pharmacy Consumer Protection Act of 2007).

The President’s National Drug Control Strategy: 2008 Annual Report cites some startling data, such as the fact that abuse of prescription drugs among 12 and 13 year-olds now exceeds marijuana use. (Yikes!)

The DEA also has much-improved abilities to identify diversion of controlled substances. So far, 35 states have enacted legislation requiring Prescription Drug Monitoring Programs (PDMP) to track prescriptions for controlled substances. 26 programs are operating and 9 are in the start-up phase.

THE DEA'S STRATEGY

As I’ve noted on the blog, wholesalers are being “asked” to be “responsible” for stopping diversion by their pharmacy customers.

Michele Leonhart, Acting Administrator of the DEA, testified before Congress on Wednesday. (Read her testimony.) She described the DEA’s strategy for controlling diversion by pursuing actions against wholesalers in the following way:

“As part of our effort to attack rogue Internet pharmacies that are supplying millions of doses of licit drugs, DEA has sought to disrupt the supply chain that makes diversion by these rogue Internet pharmacies possible. To that end, DEA has undertaken an important initiative to educate wholesale distributors, and when necessary, pursue administrative, civil, or other criminal action against wholesalers that distribute excessive amounts of controlled pharmaceuticals. Since beginning the initiative, DEA has suspended the registrations of seven wholesale distributors, four of which were owned by two Fortune 500 companies.”

I presume that four suspensions at Fortune 500 companies include Cardinal Health (CAH) and AmerisourceBergen (ABC). I was not aware of the other three suspensions. Does anyone know which other wholesalers had their licenses suspended? (UPDATED: See comments below.)

Wholesalers are now struggling to balance their enforcement responsibilities with the legitimate needs of pharmacies and patients, as evidenced by Cardinal's customer problems. Perhaps that’s one reason why drug distribution executives there seem to have as much job security as a Spinal Tap drummer. As the DEA has learned, you can't really dust for vomit...

Diversion Risk for ABC?

The DEA’s aggressive enforcement efforts for the diversion of controlled substances and other prescription drugs may mean business disruptions for wholesalers besides Cardinal Health (CAH).

Last week, the DEA and FBI raided drug stores and placed two San Diego pharmacies under immediate suspension. See Feds Raid Drugstores, Mission Hills Home.

Unfortunately, it looks like this pharmacy was being supplied by AmerisourceBergen (ABC). Why do I say this?

• According to the Statement of Facts filed with the Court, the defendant allegedly delivered the diverted drugs in “Good Neighbor Pharmacy” bags.


• Slide 5 of MSNBC’s slideshow from the raids (reproduced above) shows a “Good Neighbor Pharmacy” sign on the pharmacy.


• Good Neighbor Pharmacy is the national cooperative for independent pharmacies that is owned by AmerisourceBergen (ABC).

Of course, thousands of pharmacies participate in ABC’s Good Neighbor program, so finding one bad apple in the bushel is no cause for panic.

However, I wonder if the DEA will use a similar approach with ABC as the Agency is using with Cardinal Health (CAH). If so, then perhaps ABC may be facing the suspension of its license to distribute controlled substances at one of its facilities. Alternatively, ABC may have to limit shipments to independent pharmacists as Cardinal has done in Stafford, TX.

For better (or perhaps worse), the DEA now considers distributors and wholesalers to be responsible for ensuring that a pharmacy is only dispensing prescriptions issued for a legitimate medical purpose by an individual practitioner acting in the usual course of professional practice. (See One Pharmacist’s View of Cardinal’s DEA Issues.) What impact will these new responsibilities have on wholesalers' revenues and customer relationships?

Wrestling with AMP

CMS won’t appeal the preliminary injunction against the full implementation of the Average Manufacturer Price (AMP) Final Rule. So, there’s still No AMP for You, at least until CMS regroups. But stay tuned because industry insiders are now rallying behind a Senate bill that will fix AMP once and for all.

AMP-Mania XI

Gosh, it’s hard to believe that the AMP Injunction is already 11 weeks old!

Drug Topics recently ran a cover story called Bracing for a Showdown, which has a useful background on the AMP story from the pharmacists’ perspective. I pop up in paragraph 51 (out of 53) to scare the daylights out of pharmacists by stating:

“Pharmacists are being exposed to economic realities that they haven't faced before that are removing protections that protected them from fundamental economic realities. Retail pharmacy is now experiencing what has happened in other retail sectors over the past 25 years. Pharmacies need to get big, get focused, or get out.”

TOTAL NONSTOP ACTION

NCPA has posted its two most recent submissions to CMS related to the Final Rule:

NCPA’s Comments on CMS’ Final AMP Rule

Appendix to NCPA Comments

The Appendix is by far the more interesting document because it attempts to support NCPA’s claims that roughly half of all independent pharmacies will vanish due to AMP. Rather than rebutting the statistically shaky claims in the Appendix document on the blog, I will simply suggest that you re-read my Pharmacy Profits & Part D post as well as the comments to that post.


I wonder if the Editors of Drug Topics secretly agree with me about the exaggerated claims of harm from AMP. They chose to illustrate the showdown using the metaphor of professional wrestling – a “simulated sport and performing art.” (!)

S.1951 TAGS IN

I recently had the opportunity to ask Kathleen Jaeger, President and CEO of the Generic Pharmaceutical Association, about the future of AMP. She told me that there will be a coordinated legislative push this Spring for S.1951 (a.k.a. The Fair Medicaid Drug Payment Act of 2007). The first volley was sent Tuesday by NACDS with this letter to Senate and House leaders.

This bill, which has been referred to the Senate Finance Committee, has 42 co-sponsors, including Senator Barack Obama (but not Senators McCain or Clinton). I covered the key points from this bill in Last Ditch Effort for S.1951 last November, when there was an attempt to get movement before the Winter Recess.

CMS has not even bothered to update its own page on FUL since the injunction, so the momentum remains with the pharmacy industry. As scholar and philosopher "Rowdy" Roddy Piper, Ph.D., once said: "Just when you think you know the answers, I change the questions."

The Dark Side of Pharmacy Outsourcing

I hate to be the bearer of bad news (again), but Katherine Eban, the muckraking author of 2005's Dangerous Doses, is back to take another shot at wholesalers.

Your Hospital's Deadly Secret describes the sad case of Alyssa Shinn, a premature baby who died after being given a fatal overdose of zinc from her intravenous nutrition bag, apparently due to a mistake made in the hospital pharmacy. This story was also featured on Nightline (video).

As it turns out, the hospital pharmacy had been run by outside companies for at least 10 years. Each of the big 3 wholesalers -- AmerisourceBergen (ABC), Cardinal Health (CAH), and McKesson (MCK) -- had taken a turn running the hospital's pharmacy. However, UHS was apparently managing the pharmacy at the time of Alyssa's death. [Please see Correction notice below.] According to Katherine's article, about 440 U.S. hospitals outsource the management of their pharmacies.

But just in case you miss the point, the article's subtitle reads: "Hospital pharmacies across America are being contracted out to companies with little or no medical expertise. Patients are paying the price." Oh well, there goes Katherine's invitation to the next HDMA meeting!

After I read the article, I asked Katherine for her perspective on independent pharmacy managers such as Comprehensive Pharmacy Services versus wholesalers. According to Katherine: "From what my reporting is telling me, I think they probably are better -- in large part because their sole focus is to improve pharmacy performance."

And if Katherine's story is not enough scandal for you, you can also read about Cardinal Health's alleged problems with the management of the hospital pharmacy at DeSoto Regional Health System. (See State, federal agencies probe DeSoto hospital.)

I encourage you to read these articles and make up your own mind. But I'm curious to hear the opinions of my pharmacy or wholesaler readers. Are there systemic flaws in the wholesalers' pharmacy outsourcing business or does this story simply highlight the mistakes of a few individuals at a single facility?

CORRECTION: In a previous version of this post, I had mistakenly written that McKesson was operating the pharmacy at the time of Alyssa's death. In fact, AmerisourceBergen was advising UHS in July, as the article correctly notes. I apologize for the error.

Cardinal's Customer Problems Deepen

As I suspected, Cardinal Health’s (CAH) new role as supply chain enforcer is angering some of the customers who have been tagged as “diverters.”

According to Cardinal Health's Compliance Efforts Rile Some Customers, two pharmacies have so far sued Cardinal over the way in which the company is identifying purported diverters. (Alternate link from the Wall Street Journal site: Cardinal Health's Compliance Efforts Rile Some Customers.) Per the article:

“Community Drugstore, a specialty pharmacy focusing largely on pain management, said in a lawsuit filed in Delaware that Cardinal improperly stopped supply without any evidence that the store had engaged in wrongdoing. A federal judge in December ordered Cardinal to restore Community Drugstore as a customer.”

“In the other lawsuit, an Oklahoma federal judge in December ordered Cardinal to resume supplying controlled substances to Ken's Discount Pharmacy, a longtime Norman, Okla., pharmacy that had said it would go out of business in days without some action. The court said it appeared that Cardinal had stopped supplying the pharmacy and had placed the drugstore on an 'exclusion' list as an arbitrary reaction to compliance issues between Cardinal and the DEA. The plaintiff said the pharmacy, located across the street from a major medical facility, had suffered a hydrocodone shortfall after Cardinal limited its supply.”

You can read Cardinal’s PR spin in the article, but these stories echo the experience of Evergreen Professional Center Pharmacy that I describe in One Pharmacist’s View of Cardinal’s DEA Issues. I also want to give a shout out to regular reader PBMGuru, who was the first to predict legal action in a comment on Cardinal Sins (Again) from last November.

BTW, Dinah Brin of Dow Jones is the only national reporter who has been following Cardinal’s deepening problems with the DEA. Dinah is apparently a fan of my humble ol’ Drug Channels blog because she included a quote from yesterday’s post in her story. Thanks, Dinah!

Cardinal's Latest DEA Deal

Time for another installment in the continuing adventures of Cardinal Health and the Kingdom of the Crystal Meth, now showing in Stafford, TX!

Last Friday, Cardinal Health (CAH) told suppliers that it would discontinue all controlled substance and List 1 Chemical shipments from its Stafford distribution center for retail independent, Medicine Shoppe and Medicap pharmacies only. The move was announced to retail independent customers yesterday. Read Cardinal's letter online here.

As regular Drug Channels readers know, Cardinal had its license to distribute controlled substances suspended by the DEA in Washington, Florida, and New Jersey. While there’s no official DEA suspension, Cardinal has been negotiating with the DEA over the Company’s Stafford, TX distribution center (as I discuss in Fresh DEA News from Cardinal.)

The interesting twist -- and the likely reason that the facility's license was not suspended -- is that Cardinal will be discontinuing shipments only to the retail independent pharmacies from Stafford. The “legitimate controlled substance needs” (their words) of these customers will be serviced from another Texas facility. However, per Cardinal's letter: “We will continue to provide controlled and non-controlled products to acute care, regional chain and national chain customers out of our Stafford (Houston) distribution center.”

Yikes! I can't imagine that this statement will help Cardinal to regain or build market share among independents. Let’s hope that Cardinal’s “contingency plans” have progressed since their Washington license was suspended. (See One Pharmacist’s View of Cardinal’s DEA Issues.)

So what does this move signal about supply chain security? Are retail independent pharmacies now considered to be the weak link in guarding our supply chain against counterfeits and diversion—a demand-side security problem that just won’t go away?

*NEW* CA Pedigree Legislation

Today’s lesson: If at first you don’t succeed, change the rules!

Two bills were introduced last week that would modify California’s pedigree legislation.

Just to be crystal clear: Don’t stop planning for January 1, 2009. Obviously, there can be no guarantee that either the proposed legislation will pass or that the Board of Pharmacy will vote for a delay to 2011. Nevertheless, the likelihood of a delay or phased implementation just went up again.

I'M JUST A BILL

You can read the text of the proposed bills at these links:

SB 1307 (introduced by CA State Senator Ridley-Thomas)

SB 1270 (introduced by CA State Senator Cedillo)

SB1270 is more interesting of the two because it potentially changes the January 1, 2009, implementation date. The text looks like a placeholder to me:

“This bill would instead impose the pedigree requirement and the prohibition against selling, trading, transferring, or acquiring a dangerous drug without a pedigree on an unspecified date, authorize the board to extend the compliance date to an unspecified date in those specified circumstances, and make conforming changes.” (emphasis added)

Right now, the CA Board of Pharmacy only has the ability to delay implementation of e-pedigree requirements until 2011 if the board determines that “manufacturers or wholesalers require additional time to implement electronic technology to track the distribution of drugs within the state.” (See CA Pedigree: Going to '11?) Unfortunately, the Board’s decision making process regarding the 2009 deadline seems dysfunctional and unnecessarily opaque, as I describe in Pedigree and Obscenity.

I’ve been told that additional legislation may be on the way, especially with regard to phased implementation such as a risk-based approach to serialization. You can read more about California’s legislative process here.

AND SPEAKING OF SERIALIZATION...

I will be attending SecurePharma2008 on Tuesday morning. If you'll be there, please stop by and see me at the Secure Symbology booth at 10:30 AM on Tuesday. I’m always looking for good story ideas and tips for Drug Channels.

I'll be at the booth with other members of Secure Symbology’s Advisory Board of Directors. But please don’t call us booth babes!

One Pharmacist’s View of Cardinal’s DEA Issues

Drug Topics just published a fascinating Letter to the Editor from Richard Molitor, Manager of the hospital-owned Evergreen Professional Center Pharmacy in Kirkland, WA. His pharmacy was directly affected when the DEA suspended Cardinal Health’s (CAH) license to distribute controlled substances. I contacted Richard directly and he was kind enough to provide me with some additional details (as well as the photo).

In Fresh DEA News from Cardinal, I asked whether an unfair burden is being laid on a corporation that never asked to be a police force. In my opinion, the experience of Evergreen Professional Center Pharmacy illustrates the risks to pharmacies and patients when wholesalers are (explicitly or implicitly) asked to become enforcers without normal due process protections.

THE VOICE OF THE CUSTOMER

You can read Richard’s complete Letter to the Editor online, but here are the key quotes:

• “The week prior to the official DEA shutdown, Cardinal sales reps contacted their accounts (including ours), advising them to increase their on-shelf inventory of controlled substances in order to cope with the pending logistical nightmare.”


• “Cardinal cancelled the ability of several West Coast accounts (including our outpatient pharmacy department) to order controlled substances. This jeopardized our pharmacy's ability to support our hospital's discharging surgical, inpatient, hospice, and oncology patients.”


• “Notification from Cardinal came in the form of a fax sent by the corporate director of quality and regulatory affairs late on a Monday (after the sender, based in Ohio, was no longer available for contact). The fax stated that our account was cancelled in part due to ‘recent excessive quantities ordered’ as well as ‘a risk that diversion will occur if we continue to fill controlled substance orders.’”

OK, we can all see the irony in asking customers to order in advance of the suspension and then penalizing those same customers for actually following their sales rep’s advice! Like many large companies, it sounds like there was poor communication between the head office and the field.

DO (NOT) PROCESS

Apparently, the DEA now considers distributors and wholesalers to be responsible for ensuring that a pharmacy is only dispensing prescriptions issued for a legitimate medical purpose by an individual practitioner acting in the usual course of professional practice.

In a private email to me, Richard told me that Cardinal “didn't seem too willing to allow due process for their customers. Instead, based upon some ill-obtained assessment of 'risk,' they decided to shut us off as well as to restrict (via rationing, once I'd screamed loud enough about being cut off) further ordering (which nearly required our 250-bed hospital to shut down since the Inpatient Pharmacy couldn't get the injectable meds they routinely use).”

While a wholesaler or pharmacist should always “exercise diligence and caution” (as Tom Connelly wrote in his comment last week), I am not aware of formal rules or guidelines to define the precise level of diligence or caution, especially when there is uncertainty about whether an ordering pattern might represent purchases for diversion.

It’s especially tricky for the big 3 wholesalers – AmerisourceBergen (ABC), Cardinal Health (CAH), and McKesson (MCK) – because each company serves 20,000 or more active customer accounts placing millions of total orders per year. Most companies will (rationally) become very risk-averse about any questionable situations when faced with uncertainty.

I’m no lawyer (see disclaimer below), but I’m fairly certain that companies do not have to abide by the restraints and procedures of due process as enshrined in our Constitution. Therefore, the risks to pharmacies and patients will increase if wholesalers are (explicitly or implicitly) asked to become judge, jury, and executioner on behalf of the DEA.

Any of my pharmacist readers care to weigh in on this topic?

-----

P.S. BTW, Richard operates his own webpage with links to pharmacy-related materials. True Molitor fans can also see Richard’s vacation photos, proving once and for all that pharmacists travel the globe, too.

The Price Might Be Right

I just read an interesting new report about drug price comparison web sites run by 10 U.S. states. But the wide variations in pharmacy prices for a common, high volume generic make me wonder about the efficiency of the pharmacy market and the value of apparent transparency.

10 STATES, MANY PROBLEMS

The Center for Studying Health System Change just released a study called State Prescription Drug Price Web Sites: How Useful to Consumers? I’m not familiar with the organization, but I found the report to be very useful.

Consumers in 10 states can compare the price of selected prescription drugs at different pharmacies. These sites provide the retail pharmacy price, which is usually measured as the “usual and customary price” charged to Medicaid. In theory, these prices could help uninsured or underinsured consumers shop around for lower prices.

Unfortunately, the data provided by these sites are apparently not always usable. The report documents some predictable problems, including:

• Infrequent and incomplete updates of price data
• Few reporting pharmacies
• Small number of drugs reported
• Inconsistent use of modern web search tools

SHOPPING FOR SIMVASTATIN

Florida has a one of the better sites and is highlighted in the new report.

Just for fun (!), I compared the pharmacy prices listed on the Florida site (http://www.myfloridarx.com/) for simvastatin (generic version of Zocor) 40 MG tablet. I searched pharmacies in Hialeah, FL, which is an urban market included in the new report.

Prescription price data was available for 40 out of 70 pharmacies:
Average = $115.54
Range: $9.70 to $221.43

Since I’m a wild and crazy guy, I also dug up Florida’s Maximum Allowable Cost (MAC) data, which tells me the maximum ingredient cost reimbursement to a retail pharmacy for filling a Medicaid script. MAC data for Florida’s Medicaid program are also available online here, although not in a consumer friendly format. (I love the Internet!)

There are 40 NDCs on the Florida MAC list for simvastation 40 mg. Price per tablet is $1.8995 per tablet, so a 30-day script is $56.99. Florida’s Medicaid dispensing fee was $4.23, making total pharmacy reimbursement $61.22 for this script.

Now here is something interesting: the cash price at three chains is *below* the MAC reimbursement from Medicaid. The Hialeah list included 8 Walgreens (WAG) pharmacies ($59.99), 3 CVS pharmacies ($54.59), and 1 Wal-Mart (WMT) pharmacy ($54.54). In other words, Medicaid pays more than a cash pay customer.

Correction (2/20/08): Medicaid does not pay more than a cash customer at a given pharmacy because the pharmacy can not be reimbursed by Medicaid for more than its Usual & Customary charge. However, an uninsured cash-pay customer buying at Walgreens would pay less than Medicaid would pay to a pharmacy with a U&C above the Medicaid reimbursement rate. Thanks to Marc for the clarification. See the comments below for more details.

THE MYTH OF TRANSPARENCY

While Florida’s site does a reasonable (but incomplete) job in comparing retail prices, a payer or consumer would still not have a clue about the allocation of revenue and profits associated with a simvastatin prescription.

The retail pharmacy price from an individual script gets divided between the manufacturer, the wholesaler, the pharmacy, a health plan, and/or the third-party managers who oversee the whole process. It’s almost impossible to know how various rebates, discounts, and reimbursement structures have influenced the drug’s cost to an individual pharmacy. Publication of Average Manufacturer Price (AMP) data, which would provide one data point for actual acquisition cost, is off the table for now. (Granted, this mystery and complexity allows people like me to earn a living by understanding the inner workings of this system.)

Healthy competition is one factor that can allow a free market to provide the benefits of transparency. For example, consumer involvement in Medicare Part D is lowering costs and changing behavior. (See Part D and Generics.) However, the wide and apparently persistent variations in pharmacy prices for a common, high volume generic make me wonder whether consumers are getting the true benefits of market competition among pharmacies.