Who Paid for Prescription Drugs in 2009?

The boffins at the Centers for Medicare & Medicaid Services (CMS) just released the 2009 computations of National Health Expenditures (NHE), including the latest data for prescription drugs.

Total NHE grew by only 4.0%, the slowest rate in five decades and below the 5.7% growth rate predicted for 2009 by CMS only last February. Alas, the slowdown occurred because of the economy, not healthcare reform. As Carl Mercurio of the Corporate Research group wittily notes in his blog: To Slow Healthcare Spending Growth, Destroy the Economy.

In 2009, total NHE for retail prescription drugs were $249.9 billion in 2009, up 5.3% versus 2008. A few intriguing observations from my number-crunching:

• Retail prescription drug prices, as measured by the Consumer Price Index for prescription drugs, rose 3.4% in 2009. Thus, real (inflation-adjusted) growth in drug expenditures was only 1.9%.
• Public funds continue to crowd out private payers.
• Medicare drug expenditures grew by 8.8%, while private health insurance grew by 5.1%.
• Consumer out-of-pocket payments grew by only 2.2%.
• Hooray! CMS' prediction of 5.2% growth from last February was pretty close to the actual rate, breaking their multi-year streak of poor forecasts. (See Drug Forecasts: Oops!...They Missed It Again.)
  

Read on for details and charts. Note that the NHE totals are net of manufacturer rebates, so the reported figures are lower than prescription sales of retail pharmacies. Policy wonks should check out the methodological note at the bottom for details.

Please note that the discussion of the Medicare growth rate was updated on January 13 based on comments from CMS. See below for details.

Meet Me at the National Pharmacy Forum

I want to let the Drug Channels audience know about the 2011 National Pharmacy Forum on February 7-9, 2011, in sunny and warm Phoenix. The event is co-hosted by the Health Industry Group Purchasing Association (HIGPA) and the Healthcare Industry Supply Chain Institute (HISCI).

I will be delivering the keynote address called “The Battle for Control Over Specialty Drugs.” I’ll examine the evolution of specialty drug distribution channels and the impact on hospitals and community alternative care sites. Check out the complete event details on the HIGPA site.

Send me an email if you’d like to arrange a one-on-one meeting. If you run into me at the convention, please introduce yourself and let me know what you think of Drug Channels.

Health Care Reform and Pharmacy Benefit Premiums

I recently got around to reading the newest Managed Care Digest Series reports. These useful—but overly dense—reports compile tons of interesting data about pharmaceuticals, prescriptions, and benefit design.

One intriguing chart caught my eye. As you can see below, pharmacy premiums rose by 72% in Massachusetts after the state’s health care reform plan was launched in 2006. Meanwhile, premiums rose by only 27% in the rest of the country over the same period.

Harbinger of the U.S. future or just another foolish Bay State tradition, like rooting for the New England Patriots? (Hey, I live in Philadelphia...)

CVS-UAM: Part D Powerhouse with a Surprising Alliance

Welcome to 2011, the year with the third numerical palindrome (11-02-2011) of the 21st century.

The year's consolidation activity got started with a bang when CVS Caremark (NYSE:CVS) acquired Universal American's (NYSE:UAM) Medicare Part D Business. Read the press release.

The deal exemplifies the ongoing PBM consolidation trend that I have been predicting for a few years. Scale matters for Medicare Part D prescription drug plans (PDPs), too. (See data below). Profits from the coming generic boom create even more deal momentum. CVS Caremark even gets some bragging rights by taking one of Medco Health Solution's (NYSE:MHS) biggest Part D clients—a reversal of recent trends for these two competitors.

I want to highlight an intriguing but little-noticed angle on the deal. Starting in January 2012, the National Community Pharmacists Association (NCPA) will become business partners with its arch-nemesis CVS Caremark. Strange bedfellows, indeed!

Questions for CVS Caremark shareholders: How important is NCPA’s support of the Universal American Part D plans? Will the alliance reduce NCPA's anti-CVS lobbying to Congress and the FTC, thereby lessening political pressure on CVS Caremark?

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.