Who Will Pay for Prescription Drugs in 2020?

Yesterday, I looked at CMS' Bright Future for Drug Spending in 2020. Now let’s see who will be paying for all of these drugs.

In a major reversal from its pre-health care reform forecasts, CMS projects that private insurance will pay for a greater share of retail prescription spending than public funds will pay.

Hmm, how can this be?

Well, it turns out that CMS classifies coverage via state-run Health Insurance Exchanges (HIE) as "private insurance." While technically true, it is a bit misleading about the sources of payment. A big chunk of "private" coverage will actually be paid for by the government through subsidies.

Read on for a look at the past, present, and future of payers, along with some thoughts on what the forecasts means for manufacturer contracting and PBM strategy.

CMS' Bright Future for Drug Spending in 2020

The boffins at the Centers for Medicare and Medicaid Services (CMS) just released their new, post-health care reform forecasts for national health expenditures (NHE). You can read the full Health Affairs article here: National Health Spending Projections Through 2020: Economic Recovery And Reform Drive Faster Spending Growth (free download).

My number crunching highlights the good news for the pharmacy and pharmaceutical industries:

• Annual prescription drug expenditures will double in the next 10 years to $512.6 billion by 2020.

• Drug spending growth will grow at a compound average rate of 7.1% from 2010 to 2020—faster than overall health expenditures. As a result, prescription drug spending is projected to be 11.1% of NHE vs. 10.1% today.

• Health care reform will add an extra $35.2 billion in annual drug spending by 2020.

Despite the near-term patent loss gloom, CMS provides plenty of reasons to be cheerful about the future of the pharmaceutical industry, even if you don't study nuclear science and love your classes.

Tomorrow, I’ll look at the surprising changes in payer mix buried in the CMS data.

All is Not Lost

Thanks to everyone for the nice feedback on my ESRX-MHS series.

But now the weekend approaches. How about a fun new video to make you smile from the band OK Go?

If you have the Google Chrome browser, visit http://www.allisnotlo.st. Enter a message on the site and wait until the end of the video to see something awesome.

You can also watch the non-interactive version on YouTube. Embedded below for your viewing pleasure.

Enjoy!

ESRX-MHS: Wholesalers, Other PBMs, and Walgreens (3 of 3)

Welcome to the last chapter in my review of the Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS) merger. Here's the program:

Part 1: Strategic and Market Analysis
Part 2: Antitrust Issues
Part 3: Second-Order Effects on Wholesalers, Other PBMs, and Walgreens (Hint: you’re reading it right now!)

Today, I look at how the merger could affect other players in the channel. My observations:

• The deal could be a blessing in disguise for AmerisourceBergen (NYSE:ABC), although the conventional wisdom favoring Cardinal Health (NYSE:CAH) is probably correct.

• Mid-market PBMs—Catalyst Health Solutions (NASDAQ:CHSI), SXC Health Solutions (NASDAQ:SXCI), and Prime Therapeutics—have big new growth opportunities.

• Expect a quick resolution to the Express Scripts-Walgreens (NYSE:WAG) dispute due to Walgreens’ enhanced negotiating position following the merger announcement. I wonder if Express Scripts has figured this out yet?
  

Pembroke Consulting clients and Gerson Lehrman Group clients should feel free to schedule phone calls with me for additional comments beyond what I discuss below.

ESRX-MHS: Antitrust Issues (2 of 3)

Welcome to Part 2 of my musings about the merger of Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS). Here's the schedule:

Part 1: Strategic and Market Analysis (yesterday)
Part 2: Antitrust Issues (today)
Part 3: Second-Order Effects on Wholesalers, Other PBMs, and Walgreen (tomorrow)

Right now, I give the deal a 60% chance of being approved by the Federal Trade Commission. It’s going to be a very tough fight for antitrust approval, but perhaps not for the reasons you think.

The Agreement and Plan of Merger filed on Friday gives us a peek at the companies’ strategy for clearing the antitrust hurdles. But note that there is no termination fee if the companies don’t get antitrust clearance.

As I mentioned yesterday, I can only scratch the surface of the antitrust analysis on Drug Channels. Pembroke Consulting clients and Gerson Lehrman Group clients should feel free to schedule phone calls with me for additional comments beyond what I discuss below.

ESRX-MHS: Strategic and Market Analysis (1 of 3)

We’ve now all had the weekend to digest the surprising merger of Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS).

I'm going to examine the deal over the next three days. Today, I focus on the marketplace impact and strategic motivations behind the deal. Tomorrow, I'll look at the antitrust challenges, which appear to be different than many people believe. On Wednesday, I'll discuss derivative effects on mid-market PBMs, pharmaceutical wholesalers, and Walgreen (NYSE:WAG).

As I argue below, the deal makes sense given the dynamics of the PBM industry. At the same time, a successful transaction would signal the end of the PBM industry's major growth opportunities and the transition to a more mature, highly consolidated market. The post-2015 world looks much less rosy for PBMs as the generic wave crests and the government crowds out private payers.

Although this is a longer-than-average post, I can only scratch the surface of the many issues surrounding this deal. Pembroke Consulting clients and Gerson Lehrman Group clients can schedule phone calls with me for additional comments beyond what I discuss below.

Express Scripts to Acquire Medco (Yes, really)

At 6:00 AM this morning, Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS) announced a merger agreement. Here is the official press release: Express Scripts and Medco Health Solutions Sign Definitive Merger Agreement; Medco Shareholders to Receive $29.1 Billion

No, this is NOT one of my April Fool's jokes.

The companies have set up a website with details (www.BetterRxCare.com) and published a fact sheet with details. There is a conference call scheduled for 8:30 AM EST this morning. Click here to listen.

I estimate that the two companies processed almost 40% of prescriptions in 2010. (See chart below.) I'll follow-up next week as more details emerge. In the meantime, expect the pharmacy industry and possibly pharma manufacturers to protest this combination once the shock wears off.

Top Ten Drugs of 2016

EvaluatePharma just released their latest World Preview 2016, which projects prescription drug sales and R&D activity globally and in the U.S. The report is free with site registration.

I was especially intrigued by their predictions for the top 50 products in the U.S. in 2016. Below is a handy chart comparing the 2016 list with 2010’s top sellers.

• The top 10 U.S. drugs in 2016 are projected to have total revenues of $31.0 billion, which would be $8.4 billion less than the top ten in 2010.

• Rituxan, the projected #1 drug in 2016, wouldn’t even make the 2010 top 10 list after adjusting for likely product price inflation.

These forecasts succinctly illustrate the future of the pharma industry. The next-generation blockbusters will primarily be specialty products aimed at smaller patient populations than the mass-market blockbusters of yesteryear. Everything—commercial strategies, contracting, marketing, org structure—must evolve to compete in this new environment.

CMS Moves Ahead with Pharmacy Acquisition Cost Survey

Don’t say that I didn’t warn you.

Last Friday, the Center for Medicare & Medicaid Services (CMS) chose Myers and Stauffer as the vendor that will survey retail community pharmacies about both consumer prices as well as drug acquisition costs. CMS intends to develop a monthly Average Acquisition Cost (AAC) for covered outpatient drugs. Here’s the official announcement: Survey of Retail Prices: Payment And Utilization Rates, And Performance Rankings

Everyone in the retail drug channel—manufacturers, pharmacies, wholesalers, and Pharmacy benefits Managers (PBMs)—should get ready for an uncomfortable dose of transparency.

Co-Payments and Prescription Abandonment

In Wake-Up Call for Co-pay Cards, I mention that co-pay card programs can be valuable tools in helping employers ensure a healthy workforce by reducing prescription abandonment data.

A few people asked me about the data, so here’s a link to the original scientific paper: Shrank WH, et al, “The Epidemiology of Prescriptions Abandoned at the Pharmacy,” Annals of Internal Medicine, November 2010.

As far as I know, this article is the best publicly-available, peer-reviewed analysis of how co-payment levels influence whether a patient actually picks up a prescription. Lots-o'-Data in the original article, but read on for a few highlights along with a strawberry-scented chart.

Wake-Up Call for Co-pay Cards

The June issue of Human Resource Executive (HRE) includes Coupon Overdose, an instructive overview of how employer-sponsored pharmacy benefit plans view manufacturer co-pay offset programs, a.k.a., co-pay cards.

And guess what? Payers don't like these programs, believing that co-pay coupons boost brands at the expense of generic alternatives. PBMs are also unhappy because direct-to-consumer discounts via a co-pay offset are an alternative to contracting for access via a PBM rebate.

The countervailing argument about improved adherence and therapeutic choice was added by yours truly in the article’s sidebar How Much Is Too Much?

Brand managers at pharmaceutical companies should pay attention to the growing controversy because third-party payers and PBMs are pushing back on co-pay offset programs. See the video excerpt below for my POV from a recent speech titled "The Future of Co-Pay Discount Cards."

Medicaid Drug Rebate Program Summit (sponsor)

I want to remind you about IIR's 16th Annual Medicaid Drug Rebate Program (MDRP) Summit. The event will be held September 14-16 in Chicago.

IIR is offering a special 25% discount to Drug Channels readers, which is up to $800 in savings off the standard rate. All you have to do is register with your VIP code: XP1658DRUG. Thanks, IIR!

IIR has not yet announced the keynote speaker, so you can win an iPad 2 if you can guess the keynote speaker. The title of the keynote is "State & Future of Healthcare in America."

Full details from IIR below.