Greater PBM Leverage
Talsma, Julia, Drug Topics
Despite acute margin pressure, retail pharmacies fight to stay in the game
A year after the merger between Express Scripts (ESI) and Medco Health Solutions, retail pharmacies - particularly independent pharmacies - are feeling considerable pressure from PBM practices.
Narrower pharmacy networks, lower reimbursements, more aggressive MAC (maximum acquisition costs) erosion, pharmacy benefit manager (PBM) transparency issues, mailorder, and PBM audits are taking a toll on independents trying to remain viable in this ever- changing healthcare marketplace.
Despite the Federal Trade Commission's decision favoring the merger of ESI and Medco, the National Community Pharmacists Association (NCPA) still believes that the merger was anticompetitive, according to John Coster, PhD, RPh, NCPA senior vice president of government affairs.
"Over time the merger still remains a problem for patients, pharmacies, and the healthcare system," Coster told Drug Topics. "Any time you put 60% of specialty drugs or mail-order drugs in the hands of one company, that is a problem."
PBM consolidation has led to greater leverage in the marketplace, said Lonny Wilson, DPh, CEO and executive director of PPOK, an Oklahoma-based pharmacy services administrator organization. He is also the owner of three retail pharmacies in Oklahoma and immediate past president of NCPA.
ESI, Walgreens, and TRICARE
Walgreens, with 7,930 drug stores, the largest national chain, tried to negotiate a new contract renewal with ESI in 201 1, but couldn't reach an agreement and exited the ESI pharmacy provider network January 1, 2012. In July 2012, Walgreens and ESI signed a new, multiyear agreement to bring Walgreens back as of September 15, 2012. However, Walgreens was not included as a preferred pharmacy provider for one of E Si's largest clients, TRICARE - the healthcare program serving the U.S. Department of Defense.
"Compared to fiscal 2011, we estimate that the negative impact of not being part of the Express Scripts, Inc. pharmacy provider network, net of associated cost reductions, was $0.21 per diluted share," according to the 2012 Walgreens Annual Report.
Walgreens' sales for fiscal year 2012 decreased by 0.8% compared to fiscal year 2011 and net earnings dropped by 21.6%, outlined in its annual report.
"Ultimately, the magnitude and timing of the impact on our financial results of rejoining the Express Scripts retail pharmacy provider network will depend on our ability to regain former patients and attract new patients covered by existing and new Express Scripts clients; however, we cannot predict with certainty what level of business we will achieve as a result of rejoining the Express Scripts retail pharmacy provider network in any particular future time period," the 2012 Walgreens Annual Report stated.
Narrower networks, deeper discounts
Following its merger with Medco last year and settlement of its dispute with Walgreens, ESI has more than 65,000 pharmacies available to its health plan sponsors for employers, health plans, government entities, and unions.
Narrower pharmacy networks have allowed PBMs to offer improved discounts to their clients, the plan sponsors, said ESI, now the leading PBM in the industry. In 2012, ESI covered 100 million lives (about 40% of the market), managing 1.4 billion prescriptions for approximately 3,500 clients.
'If our clients clearly want to have access to retail pharmacy, they do," said Brian Henry, E Si's spokesman, in an interview with Drug Topics. They can have access to a broad number of pharmacies or access to a narrower number of pharmacies, and that drives better discounts that way. They can utilize home delivery as an option, as well as a number of other solutions that we offer."
Henry contended that optimizing the retail pharmacy network for the best value for its clients is part of the job for ESI and other PBMs. He believes that there is still healthy competition within the PBM industry, with approximately 50 PBMs operating in the PBM "space. …