Month: October 2016

I don’t know if Drug Channels is simply channeling the Thriving Pharmacist, or maybe its writer, Adam Fein, is wearing a Zoltar costume to trick-or-treat tonight. Either way, his Blog Post Walgreens Plays to Win: Our Exclusive Analysis of 2017’s Part D Preferred Pharmacy Networks is germane to Thriving readers as well. Please head over to read it.

Of course, I cannot help but add some community pharmacy specific perspective. Let’s start with Table 1 from his post. Adam’s take is that Walgreens wants to be preferred. I don’t contest this: they certainly appear to be willing to take more of these hyper-aggressive contracts than others. But sometimes, it is what is unspoken that is most interesting. In this case, we might ask: why would Walmart relinquish their number-one position on the list? Unlike Walgreens, Walmart stores are generally much larger, and contain a broader array of non-pharmacy merchandise. In other words, they appear to be better suited than Walgreens to absorb pharmacy losses by increasing sales in their other departments. But in spite of this, Walmart has contracted its participation, and that is truly interesting! Will we be seeing Walgreens warn of than expected earnings sometime in 2017 like Walmart did in 2015?

Also, while Adam correctly notes that CVS is less willing to play this game, he forgets to mention that some of profits for this company originate on the OTHER SIDE of the ledger: the benefit manager side. CVS may be the smartest one of the bunch because it doesn’t participate in most narrow networks. Likewise, Rite Aid appears to be following in the shoes of CVS, both by limiting their participation and acquiring a benefit manager.

Finally, the independents are not spooked. To the contrary, like CVS and Rite Aid, they might just be smarter than the others. Most independent pharmacies, if given the option, would not sign with any of the preferred or narrow networks. It is only because chains are willing to sacrifice pharmacy profits for store traffic, that independents have to participate in at least one preferred network to prevent significant erosion of their patient base. And this is really the key point. Patients seem to have a lot more loyalty to their pharmacy, both chain and independent, than to their Part D plan. Patients will generally chose a plan both on the overall costs and the ability to maintain access to their pharmacy or pharmacist. It is unusual for a pharmacy to lose a patient when that pharmacy accepts one or more plans that are similar in out of pocket expense to another plan if the patient is forced to change pharmacy providers to gain the advantages offered by the other plan.

Happy Halloween. And I promise that we won’t be referencing Drug Channels in the post tomorrow.

Adam Fein, with Drug Channels, recently posted an excellent analysis of the Kaiser/HRET 2016 Employer Health Benefits Survey. His analysis addresses, among other things, cost-shifting in the employer/commercial prescription insurance realm. See Employer Pharmacy Benefits in 2016: More Specialty Drug Cost-Shifting Means More Problems for Patients for his discussion. It is a worthwhile read.

Often, the analysis of Drug Channels is focused on the distribution chain in the pharmaceutical markets and only pays cursory attention to the end of the chain: providers and patients. But in the article above, Adam makes some great points about the impact of this cost-shifting trend as it applies to patients. Adam observes:

…employers continue shifting the cost of specialty prescriptions to their beneficiaries. Patients taking specialty drugs face economically-debilitating coinsurance—in some cases with no limit on out-of-pocket expenses. These benefit designs essentially discriminate against the very few patients undergoing intensive therapies for such chronic, complex illnesses as cancer, rheumatoid arthritis, multiple sclerosis, and HIV. But isn’t insurance supposed to help when things go really wrong?

In addition to the cost-shifting implications made by Adam, the employer or plan’s classification of many of these medications as specialty drugs forces the patient to use a very narrow pharmacy network that often includes a specialty pharmacy owned and operated by the plan. One might also presume, based on the lack of competition given by the specialty designation, the inclusion of a drug on the specialty list could also be motivated by the profit these drugs might generate for the specialty pharmacy. 

Another important distinction is that cost-shifting has not been leveraged solely on high-priced medications. This same strategy is also routinely leveraged with less expensive maintenance medications. In both commercial and Medicare Part D plans, a very large number of generic maintenance medications are dispensed to patients for less than $4 per month. This is often lower than the copay the plan might have for the medication. At this point, the plan has essentially cost-shifted the entire prescription to the patient. The plan contribution for the medication is often near, or even equal, zero. During the course of the year, many patients taking only a few of these low-cost maintenance medications will not even satisfy their plan deductible, further minimizing the plan’s risk exposure. All the while, the plan continues to charge the member a monthly premium for the plan.

The implications of this trend are far-reaching. The focus of many plans is now squarely on low price. There is absolutely no focus on outcomes and patient care. This, in my opinion, is the biggest problem with the cost-shifting phenomena.

Open Enrollment started Saturday, and we got our first look at how our customers’ medications will be priced in 2017 under Medicare Part D. There are several interesting observations to be made.

Preferred, Non-Preferred, and Mail Order

With the release of the 2017 data, we can actually calculate patient-cost and pharmacy reimbursement for one of the more popular plans last year. The object is to recompare the plan while using a preferred pharmacy, a non-preferred pharmacy, and the plan’s mail order pharmacy. For reference, I have also included the 2017 version of another preferred plan popular last year. It also happens to be the only 5-star plan available to my customers in 2017, and one in which I am included as a preferred provider in 2017.

The data below is arranged in columns by plan. This is actually data from a patient I worked up today, and represents their actual drugs. The columns show the Total Adjudicated Amount to the left of the “/” and the patient copay to the right of the “/” mark.

Drug Name	A Using a Preferred Retail Pharmacy	B Not Using a Preferred Retail Pharmacy	C Using The Plan’s Mail Order Pharmacy	D Preferred Retail 5 Star Plan
Amlodipine 10 mg	$1.62 / $1.00	$7.24 / $7.00	$2.63 / $2.63	$1.96 / $1.00
Atorvastatin 40 mg	$1.62 / $1.00	$7.28 / $7.00	$10.32 / $3.00	$7.65 / $1.00
Furosemide 40 mg	$1.60 / $1.00	$5.05 / $5.05	$2.54 / $2.54	$2.20 / $1.00
Gabapentin 300 mg	$4.00 / $2.00	$43.00 / $15.00	$26.60 / $6.00	$22.15 / $6.00
Copay Total	$5.00	$34.05	$14.17	$9.00
Pharmacy Total reimbursement	$8.84	$62.57	$42.09	$33.96

The example above is obviously not representative of all possible drug therapy combinations, but it does demonstrate several tendencies that appear to be reproducible with many different drug combinations I have run so far. For the sake of simplicity, it also is limited to only generic medications that are regularly subject to MAC (Maximum Allowed Cost) pricing. These types of drugs represent a majority of drugs dispensed in most non-specialty pharmacies.

Preferred Retail  vs. Non-preferred Retail

Looking at Column A and Column B, we can readily see the difference in both copay and reimbursement based on preferred status. The patient’s copays are significantly lower at the preferred pharmacy for this plan, saving the patient about $30/month or $360/year over a non-preferred pharmacy. The pharmacy, on the other hand, sees only $8.84 per month for these four prescriptions if they are preferred and $61.00 if they are non-preferred. Note that these numbers are not the profit made by the pharmacy, but rather the total reimbursement for these drugs. Given that the published national cost of dispensing, the amount that it costs a pharmacy to dispense a drug on top of the cost of the drug product, is between $9 to $12, the preferred plan does not come close to paying the pharmacy what it costs to dispense the drug. The non-preferred pharmacy, on the other hand shows a profit for its work. This alone explains why there are very few pharmacies in 2017 that accepted the Preferred Status for this plan.

The plan is essentially driving a wedge between the patient and the pharmacy by trying to move a patient to a preferred pharmacy. This access to lives strategy is hard to justify for the pharmacy unless it plans on making up the losses on prescription drug sales by increasing prices elsewhere. This may or may not work for big-box chain pharmacies or grocery stores with pharmacies. It is not even possible for independent pharmacies, and it is therefore no surprise that few independents elected to participate in this plan in 2017. Even a few chain pharmacies declined participation, leaving us with the question: exactly what is the point of this tactic?

Preferred Retail vs. The Plan’s Mail Order

This comparison (Column C vs. Column A) is a real head scratcher. The plan is forcing any preferred pharmacy to accept $30 less in total reimbursement than it pays itself to mail the prescriptions to the patient. Likewise, the plan makes the patient pay more for the same thing. One possible explanation for this is that in some areas, including mine, there are few pharmacies with preferred status. This means that the plan can try to coax these customers to their own mail order pharmacy, arguing that they are “saving” the patient compared to the non-preferred rate, all the while making an excellent profit using the pharmacy they own and operate.

Another Plan’s version of Preferred

While we were preferred in the plan represented in Column A in 2016, our pharmacy dropped the plan for the 2017 plan year. The reasons should be obvious: we cannot survive on such meager reimbursement. On the flip side, our contracting arm did sign a new preferred network, which includes the region’s only 5-star plan. I included this plan as an alternative way preferred networks can work with their pharmacy partners. In this plan, the patient would again pay more for going to a non-preferred pharmacy. I did not include a column for this, but its omission is not the point. The point is that a preferred plan can treat both the pharmacy and the patient fairly. Comparing the patient’s copays for this 5 star plan (Column D vs. Column A), we see that the patient would have lower copays with the 5 star plan. At the same time, the pharmacy is more often paid fairly for its contribution. Yes, reimbursements are lower than those to a non-preferred pharmacy. A more comprehensive analysis will be needed to determine if this contract is more actually more pharmacy-friendly than other preferred networks.  Note that some of the reimbursements are still too close to $1, but average reimbursement may be closer to the cost of dispensing and therefore easier for the pharmacy to recoup with other services and methods.

The Bottom Line

Now that we can see the 2017 landscape, my concern over not being preferred with the same plans as last year are somewhat alleviated. If my customers using the 2016 version of the plan in Column B have more loyalty to that plan than to us, their pharmacy, they will either switch pharmacies or start using mail order. But the Access to Lives argument cuts both ways. While plans certainly want to lure patients their way, I have found that patients actually have a lot more loyalty to their pharmacy and pharmacist than their plan. Because my pharmacy is preferred in at least one preferred network (the 5 star plan) which offers basically the same or better value to the patient, the real winner will be the 5 star plan. I have already seen many patients that plan on enrolling in this plan in 2017.

Perhaps, with time, that the whole paradigm could invert. Instead of plans trying to lure patients to them with lower copays, they will instead try to lure patient by enrolling the best pharmacies. That would be a very interesting change. So take time educating your patients during this 2017 Medicare Part D enrollment period. Be sure your patients know which plans you participate in and which ones you dropped in 2017. Let them choose their allegiance: the plan or the pharmacy. Support them, and they will support you. Make every encounter count!