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Promising Business Model Targets Traditional PBMs

December 15, 2010 By: Nadia Category: HealthCare, Medicine Advice, Medtipster, Prescription News, Prescription Savings

www.Medtipster.com Source: Seeking Alpha.com – 12.14.2010

Four years ago, Walmart (WMT) launched its four dollar generic drug program. Target (TGT), Costco (COST), K-Mart (SHLD), and others implemented similar plans soon after.

Many experts expected a direct challenge to mail-order pharmacies, and head-to-head price competition. Some believed the pricing initiative doomed the traditional pharmacy benefit management (“PBM”) business model.

Not only have the major PBMs survived, they’ve thrived—and once again deflected a substantial market challenge. Shares in Medco Health Solutions (MHS) and Express Scripts (ESRX) have more than doubled. Both now trade at or near all-time highs. (The CVS Caremark (CVS) price is flat, but the company has navigated an unfulfilling merger that has so far diluted the value of the legacy Caremark operation.)

Traditional PBMs, however, should not rest too comfortably, according to a recent white paper by Milliman*, the actuarial consultancy. The paper, entitled “The Value of Alternative Pharmacy Networks and Pass-Through Pricing”, explores the emergence of transparent retail pharmacy networks that build on Walmart’s and other large retailers’ aggressive cost-cutting capabilities.

Milliman calls these new business models Alternative Pharmacy Networks, or “APNs”. The paper presents analysis that estimates cost savings of between four and 13 percent beyond a traditional PBM service for an average employer with 10,000 lives.

Even though pharmacy costs are small as a percentage of total employer health care costs (medical benefit costs can be at least four times as great), the savings are real, especially against a tough economic environment. For large corporations employing tens of thousands, scale advantages could produce even bigger percentage savings.

Because the APN creates a transparent marketplace, it bestows employers, or plan sponsors, an intangible benefit of eliminating the traditional PBM’s information advantage. The APN takes away what the PBM knows about drug pricing and how it leverages this.

Most important, the APN is an emerging model. Only a few large employers such as Caterpillar (CAT) utilize it. One catalyst—beyond sponsors seeking additional savings—could be small PBMs reinventing themselves. The three big PBMs—Medco, Caremark and Express Scripts—are powerful players. Their aggressive strategies and market consolidation leave little room for others to compete.

APNs, Miliman states, feature two characteristics: one, substantially lower drug prices and dispensing fees than traditional pharmacies; two, ‘pass-through’ attributes including rebates that flow from manufacturer to employer and a PBM that collects no spread or drug cost differentials. (Instead of rebates and spreads, the PBM makes money on a flat administrative fee.)

Whereas, in the traditional model, PBMs negotiate price with plan sponsors, the APN model allows in-network pharmacies to compete for consumers on price and service. Control, in effect, shifts to the employer (the payer), and, depending on how the employer arranges the APN, the consumer.

So why haven’t APNs gained greater momentum? There are several reasons. Perhaps the most important is the resilience of mail order, the traditional PBM’s core franchise. Mail order is a distinct class of trade, the Milliman paper notes, which means PBMs can purchase drugs from manufacturers at prices lower than wholesalers or retail pharmacies. It also allows for price arbitrage strategies not available to retailers.

The traditional model also wins on market inertia. While the APN does offer real savings, traditional PBMs can argue that they too create savings, and have been doing so for years. Sponsors focus more on trend than details anyway, and new contracting means hassle. Moreover, sponsors care much more about the medical side of the ledger, since it’s the principle contributor to price inflation.

No doubt, if the number of employers weighing the APN option accelerates, then the PBM universe could rebalance. The odds of the traditional model collapsing appear slim, however.

For small PBMs and new entrants, the APN model does finally establish a vehicle that can compete against the big three PBMs.

More than existing share, revenue that the APN does claim will likely constitute new share in a growing marketplace of aging baby boomers and new-to-market oral specialty pharmaceuticals.

The big three PBMs have consistently shaped and dominated the pharmacy distribution chain. As time passes, their biggest risk may not be the APN, but their own success in building behemoth businesses that ultimately limit maneuverability.

*Medtipster.com Note: Medtipser.com, LLC. operates as an Alternative Pharmacy Network (APN) and offers a unique APN employer product saving an average of 10% over a traditonal pharmacy benefit manager.

ShopRite Offering Free Diabetes Medications

June 09, 2010 By: Nadia Category: Free Prescriptions, HealthCare, Medicine Advice, Medtipster, Prescription News, Prescription Savings

www.Medtipster.com Source: www.progressivegrocer.com – 5.8.2010

This past weekend, ShopRite began providing free diabetes medications and education to customers – with or without insurance at store pharmacies across Connecticut, New Jersey, New York, Pennsylvania, Maryland and Delaware.

“ShopRite has always had a commitment to consumer education, helping our customers understand their food choices, so they can eat right and stay healthy,” said Karen Meleta, spokeswoman at Keasbey, N.J.-based Wakefern Food Corp., the retail co-op whose 46 members operates stores under the ShopRite banner. “Our pharmacies offer information on medical conditions, and our dietitians are an invaluable service — providing food and nutrition counseling. These are just a few of the unique services that make ShopRite the go-to place for our customers.”

To take part in the program, customers must have a valid prescription from their doctor. There’s no membership or other commitment required. Seven drugs, in varying strengths, will be offered in the program, and the free medications will be available in 30-day supplies, based on common dosing.

Additionally, ShopRite Pharmacies are educating customers about living with diabetes, including tips on healthy meal planning. Select ShopRite stores with on-site dietitians can provide one-on-one consultations offering advice on how to shop the store to find the best options for a diabetic diet and prepare meals for people with diabetes.

Shoppers can also find information about living with diabetes in the “Health and Wellness” section of ShopRite.com or by sending a question to ShopRite’s corporate dietitian, Natalie Menza, through the “Ask the Dietitian” feature on ShopRite.com.

As well as the free diabetes medications, ShopRite has expanded its already existing 90-day generic drug program by offering a 30-day supply of generic medications for $3.99. The $9.99 (90-day) generic drug program provides customers further savings on more than 375 commonly prescribed generic drugs used to treat a range of medical conditions, including allergies and asthma, arthritis pain, and elevated cholesterol.

“At ShopRite, our goal is to provide the best service and every day low prices,” added Meleta. “When you combine our new free diabetes medication program … with our 30-day/$3.99 and 90-day/$9.99 generic drug programs, we provide our customers with a comprehensive solution for meeting their prescription needs.”

ShopRite is the registered trademark of Wakefern Food Corp., whose members operate over 200 ShopRite supermarkets throughout New Jersey, New York, Pennsylvania, Connecticut, Delaware and Maryland.

Find a ShopRite Pharmacy nearest you on Medtipster.com

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