2008 fast forward
1. Mum’s the M-word?
Pharmacy operators still are losing sleep over the “M” words—Medicare, Medicaid and mail-order pharmacy. But developments on all three fronts could make 2008 a better year for community pharmacy.
Perhaps the most dramatic development was the mid-December decision by U.S. District Court Judge Royce Lamberth in a lawsuit filed by the National Association of Chain Drug Stores and the National Association of Community Pharmacists. Lam-berth ruled that the Centers for Medicare and Medicaid Services would not be permitted to post data on the Internet related to the average manufacturer price of generic pharmaceuticals purchased for the Medicaid program. Even more significant in the near term, Lamberth granted an injunction that will prevent CMS from adopting the reduced AMP-based reimbursement formula for generic prescriptions dispensed to Medicaid patients until he’s had an opportunity to fully review the payment plan.
With the new reimbursement rule set to take effect Jan. 30, the court injunction was a huge, if temporary, victory for retail pharmacy. It sets the stage for the next step in pharmacy’s campaign in Congress and in the courts for a fair and reasonable payment for prescriptions dispensed under Medicaid—a campaign likely to play out this year.
2. Revving up the health IT revolution?
This is likely to be the year in which doctors’ resistance to paperless prescribing, as well as new communications and record-keeping automation, is finally overwhelmed by cheaper technology—and by the growing realization among physicians that the benefits of an integrated electronic communications and data-storage platform will, in the long run, far outweigh the costs.
The forces for change are becoming irresistible. Pharmacy leaders, lawmakers, White House policy makers, medication safety advocates and technology vendors are all arrayed behind the drive for e-prescribing. On a broader scale, they’re also driving a sweeping transformation of the entire U.S. health care system through health IT.
For the most part, community pharmacy is ready. Most pharmacies already are equipped with the technology to link up seamlessly with an integrated health IT platform, and 40,000 of them are accepting paperless prescriptions, according to SureScripts.
So far, fewer than 1-in-10 physicians are linked through that platform. But the numbers are rising fast, with SureScripts predicting that roughly 1-in-7 will be e-prescribing by year-end.
3. Beyond dispensing: proving the value of retail pharmacy
A tectonic shift is underway in retail pharmacy.
Health plan payers, the Medicare and Medicaid programs and pharmacy benefit managers have staged a long-term assault on profit margins at the pharmacy counter and in many cases turned prescription dispensing into little more than a commodity business. The cash-strapped U.S. healthcare system is due for wrenching change, no matter which Democrat or Republican wins the White House this fall, as voters and lawmakers demand wider coverage and lower costs.
At the same time, health IT and e-prescribing are transforming the way clinical and preventive health services and disease management are delivered. Patients are demanding more healthcare options and a central role in their own well-being. And Congress, the federal government and Medicare beneficiaries are demanding concrete solutions to the medication therapy management puzzle.
In the midst of all this, it’s no wonder that chains and independents are scrambling to bridge the gap between basic prescription dispensing and counseling services on the one hand, and demonstrable, value-added patient care services on the other. One strong example has been the work accomplished through the Asheville Project. Indeed, community pharmacy will continue to drive the agenda to ally with local physicians to develop similar programs that can demonstrate and document their clinical care efforts.
The determined push by retail pharmacy to add value as an ancillary healthcare resource for patients—and for their physicians and care-givers—comes at a critical time for the U.S. healthcare system. Fixing that system, and making it more accessible and more affordable to Americans, has become an election-year hot button, and no serious candidate for president can avoid the task of developing a detailed set of solutions.
4. Generic profitability under fire?
Brand-name drugs with about $20 billion in annual sales will face patent expiration in 2008, similar to amounts seen over the past two years. Leading the list are such drugs as Risperdal, Fosamax, Topamax, Lamictal and Depakote. This should help drive generic growth by about 14 percent to 15 percent next year, to more than $70 billion. In 2008, more than two-thirds of all prescriptions written in the United States are expected to be for generics.
But the big question for pharmacy retailers is pressure on generic profitability. Generic drugs rack up a disproportionate amount of the profitability in pharmacy. The average gross margin on a branded pharmaceutical is about 15 percent versus 50 percent for a generic.
Generic pricing currently is caught in the crosshairs of two very powerful forces: the federal government and Wal-Mart. Indeed, a great deal of the Medicaid reimbursement cuts pharmacy retailers could be facing comes at the expense of generics under CMS’ proposed AMP formula for pharmacy reimbursement. Fortunately, this is a bullet community pharmacy appears to have dodged for now, thanks to the recent injunction a federal judge granted the industry one week before Christmas while he considers the merits of community pharmacy’s larger suit against CMS and the U.S. Department of Health and Human Services.
Meanwhile, even as Wal-Mart insists that its $4 generic drug program has not impacted its profitability—just the opposite, executives have argued—traditional drug store chains insist the program, or “marketing stunt” as many have called it, has done little to negatively impact their businesses. The much larger issue, of course, is the world’s biggest retailer’s claims that the program targets unnecessary inefficiencies in the pharmaceutical supply chain; clearly, a conflicting message as community pharmacy preaches the value of community pharmacy to payers and policy makers.
Certainly, the profit picture would stand to benefit immensely from any legislation that would create an approval pathway for generic versions of biotech drugs. The Senate Health, Education, Labor and Pensions Committee approved in June the Biologics Price Competition and Innovation Act of 2007. The House is expected to take up similar legislation in 2008.
5. BTC or not to BTC?
A BTC class of drugs will have a snowball’s chance in a really hot place of becoming reality this year. But that’s not going to stop people from talking about it. In theory, BTC could open the doors wide to a number of therapies that would necessitate a consultation with a healthcare professional—not just a doctor—where the neighborhood druggist takes on added responsibility, in a sense “prescribing” things like muscle relaxants, statins or triptans.
But in reality, BTC could become a new battleground between pharmacists and doctors. Some worry a third class of drugs might only further erode doctor visits. For that reason, some doctors groups have intimated that pharmacists aren’t qualified to diagnose and treat disease. Still a BTC class of drugs may not be good for pharmacy after all—the new class would only further pressure a profession that’s short on manpower and long on workload without any additional compensation.
Because the question of money and who pays the freight lies at the crux of the issue, will managed care pick up the tab for BTC? Unlikely; much of the impetus behind recent switches, such as Claritin, has been premised on getting popular maintenance medications off the formularies and forcing the cost for the new OTC version back on to the consumer.
6. Niche brands of the world unite?
With the proposed acquisition of Adams Respiratory Therapeutics by the U.K.’s Reckitt Benckiser, two things are likely to happen: the tagline “Mucinex in. Mucus out.” will be translated into French, German and Italian (in the United Kingdom they will just pronounce it with a funny accent) and a host of new products under the Boots Healthcare banner will debut in the United States.
That includes Dettol, an antiseptic that could challenge McNeil’s Purell with its line of wound washes, antibacterial personal wipes, shower foams and liquid hand washes, as well as the analgesic Nurofen. Other Boot brands include the sore throat remedy Strepsils and the hot liquid cough-cold reliever Lemsip, which would compete with TheraFlu.
Meanwhile niche brand Burt’s Bees, a maker of lip care, facial care and body care products, is poised to really sting the natural personal care segment following its recent acquisition by Clorox.
While the two companies may seem an unlikely match, the deal undoubtedly deepens the pockets for Burt’s Bees and provides the niche player with access to Clorox’s wider distribution network. Burt’s Bees generated about $170 million in 2007 net sales with roughly 90 percent in the United States and the balance concentrated in Canada, United Kingdom and Taiwan. Morgan Stanley analyst William Pecoriello estimates that by 2012, Burt’s Bees’ revenues could reach nearly $380 million.
For Clorox, a company best known for its namesake bleach and household cleaning products, it is a honey of a deal, granting it a foothold in the high-growth natural personal care segment, which currently generates U.S. sales of $6.4 billion and is growing at about 9 percent a year.
And industry eyes undoubtedly will be on Coty as it rang in the New Year with its acquisition of Del Laboratories, a move that not only brings Coty one step closer to becoming a $5 billion beauty company, but also hands over Del’s flagship cosmetics brand, Sally Hansen, and enables Coty to enter the over-the-counter market.
It will be interesting to see how Coty integrates Del’s operations and leverages the OTC segment, which is undoubtedly uncharted territory for the company known for its fragrances and Rimmel makeup. Del’s OTC business is focused on oral analgesics, children’s toothpaste, and sore throat relief and specialty OTC products.
7. Retail clinic fever
With healthcare costs taking a bigger bite out of the wallets of individuals and businesses, and the high demand for convenience, retail-based clinics will continue to flourish.
In-store health clinics have been sprouting up nationwide, becoming an integral part of today’s healthcare landscape. Not only has the growth been remarkable, especially in the last year, but also patient satisfaction has been impressive, hovering around 98 percent.
With more than 900 clinics operating nationwide at the end of 2007—up from about 100 clinics in 2006—it is expected that the growth rate is likely to double year-over-year well into the foreseeable future. According to research from PricewaterhouseCooper Institute, there will be more than 3,000 clinics in the United States within five years.
Many industry sources believe that the clinics meet an unmet need as the nation’s healthcare system is riddled with rising healthcare costs, long waits to see a primary care physician and overflowing emergency rooms. According to the Convenient Care Association, 40 percent of patients who visit an in-store health clinic report that they would have gone to an emergency room or other urgent-care facility had there not been a retail clinic available.
8. Kids cough-cold: efficacy vs. experience?
In the words of the great Carl Sagan, “Absence of evidence is not evidence of absence.” Of course, Sagan was looking to the heavens when he made those comments, but he may well have been talking about kids’ OTC cough-cold remedies and whether they are safe and effective for use in children under 6 years old. Do they work or don’t they work?
For pharmacy retailers that could be the $659 million question. There is no wealth of clinical proof supporting one hypothesis or the other, but there is a long history of usage; parents have used and trusted these products for years because they appeared to lessen the severity of their children’s cold symptoms. It is expected that parents of children under 6 years old may halve or quarter recommended doses for older children ages 6 to 12 years old.
That should bode well for purveyors of cold remedies for children—because it won’t matter if the Food and Drug Administration later this year decides to ban the marketing of cough-cold medicines for use in children under the age of 6, as their advisory committees have recommended, albeit on a split vote. Neither will it matter if the FDA decides that manufacturers of cough-cold medicines include a “consult your doctor for use in children under 6” phrase on the drug facts label under the directions tab.
After all, mom knows best.
S&P revises outlook on Rite Aid
NEW YORK Standard & Poor’s Ratings Services revised its outlook on chain drug retailer Rite Aid to negative from stable, the firm reported Friday. At the same time, S&P affirmed the ‘B’ corporate credit rating on Rite Aid.
“The outlook change reflects the company’s weak same-store sales and our expectation that this trend will continue over the next few quarters,” stated Standard & Poor’s credit analyst Diane Shand. Rite Aid faces a more cautious consumer, strong growth of lower-priced generics and intense competition, she said. In addition, the current environment could make it more challenging for the company to integrate its recently-acquired Brooks/Eckerd stores.
Boston Mayor decries in-store health clinics
BOSTON On the heels of the Massachusetts Public Health Council approving regulations allowing for in-store health clinics in the state, Boston Mayor Thomas Menino is reportedly looking to ban the clinics from opening in the city.
The decision by the health council “jeopardizes patient safety,” Menino said in a written statement, according to a Boston Globe report. “Limited service medical clinics run by merchants in for-profit corporations will seriously compromise quality of care and hygiene. Allowing retailers to make money off of sick people is wrong.”
The newspaper also reported that, in a separate letter, the mayor urged members of the city’s Public Health Commission to consider banning the clinics from opening within Boston. CVS has plans to open 20 to 30 MinuteClinics in the Greater Boston area but it is unclear how many of those would be within the city’s limits.
Defending its decision to allow clinics to operate, the state Public Health Council issued a statement that read: “The members of the Public Health Council were deliberative and thoughtful in their review of the limited service clinic regulation. We believe these types of clinics, operated either as part of a retail operation or in a nonprofit setting, can provide the public access to safe, convenient, and quality care for minor health issues.”
Officials at MinuteClinic were not immediately available for comment.
On Jan. 9, the state Public Health Council approved rules for limited service medical clinics. The new regulations took effect immediately.
“This is a new model for health care delivery that can benefit many people in the Commonwealth. These regulations will improve consumer convenience and make it easier for non-profit organizations to establish satellite clinics in a variety of settings to serve vulnerable populations,” stated secretary of Health and Human Services JudyAnn Bigby in a statement issued after the approval.
Added John Auerbach, commissioner of the Department of Public Health and chair of the PHC, “Properly regulated, these types of clinics will serve an important function, making care for minor medical care more convenient. The council was mindful of not wanting to create a stand-alone system of health care, so these regulations require coordination and linkages to primary care providers.”
The approval came at the end of a long review process that included two public hearings and the submission of hundreds of pages of testimony regarding the regulations, including testimony in favor of the clinics from the Convenient Care Association.
“We appreciate the Public Health Council’s careful deliberation regarding the adopted regulations that will now guide the operation of limited services clinics in Massachusetts. These retail-based clinics are providing consumers in 35 other states with easy access to high-quality, affordable health care in the face of a nationwide primary care physician shortage. Since this growing shortage is well documented in Massachusetts, and its related health care access issues have been exacerbated by the state’s near-universal healthcare coverage, we appreciate the Council embracing limited services clinics as a partial solution to these serious problems,” said Web Golinkin, president of the CCA and chief executive officer of in-store clinic operator RediClinic, in a statement issued after the council’s decision.
Sparking the move to create specialized regulations for these clinics was CVS’ application to open a MinuteClinic in one of its stores in Weymouth. According to the council, early in the application review process it became clear that DPH regulations governing medical clinics did not address the operation of medical clinics with limited scope of services. Rather than consider applications requiring numerous waivers from full-service clinic regulations, the department decided to create a specialized set of rules.