AMA attacks are enough to make you sick
I had just come back from seeing Michael Moore’s new film “Sicko,” and all things considered, I was actually feeling pretty good. Then I read about how the American Medical Association is calling on the government to investigate the growth of retail health clinics. That’s when I started to feel sick.
Don’t get me wrong. While I like Michael Moore and appreciate his work, I don’t believe he is always right, nor am I naïve enough to believe that he doesn’t have an agenda. I’m not an idiot.
Actually, I think I am just smart enough to know when something is broken. I don’t need an MD or an MBA to tell you that there is something wrong with the U.S. healthcare system. To call our health system a “system” is a bit misleading; a system, by definition, is a complex group of interacting elements that come together to form a cohesive whole. Health care in this country is nothing like that. It is highly fractured to say the least.
Whatever you call it, the U.S. healthcare system ranks No. 37 in the world, just ahead of Slovenia (No. 38), but not quite so good as they have it in Costa Rica (No. 36). That’s not the Michael Moore camp that made up those statistics; those are the World Health Organization’s numbers.
We pay more for health care—twice as much—as any other country; last year total U.S. healthcare costs represented 16 percent of the nation’s gross domestic product, a little more than $2 trillion. It is expected to double over the next 10 years to more than $4 trillion, about 20 percent of our GDP by then. That’s not fuzzy, liberal math, either; that’s what a group of analysts at the Centers for Medicare & Medicaid Services came up with.
Then there are two other interesting crosscurrents out there that are helping to shape American health care and the way it is delivered in this country: between 1998 and 2005 the number of third-year medical students who chose to pursue a career in general internal medicine dropped by more than 50 percent; about 1-in-5 went into family practice; by contrast, the number of nurse practitioners in this country has risen from 30,000 in 1990 to more than 140,000 today.
That’s not Hollywood. That’s just the state of health care in America right now. It is a crisis premised upon access and affordability. And it’s not getting any better on its own.
I’m not so sure that universal health care is the answer. As many people that Michael Moore marches out of England, Canada or anywhere else that swear by the sanctity of their system, there is always somebody else over on the other side of the debate who will tell you about long wait-lists to get into hospitals in those countries: as many as a million people at any given time in the United Kingdom; 900,000 in Canada, they say.
I actually think there is something to this idea that the free market, when it is truly free to do so, can produce a viable solution to a crisis. That is the great promise of America; it is also the promise that is most frequently broken. Too often, this country allows the will of evil people to corrupt our free market for their own gain and to the detriment of the nation as a whole. Anybody remember the S&L scandals of the ‘80s? Too long ago? How about Enron or Worldcom?
While scandal may be too strong a word to describe the current state of health care in America, crisis most certainly is not. Still, we have seen it happen before in health care; we have all seen it happen in health care. Beware any time too many guys in blue suits get in between the guys with the white coats. It’s a classic tale of bureaucrats bullying providers, and sucking any penny they can out of the system along the way. Drug Store News has been writing about it for years.
Case in point: one-third of every dollar spent on health care in this country goes to administration fees and paperwork. PAPERWORK. Yet, the AMA wants to investigate retail-based health clinics, the most progressive solution to this crisis of access and affordability in American health care to come along in the last 40 years or more.
RediClinic president and chief executive officer Web Golinkin has had enough. “Much of the recent debate about how to reform our inefficient, $2 trillion healthcare system has revolved around who should pay, but the problem will not be fixed until we find ways to increase access and reduce costs that have been rising for many years at more than twice the rate of inflation,” Golinkin wrote in an Op-Ed piece in the Aug. 2 edition of The Wall Street Journal.
“One of the most promising developments is the emergence of retail-based ‘convenient care’ clinics,” he continued. “There are about  such clinics today and could be several thousand more in the next few years, but their growth is being threatened by burdensome regulations in some states and opposition from some corners of organized medicine.”
What’s even more curious: the sudden opposition from the physician community. Golinkin doesn’t get it either. RediClinic’s second biggest partner—after AOL founder Steve Case, that is— is Memorial Hermann, Houston’s largest hospital system.
And that’s not the only reason Golinkin is puzzled. “Although the medical community was suspicious of convenient care in the beginning, many physicians and professional organizations changed their view when they saw how rapidly consumers embraced the concept and how operators…treat many patients who do not have established physician relationships—an estimated 30 percent of all convenient care patients to date. The American Academy of Family Physicians, which represents more than 94,000 family practitioners, recognized that convenient care clinics were filling a need. Rather than opposing the clinics, it published standards of care that it suggested convenient care operators should follow.”
Those recommendations—almost to the letter—became the basis for the Convenient Care Association’s standards for care, which all of its members are required to meet.
So what’s changed since then? Well, the AMA has two problems with the clinics, it seems. On the one hand, some of its members are concerned about the quality of care that patients are receiving in the clinics. While laws vary from state to state, in general a nurse practitioner can treat about 70 percent of what a family physician can treat. They are treating a lot less than that in these retail clinics. This is about acute care. It’s not like anybody is doing heart surgery at the local corner drug store in these clinics.
Oh yeah, and the AMA also says it wants a level playing field with the clinics. You see, payers and managed care also believe that retail clinics are a pretty good answer to what’s ailing the American healthcare system; some health plans have actually begun to offer lower co-pays for clinic visits, and some are even waiving co-pays altogether, Drug Store News has learned.
I don’t know everything. But I am just smart enough to know when something is broken. The American healthcare system is in a state of crisis right now; better than Slovenia, but not quite as good as Costa Rica—aye, aye, aye! It’s enough to make you sick.
Grocer sings new tune in community involvement
Meijer is taking another step in community relations, to the tune of promoting and selling CDs of local musicians.
The Michigan-based 176-unit grocery chain launched the Outside the Mainstream promotion in February with a solo CD from Josh Davis, a singer from Lansing, Mich., whose Fool Rooster CD was recognized by Performing Songwriter magazine for its lyric.
Each month, the chain is featuring a new performer in its circulars, which are sent weekly to 7 million households in Ohio, Michigan, Illinois, Indiana and Kentucky, according to company vice president of public affairs Stacie Behler. Meijer purchases 1,000 of the artist’s CDs and offers them for sale in all the chain’s stores for $7.49.
“The goal of the program is to bring some of the talent that we find in our own backyards to a wider audience than they can normally reach by themselves,” Behler said. “And by supporting this with a low price and a feature in our circular, hopefully it will lead people to gamble on the purchase of music that is worthy of discovery.”
Meijer, according to Behler, is trying to create regional loyalty to its stores by promoting local talent.
CDs chosen for promotion, according to the chain, must have a UPC and be professionally duplicated. Submitted CDs are sorted according to state and chosen on the basis of whatever state will be featured that month and how different the music is from the previous month.
Featured in April is Michigan-based Potato Moon with its CD “The Life of The Lonely Jones.”
CVS wins Caremark battles
WOONSOCKET, R.I. —The battle for Caremark Rx has finally come to an end. And, to the dismay of Express Scripts, CVS has emerged the winner, creating a $75 billion pharmacy benefit management powerhouse that is likely to serve as a benchmark for additional mergers within the industry.
“CVS/Caremark will offer end-to-end services, from plan design to prescription fulfillment, as well as the opportunity to improve clinical outcomes, which will result in better control over health care costs for employers and plan providers,” stated Tom Ryan, president and chief executive officer of CVS/Caremark, late last month when the deal closed. “The company will improve the delivery of pharmacy services and health care decision-making, enabling consumers to benefit from unparalleled access, greater convenience and more choice.”
With the close of the transaction—ultimately valued at $27 billion—CVS/Caremark has moved into a strong, competitive position. The combined company will be No. 1 in pharmacy sales, PBM-managed lives, specialty pharmacy sales and retail-based health clinics. It will be No. 2 in mail services.
That adds up to a lot of extra leverage for the retail health care juggernaut with suppliers, as well as insurers and payers.
In terms of synergies, CVS expects to realize between $800 million to $1 billion in revenue synergies in 2008, and significantly more thereafter. The company expects about $500 million in cost savings, largely related to better purchasing.
“We would like to note that every deal that both CVS and Caremark have done historically has yielded synergies significantly in excess of original guidance,” stated Citigroup analyst Deborah Weinswig in a recent research note. “We believe this deal will be no exception.”
Charles Boorady, also of Citigroup, believes that if the company achieves cost savings from the drug-procurement process, it likely will come from a combination of the following: manufacturers accepting the lower price or offering greater rebates, the wholesalers and distributors accepting lower prices and manufacturers bypassing the wholesalers and selling directly to the combined CVS/Caremark entity.
While many industry observers view the merger as a boon for the companies, it undoubtedly will have major implications on the industry, in general, as vertical integration is a new paradigm that—if successful—could clear the way for more mergers moving forward, with Medco and Express Scripts likely being the next targets.
“The fragmentation in the past may be the reason why vertical integration did not work, but the sheer scale of the CVS/Caremark company may be able to make it work,” Boorady said. “The only test will be whether customers buy into the concept or the concerns over the perceived channel conflict will outweigh it.”
Either way, Boorady sees it as a win-win for rival PBMs. “I see Medco and Express Scripts winning either way. If this integration works, they are likely to be the ones that are acquired next. If it doesn’t work then they could stand to gain customers that prefer a standalone [PBM] instead of a vertically integrated model.”
Another issue such a deal brings to the forefront is network restriction. If customers are willing to restrict the retail pharmacy so that employees can get their prescriptions filled at a single chain, or just a few chains in the market, then it will make the synergy from a vertical integration more obvious, according to Boorady.
However, this has been a concern for several years and has yet to materialize.
“I think most employers have concluded, and will continue to conclude, that the sheer hassle factor that you are putting on your employees by making them go to a CVS instead of a Walgreens, or vice versa, isn’t really worth what little savings you can get relative to other things you can do that present less of a hassle to the employee but can save a lot more money,” Boorady said.
However, prior to the deal, CVS Pharmacare controlled a provider network of more than 56,000 retail pharmacies. Meanwhile, Caremark’s network numbered more than 60,000 retail pharmacies, so it is unlikely that the combined company, post-merger, would suddenly pull back the size of its network—particularly, if the end goal is to remain attractive to insurers and payers and competitive with stand-alone PBMs.
According to William Blair & Co. analyst Mark Miller, the combined company is facing its first big test as it expects an announcement on the large Federal Employee Program contract—currently up for negotiation—as early as May. Three years ago, Caremark won this contract from Medco and it is likely that the two PBMs, among others, will bid for this business aggressively.
“While there are many moving parts to these types of negotiations, this will be the first big test for the new CVS/Caremark, and may provide some incremental perspective on the current state of the competitive environment,” Miller stated in a research note.
In related news, CVS/Caremark has announced the members of the company’s board of directors. As previously disclosed, the 14-member board was evenly split among designees from CVS and Caremark.
Former Caremark chairman and chief executive officer Mac Crawford has been elected chairman of the board of the combined company. Ryan will continue to serve as president and chief executive officer.
The following individuals named to the board from CVS are:
Ryan, president and chief executive officer of CVS/Caremark Corp.
David W. Dorman, senior advisor and partner, Warburg Pincus LLC.
Marian L. Heard, president and chief executive officer, Oxen Hill Partners.
William H. Joyce, chairman and chief executive officer, Nalco Co.
Terrence Murray, former chairman and chief executive officer, FleetBoston Financial Corp.
Sheli Z. Rosenberg, former vice chairman, president and chief executive officer, Equity Group Investments LLC.
Richard J. Swift, former chairman, president and chief executive officer, Foster Wheeler Ltd.
The following individuals named to the board from Caremark are:
Mac Crawford, chairman of CVS/Caremark Corp.
Edwin M. Banks, founder, Washington Corner Capital Management LLC.
C. David Brown II, chairman, Broad and Cassel.
Kristen E. Gibney Williams, former executive of Caremark’s Prescription Benefits Management division.
Roger L. Headrick, managing general partner, HMCH Ventures; president and chief executive officer, ProtaTek International
Jean-Pierre Millon, former president and chief executive officer, PCS Health Systems
C.A. Lance Piccolo, chief executive officer of HealthPic Consultants