Counter Talk: Achieving triumph through cooperation
Trade associations should not tell members how to run their businesses. Groups have fallen off the tracks that way. However, many associations — including NACDS — were created in part to foster an ecosystem, where businesses can maximize their performance through collaboration.
As part of NACDS’ 85th anniversary, I am citing a theme established by the second president of NACDS, Nate Shapero. He spoke about the “Triumph of Cooperation” — the vision that NACDS would be “an effective instrument for the development of a sound relationship between the manufacturer, the producer, the chain store and the public.”
Our modern pursuit of that vision has produced a resource that can set a highly positive and constructive tone for collaboration amid the challenges and opportunities of 2018. It serves as a guide to identify the factors most likely to determine the success of retailer-supplier partnerships.
About the quadrant analysis
The NACDS Retail Advisory Board — chain and supplier representatives who advise the NACDS Board of Directors on front-end issues — conducted a “quadrant analysis.” Each quadrant represents types of collaboration between partners of specific business sizes — smaller chain with smaller manufacturer; larger chain with smaller manufacturer; smaller chain with larger manufacturer; and larger chain with larger manufacturer.
Size of sales, or size of strategy?
While it is convenient to describe each quadrant in terms of a retailer’s or manufacturer’s size, the discussion should not be thought of entirely in terms of a company’s sales magnitude. In fact, it may be preferable to think of the quadrants as referring to a company’s “strategic size” — its ability to strategize in a big way.
The NACDS Retail Advisory Board notes that many smaller companies — chains and manufacturers alike — tend to play decidedly “big” in terms of strategy and execution.
Top-to-top meetings, senior-management access vital
Top-to-top meetings and access to senior management emerged as dominant themes across all forms of collaboration. Regardless of the size of chains or manufacturers, it is essential to have adequate touchpoints with company leadership at key points throughout the year to exchange and align visions, missions and values.
Discussions need to be sufficiently strategic and bold, and specific in discussing opportunities presented by the collaboration. The conversations should focus on win-win scenarios, and necessary actions. These meetings can set or reset the direction of the collaboration and establish a series of higher-level engagement on strategic initiatives that are over and above the day-to-day engagement between the collaborators.
Partnerships thrive among companies of all sizes
Tremendous motivation exists for partnerships among companies of similar and dissimilar sizes alike. There are many stories of products from smaller suppliers yielding remarkable profitability for chains of all sizes. There also are many stories of smaller retailers providing valuable opportunities for larger suppliers to test, measure and assess the performance of products and strategies.
In achieving these advantages, there are plenty of dynamics on which partners will need to keep a close eye. The quality and effectiveness of a manufacturer’s representative can make a tremendous difference when a smaller supplier works with a large chain. The manufacturer’s representative needs to understand the go-to-market strategy, to maximize the level of service and have the power to make decisions.
A relationship of a larger manufacturer and a smaller chain will benefit from a 1-to-3 year growth plan, the identification of synergies and total alignment around an action
plan and deliverables.
It also is important to note that larger retailers and larger suppliers have tremendous opportunities to enhance collaboration in their partnerships with each other as they prepare for the future.
The NACDS Retail Advisory Board’s quadrant analysis will help to shape conversations within the industry and between partners throughout 2018 and beyond. The goal is to continue to achieve the “Triumph of Cooperation” that was envisioned more than eight decades ago, one retailer-supplier partnership at a time.
Steve Anderson, president and CEO, National Association of Chain Drug Stores
Counter Talk: Safeguarding savings
Patients save money with generic drugs. In 2016, atorvastatin, the generic version of Lipitor, cost 97% less for 106.3 million dispensed prescriptions. Omeprazole, the generic version of Prilosec, cost 98% less for 76.3 million dispensed prescriptions.
Overall, the 2017 Generic Drug Access and Savings Report, compiled by the Quintiles IMS Institute, found that generic medicines generated $253 billion in savings for patients and taxpayers in 2016. Since 2006, the U.S. healthcare system has saved $1.67 trillion due to the availability of low-cost generics. Savings for Medicare and Medicaid totaled $77 billion and $37.9 billion, respectively, in 2016. The government saved $1,883 per Medicare enrollee and $512 per Medicaid participant.
To achieve these savings, generic drug companies must aggressively negotiate with large purchasers who command significant leverage and gain large price concessions by pitting manufacturers against one another. When it comes to the pharmaceutical supply chain, brand-name manufacturers enjoy several advantages over generics — the manufacturers represented by the Association for Accessible Medicines. A report issued by the USC Center for Health Policy & Economics found that supply chain stakeholders capture significantly more of the revenue spent on generic medicines than they do on brands. For every $100 spent on dispensing generic medicines in this country, approximately $65 goes to the distribution and reimbursement of those products by the members of the supply chain.
In 2018, as federal and state policymakers continue to grapple with rising prices for brand drugs, the temptation may be strong to intervene at various points in the complex market. Finger pointing and complicated schemes for guarding against “price gouging,” however, are less likely to protect patients against inflationary pricing than allowing the generic marketplace to function as it was intended.
In order to understand the context in which legislators are attempting to rein in prices, let’s remember what life was like before 1984’s Hatch-Waxman Act. Generic drugs were available for only about a third of the best-selling brand-name drugs, even though their patents had expired, and manufacturers of generics had to go through a much more complicated approval process that created unnecessary cost for manufacturers. The vast savings potential of generics did not reach nearly as many patients as we see today.
Hatch-Waxman gave rise to the generic pharmaceutical industry, as we know it.
A model of bipartisan legislation, Hatch-Waxman established an expedited pathway for generic drug companies to obtain FDA approval for their products. Within a year of passage, generic manufacturers submitted 1,000 applications. At the same time, the law provided brand-name firms with incentives to innovate. “Senior citizens require more medication than any other segment of our society. I speak with some authority on that,” joked President Reagan at the signing ceremony, adding, “Elderly Americans will have access to safe and effective drugs at the lowest possible cost.” He predicted that generics might save patients $1 billion in 10 years’ time.
That $253 billion that generics saved Americans in 2016 comes to almost $5 billion every week.
Those savings could be even greater, were it not for the proliferation of anti-competitive practices that artificially extend patents. Exhibit A in this pattern: Allergan, the maker of Restasis, which paid the St. Regis Mohawk Tribe millions of dollars to rent its tribal sovereign immunity in a blatant effort to shield the patents on Restasis from review. Another maneuver is Risk Evaluation and Mitigation Strategies, or REMS, abuse, which prevents generic firms from purchasing the doses of a branded drug that they need to run their studies.
One fact remains clear: High list prices for brands, as set by the brand manufacturers, result in higher costs for patients every time. Supply chain stakeholders should work together to support policies that promote generic competition and lower prices for patients and the system, rather than misguided maneuvers that will only serve to harm competition.
Chip Davis, president and CEO of the Association for Accessible Medicines.
Industry awaits opioid crisis policy response
The industry response to the opioid epidemic has been far-reaching and proactive, but the retail pharmacy world currently awaits legislative action that can help retain access to chronic pain treatments for patients that need it, while curbing the potential for abuse by those that do not.
In an October letter to President Donald Trump and Administration agencies, the National Association of Chain Drug Stores highlighted legislative fixes that could help with the opioid crisis. Principle among them is mandating electronic prescribing of controlled substances, with few exceptions. The organization noted that even though such states as New York have seen a 70% drop in the number of lost or stolen prescriptions after implementing a new prescribing law, nationwide, e-prescribing is done at a rate of 14%. E-prescribing is something retailers have been keen on, as well.
“We’ve been very supportive of e-prescribing efforts because we do believe it can help reduce the risk of diversion by having paper copies out in circulation,” said Rick Gates, who Walgreens recently promoted to senior vice president of pharmacy and health care. “We’re big advocates because we get direct communication from the prescribers, and obviously it helps from an abuse standpoint.”
Complementing a need for secure transmission of patient prescriptions in NACDS’ policy goals is reducing the supply that is given to first-time recipients of an opioid. The CDC has found that the average supply per opioid prescription has increased from 13.3 days to 18.1 days per prescription between 2006 and 2016. NACDS has called for a bill that would limit first-time acute pain fills to a seven-day supply.
In the absence of a legislative mandate, companies with the capacity to do so have begun taking steps of their own to limit the amount of opioids dispensed. Positioned as it is with an in-house pharmacy benefits manager, CVS Health on Feb. 1 rolled out opioid utilization management tools for CVS Caremark clients, which includes limiting certain acute pain prescriptions for seven days, as well as limiting daily dosage of dispensed opioids based on strength and requiring the primary use of immediate-release formulations.
“Common sense tells us that overprescribing increases the risk of addiction for the patient, but also for family members when there are extra pills left in the house,” CVS Health president and CEO Larry Merlo wrote in a Health Affairs op-ed in July.
NACDS recently has seen progress from the government on one of its goals for ensuring patients with legitimate need to conveniently access their treatment. The proposed rule for contract year 2019 from the Centers for Medicare and Medicaid Services allows pharmacies with multiple locations, sharing real-time electronic data, can be treated as a single pharmacy under 2016 legislation. The move “will help ensure legitimate beneficiary access to needed prescriptions without compromising the integrity of [Medicare Part D] and its goal to combat abuse and diversion,” NACDS’ letter said.
Moving forward, NACDS and partner organizations said that they want to continue to be a part of how the government addresses the crisis. On Feb. 2, the National Conference of Pharmaceutical Organizations — which includes NACDS as a member — called for an opportunity to meet with Trump and other Administration officials to discuss how to address the issue.
“This NCPO statement and request for a meeting with the administration reflects pharmacy’s consistent engagement as a working partner to help address the opioid abuse epidemic, and that of our partner organizations. Pharmacy continues to take seriously its role as part of the solution, and as an ongoing collaborator with enforcement and health agencies,” NACDS president and CEO Steve Anderson said. “Pharmacy has significant insights about the complexity of this issue given the role of pharmacists on the front lines of healthcare every day, and we are committed to working proactively with NCPO members and with all levels and branches of government for the safety of our families and communities.”