Post-Katrina lessons inspire reforms


NEW ORLEANS —Two years following the heroic effort that was coordinated by members of retail pharmacy, wholesalers, pharmaceutical distributors and the Centers for Medicare & Medicaid Services to re-establish a pharmaceutical distribution system shattered by Hurricane Katrina, the industry has laid the cornerstone to a set of new pharmaceutical distribution protocols that easily can be put into play in the wake of a future disaster.

At the heart of the plan, an emergency electronic warehouse of patient data combined with an established blueprint for reimbursement that the industry has pieced together, applying lessons learned from the stopgap prescription drug database,, created in the aftermath of Katrina.

“One of the things we learned from Katrina is there is a greater industry need for a very formal, defined process where pharmacies responding to an emergency can process prescriptions for patients who have been evacuated or are without their medication regardless of the type of disaster,” said Mike Simko, manager of pharmacy clinical services at Walgreens. With as many patients as Katrina displaced, pharmacies were asked to replace lost medications. However, if the pharmacy could not produce a medical record, it was difficult to replace those medicines without a medication history to authenticate the prescription, Simko said.

Addressing access and authentication,, a prescription drug database warehouse consisting of an aggregation of retail pharmacy prescription files, went live in June. “Since Katrina, SureScripts has worked with the major pharmacies … in conjunction with the National Association of Chain Drug Stores and the National Community Pharmacists Association in building an infrastructure that allows for the capturing of dispensed drug information from the pharmacies,”Rick Ratliff, chief operating officer for SureScripts, told Drug Store News. The resulting database, the master patient index, allows users to match records across different pharmacy databases in case of an emergency.

That way, if a displaced patient patronizes the pharmacies of both a Walgreens and a Rite Aid, the health care professional serving that patient has access to a more complete pharmaceutical record.

In addition to pharmacies, prescription information also is gathered from pharmacy benefit managers and state Medicaid programs. During a state of emergency, licensed health care professionals who have registered on can access that information database containing prescription histories of a patient from the affected area.

The portal is actually a market-driven solution that’s part of SureScripts’ medication history service, a service that doctors signed with SureScripts now can access in 12 states, Ratliff said. While the medication history service is being rolled out on a market-by-market basis—an additional 27 states are expected to go live with the service this year—SureScripts has agreements with retail pharmacy in place that would enable capabilities within 48 hours in the event of an emergency.

“As an example, we’ve rolled out our Rx History Service in Florida, [but] we haven’t rolled it out in Louisiana,” Ratliff explained. “We’re going through a process in rolling out a service, but if there is an emergency, we have an agreement to break that process and zero in to make sure we have the data available for the affected area.”

A third lesson borne out of the Katrina experience revolved around proper—and timely—reimbursement. Following Katrina, there were concerns regarding who would reimburse pharmacies for prescriptions dispensed, and how much that reimbursement would be. At the time, pharmacists dispensed those medicines in good faith, without any guarantee of reimbursement. Many pharmacy retailers were paid extremely late—if at all.

“Many claims went unpaid or there was confusion as to who was actually going to pay the pharmacy,” Simko recalled, prompting significant delays in reimbursement. Having an established reimbursement protocol, combined with the patient history index at, also should help reduce fraud and abuse, he said.

NACDS and the National Council for Prescription Drug Programs have been working toward developing standards and processes to be able to bill for services in an orderly fashion since Katrina.

Hopes are high that the reimbursement question has been addressed with the recent introduction of the Emergency Prescription Assistant Program. Spearheaded by CMS, the new resource utilizes existing pharmaceutical supply chain infrastructure as the distribution mechanism for future emergency responses. Like any other third-party insurance, the Emergency Prescription Assistant Program provides pharmacists with specific instructions on how to handle prescriptions for victims of disasters of national significance, how to bill these claims for reimbursement and how much they can expect in reimbursement.

“In the event of a disaster of national significance, the Federal Emergency Management Administration will identify individuals or groups of individuals who may be eligible for the EPAP and that information will be communicated to pharmacies through Argus [Health],” explained Larry Kocot, senior advisor to the administrator at CMS. “Upon activation of the EPAP system, disaster victims may present at any network pharmacy to fill a prescription written for a covered medication to treat an acute condition, to replace maintenance drugs that the individual may have lost in the emergency or to obtain certain covered [durable medical equipment]. Pharmacies will be required to check for existing coverage at the point of sale prior to billing the EPAP,” he added.

Wholesalers also have taken precautions in preparation of an emergency, as well, not only to make sure that in-demand medicines are readily avail-able—metronidazole for the treatment of tetanus, insulin and intravenous solutions were in greatest demand following Hurricane Katrina—but also that the supply chain feeding those medicines into emergency areas remains intact.

“Even prior to Katrina, we’ve had a [business continuity plan] for our network…in place,” said Don Walker, senior vice president of distribution operations at McKesson. “Post Katrina, one of the single largest [lessons] was—what is your plan when your infrastructure totally crumbles?” he said. Most continuity plans prior to Katrina had contingency plans in place, he noted, but Katrina took out communications, road infrastructure and power.

“We’ve gone back and revamped our plans,” he said, increasing satellite communication capability among distribution centers and such customers as hospitals, for example. “The biggest challenge we had was customers were fundamentally unable to say ‘I need this,’ because they couldn’t get a message out.”

As another example, Cardinal Health has up to three backup locations for each distribution center, systems in place to track the movement of their private fleet and access to an emergency stockpile of fuel.


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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.”


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CVS wins Caremark battles

BY Antoinette Alexander

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


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Which area of the industry do you think Amazon’s entry would shake up the most?