Under fire. That is the best way to describe the current state of the proposed $29 billion mega-merger of two of the nation’s three largest pharmacy benefit managers, and the fierce resistance it is drawing from pharmacy and consumer groups. If the plan is approved, Express Scripts will emerge as a PBM giant with a network covering some 135 million members.
Appearing before a Sept. 20 House Judiciary Subcommittee hearing called to explore potential antitrust issues related to the proposed merger, Express Scripts and Medco executives made their case. The deal, said Express Scripts chairman and CEO George Paz, “will help make prescription drugs more affordable for seniors, people with disabilities and working families. It will also help small businesses and large employers … to rein in their medical costs.”
Medco chairman and CEO David Snow told the House panel that PBM clients still would have “plenty of competitive choices post-merger, and the combined Express Scripts and Medco will be fully subject to the competitive pressures that will ensure value-based pricing and service.”
In fact, according to Express Scripts spokesman Brian Henry, the PBM sector “is a very dynamic, competitive marketplace. There [are more than] 40 PBMs in the marketplace, and 10 different companies servicing the Fortune 50 companies,” he told Drug Store News.
However, the true competitive picture appears far less robust. According to research conducted by Barclay’s Capital analysts, once you carve out the new ESI-Medco’s 41% share of total U.S. prescriptions filled, Caremark’s share (about 28%), and OptumRx (about 14%), that leaves seven companies fighting over about 15% of the pie. Factor out Catalyst Health and Prime Therapeutics — each about 5% of the market — and that’s five companies left to fight over the remaining 5% or so.
Then there’s the grip the new company would have on the mail-order business (about 60%), and more so, the rapidly growing and highly costly specialty pharmacy market (more than 50%).
Expressing “grave concerns,” Dennis Wiesner, senior director of privacy, pharmacy and government affairs at H-E-B — who spoke on behalf of the National Association of Chain Drug Stores during the Sept. 20 hearing — told House members that the deal, if approved, “would be a tipping point in PBM consolidation, harming patients, as well as government and private health plans and employers.”
In particular, Wiesner drew lawmakers’ attention to what he called the “opaque manner” under which PBMs operate. “There is no proof that [PBMs] pass along their purported savings to health plans, employers or consumers. In fact, the PBM industry has been fraught with allegations of extensive deceptive and fraudulent practices,” such as accepting manufacturer rebates for placing higher-priced medications on drug formularies, switching customers to those medicines and benefiting from both, he said.
Amplifying Wiesner’s message was Pennsylvania-based independent pharmacist Joe Lech. “ESI and Medco say that this merger will drive out so-called ‘waste’ in the healthcare system,” said Lech, who spoke on behalf of the National Community Pharmacists Association. “Frankly, these are just code words for squeezing my pharmacy reimbursement as far down as they can and trying to shift as many of my patients as they can to their own mail-order facilities,” he added. “My pharmacy has no leverage. … In my pharmacy, this merged company will pay for more than half of the prescriptions filled.”
Lech also attacked the two PBMs on generic utilization — which “everyone knows is the fastest way to reduce drug costs,” he said. “The generic rate at the ESI mail facility is 60%. It is 62% at the Medco facility. By contrast, community pharmacies dispense generics on average 72% of the time,” he said.
Meanwhile, both sides tried to amplify the message for all Beltway influentials to hear and see during the week of the Sept. 20 hearing. A NACDS-sponsored ad (which can be heard at DrugStoreNews.com/audio) played on radios throughout the Capitol. And ESI and Medco ran print ads that appeared in important D.C. papers like The Hill and Politico that week. “We protect consumers from the rising cost of prescription drugs,” the ESI-Medco ad promises.
Yet, for all of that “protection,” you can say that five of the biggest consumer interest groups in America just aren’t feeling it — Consumers Union, Consumer Federation of America, the National Consumers League, U.S. PIRG and the National Legislative Association on Prescription Drug Prices have all come out against the merger.
Other groups also have expressed opposition, including the National Coordinating Committee for Multiemployer Plans, the Independent Specialty Pharmacy Coalition, the Food Marketing Institute and the California Pharmacists Association. Representing some of those groups is David Balto, a Washington-based attorney and former FTC policy director.
“The mere fact that the FTC has issued a second request, that they’re conducting dozens of interviews and that they’ve been joined by numerous state attorneys general, shows that the law enforcers believe that this merger is not business as usual, and it’s not going to get a quick-glance approach,” Balto told DSN.
Although the deal could impact how pharmaceuticals reach the market, the industry group Pharmaceutical Research and Manufacturers of America has not taken a position on the merger. Still, even without PhRMA piling on, the arrows are flying from seemingly every direction.
According to ESI’s Henry, both companies still are as confident as ever that the deal will close, and are sticking with the original second quarter 2012 timeline.
Q&A: Neighborhood marketing
Drug Store News caught up with J.D. Schulman, CEO of Vesta Retail Networks, to talk about the company’s retailer-exclusive neighborhood marketing networks — a program that reaches affluent shoppers in a unique way by creating advertising opportunities out of the hangers used for dry cleaning. It’s not only an out-of-the-box approach to delivering targeted messaging, but it’s green, too — the “eco-hangers” and attached cardboard advertisements are both created out of 100%-recycled material, and the finished hanger is recyclable to boot.
DSN: What does VRN do for retailers?
J.D. Schulman: Our mission is to drive affluent customers to our retail customers via the affluent shopper networks we operate. Today, securing a scalable, affordable and affluent shopper network is critically important for retailers looking for more customers, new customers and bigger market baskets. … We work exclusively with leading retailers, which license channel-exclusive affluent shopper networks. No other company provides this localized-yet-national approach to reaching affluent customers necessary to drive sales increases in this current challenging environment.
DSN: How is this media vehicle more influential than other more traditional outlets?
Schulman: These leading retailers are licensing our affluent shopper networks to bring their suppliers an extended way to reach the coveted affluent households within the correct drive times around their stores. Our patented in-home billboards [are] hyper-efficient; [they] reach shopper households around our retail partners with nearly 100% view rates and 100% open rates — that’s unlike any other media vehicle that retailers have in their arsenal.
DSN: You’ve set up the Walgreens Neighborhood Marketing Network. How does that work exactly?
Schulman: We have 35,000 dry cleaners in our network that distribute our in-home billboards on our patented eco-hanger product. But you can’t advertise through all 35,000 dry cleaners. If you think of the Walgreens network and their 7,500-plus stores, that’s 7,500-plus neighborhoods. In those neighborhoods, there are four or five dry cleaners around each store. Those dry cleaners are selected to receive these in-home billboards. …
On average, the Walgreens Neighborhood Marketing Network has a household income [demographic] right around $100,000. [This program] reaches the 28% of households that do dry cleaning. Just by the very nature of the program, this is reaching more brand-centric consumers who have the pocketbooks to make purchase decisions not based on price, but based on preference.
DSN: Is this a one-size-fits-all program, or can suppliers manipulate and customize what’s included in the media?
Schulman: An individual supplier, for Walgreens as an example, can find out more about the program on a custom Web page at WAGshoppers.com. There [the supplier] can find out rates, dates, that kind of thing. Not only do the suppliers have the chance for in-home display via the billboards, but also couponing, sampling, promotion and QR code distribution — a number of ways in one single program to activate these affluent shoppers.
For the full audio Q&A, click here.
Giancamilli prepares to hand off CEO reins
MISSISSAUGA, Ontario — Sometimes nice guys finish first. Andy Giancamilli, who has held key leadership positions for drug store and big-box chains in both the United States and Canada, revealed in mid-September that he would retire as CEO of Katz Group Canada on Feb. 2, 2012. His announcement caps a storied retail career that culminated with a highly influential stint as chief executive of Canada’s largest drug store network, where he oversaw the transformation of Katz Group from a diverse collection of local drug store holdings into a unified, rejuvenated Rexall retail brand with national reach and a knack for innovation in merchandising and health care.
The capstone of Giancamilli’s leadership was the unveiling last year of a dramatically upgraded store prototype, dubbed Rexall Healthy Living. The test stores are designed to elevate Rexall’s image as a health-and-wellness destination, while building on its strong links with family physicians.
Giancamilli’s career traces the profound evolution of drug store and mass retailing over the past four decades. In an interview Sept. 26, he cited the growth of white-hot competition in the United States and Canada — and the critical role technology has played — in separating retail winners from losers.
“What I’ve seen over the years, especially with big-box retailing, is the huge increase in competitiveness and sophistication in that industry,” Giancamilli said.
“When I started as a clerk in a drug store, we didn’t have point of sale,” he added. “My job was to price merchandise and put it up on the shelf, and I used stickers to do it. With the advent of UPC and scanning and computers … I saw the entire process.”
That growth in data-driven sophistication, Giancamilli said, was critical to survival. “It was necessary, because the industry got so competitive that it became no longer a case of gross margins measured in dollars, but gross margins in pennies,” he noted.
Giancamilli began his career in 1967 as a stock clerk at SK Drug Mart, part of a chain of seven stores in suburban Detroit. He moved to Perry Drug Stores in 1975 after graduation from pharmacy school, quickly becoming a key member of Perry founder Jack Robinson’s small management team, and rising to president and COO by the late 1980s. After Perry’s sale to Rite Aid in 1995, Giancamilli was hired as VP in charge of drug store categories by Kmart, rising later to general merchandise manager of hardlines, president of all merchandising and, eventually, to Kmart president and COO.
In 2001, he moved north to serve as EVP of Canadian Tire. He joined Katz Group in late 2003. He also served as chairman of the National Association of Chain Drug Stores from December 2008 to April 2010.
When Giancamilli relinquishes his post early next year, he said he plans to spend more time with family. Among his goals: to rebuild his childhood home in Italy, which was damaged in an earthquake several years ago, and finally find the time to pursue cherished hobbies like boating, golf and racing a Ferrari.
“I would like to stay involved in the industry, whether through board work or some other way, and especially in the field of health care,” he told DSN. “I’m also looking forward to spending more time with my two grandchildren.”