A comment by a pharmacy benefit management (PBM) executive in a WorkCompCentral story this morning caused me to ponder that a little more.
Commenting on the big break up between Express Scripts and Walgreen's, ScripNet CEO Dennis Spooner said to WorkCompCentral reporter Greg Jones that in states where the employer has limited rights to direct care the break up may not make much difference in injured workers' access to pharmacy benefits:
"So if you're on the Express Scripts workers' compensation pharmacy program, you still have the right to go to Walgreens, and Express Scripts can't do anything," he said. "Walgreens will mail a paper bill and it's probably going to be at the full rate in the fee schedule. On generics (in Texas), that's average wholesale price, plus 20%, plus a $4 fill, which is about 50% more than what they would be paying if Walgreens was in the network." (Italics added.)
What caught my eye is that there is such a deep discount in the reimbursement for pharmaceutical benefits - well below fee schedule!
I understand that volume permits certain economies of scale relative to the provision of retail product. What is surprising to me is that the scale of this volume discounting would allow not only for the retail distribution of drugs, but also all of the attendant incidental costs to that drug - manufacturing, distribution, regulatory load, and of course profit for everyone involved in the distribution chain.
The contract between Express Scripts and Walgreen's covers both work comp and general health and expires January 1 if not renewed or renegotiated.
Walgreens stands to lose $5 billion in annual sales, 7% of its business, by not accepting Express Scripts patients, according to a report by the Chicago Tribune. That probably wipes out its prescription drug profit margin.
This is just the market playing out, and doing what it is supposed to do - wringing efficiencies out of systems to the benefit of the marketplace.
And I assume that part of the Walgreen business model is to get people in to fulfill prescriptions and then sell them other items in the store to recoup sales and profits through other retail sales.
Express Scripts doesn't feel that access to pharmacy benefits for its customers is going to be affected, which is part of the reason why it is using its market clout to muscle Walgreen's:
"If Walgreens chooses to leave our network, we will still have more than 56,000 participating pharmacies, more than enough to meet all client guarantees for access," Express Scripts said in an emailed statement to reporter Jones. "On average, another network pharmacy that provides the same service for a lower cost is located within a half mile of any Walgreens."
Alex Knight, a PBM consultant and vice president of sales for ProCare Rx in Collierville, Tenn., said losing access to the 7,779 drugstores Walgreens operates won't have a significant impact on the ability of Express Scripts customers to fill a prescription.
"In the U.S., there are 65,000 retail pharmacy locations," Knight said. "There are 20,000 McDonalds, and no one says they have a hard time getting a Big Mac."
Market economics at work challenging fee schedules ... indeed.