Arxcel Celebrates 10 Years!

"We are delighted to celebrate this milestone with our clients, colleagues and friends. Our success has been tied to our mission to help our clients maintain the highest quality prescription benefits at the best value to members."

This March, CVS Corporation and Caremark Rx, Inc. announced that they have formally closed their merger, creating the nation's premier integrated pharmacy services provider. The sale of Caremark to CVS unifies the nation's largest pharmacy chain with a leading pharmacy benefits manager. The combined company was renamed CVS/Caremark Corporation.

Analysts wonder whether the merged entity will use its purchasing clout to benefit consumers.

"Caremark and CVS combined have the power to negotiate better prices from the drug manufacturers. The question is: Will they pass those savings on to consumers?" said Hussain Mooraj, life sciences research director at AMR Research in Boston.

The National Community Pharmacists Association, which represents 24,000 pharmacies, originally backed the merger but has since back-tracked, claiming that the CVS/Caremark powerhouse could hinder patient choice and squeeze out independent and family pharmacies.

"If you're a payer for healthcare, you've got to wonder if you're going to be getting as good a deal with CVS" as with other stores, said Harvard Medical School healthcare policy professor Richard Frank. "I'd think twice about doing business with them."

Pharmacy benefit managers are the administrative middlemen who negotiate prices and supply drugs to large groups of beneficiaries on behalf of health plans, employers and unions. Traditionally, they have worked to cut the cost of drugs supplied by chains like CVS.

Some industry observers say the merger is a response to the recent move by Wal-Mart Stores Inc. to increase the dispensing of low-cost generic drugs to their customers. While generics are less expensive than name brands—Wal-Mart will fill many generic prescriptions for $4—they often have higher profit margins for the retailer than the brand-name equivalent drug.

Caremark’s shareholders in March approved the $27-billion takeover bid, which was offered amid protests that the price was not as high as an earlier offer by Express Scripts. Both firms have seen their share prices slump amid shareholder unrest. The combined companies anticipate annual revenues of $75 billion the first full year after the deal closes.

In November, Arxcel reported on new legal action focusing on questionable price reporting practices of First Databank, one of the most commonly used sources of drug pricing information by pharmacy benefit managers.

PBMs frequently use First Databank's published list of average wholesale prices—or AWP—as a benchmark upon which to negotiate drug discounts with retail pharmacies. Legal action occurred once it became clear that First Databank’s wholesale acquisition price (WAC) was multiplied by a factor to ensure the AWP was profitable.

The need for a new pharmacy pricing benchmark has been evident for many years and is welcomed throughout the industry. The legal action against First Databank opens the door to create a new pharmacy pricing benchmark that provides better accuracy, verifiability, availability and transparency.

While the industry searches for a new solution, it is important for employers to remember that drug pricing is only part of the equation. Keeping costs down requires taking into account all drug spend-related factors. Overall drug costs are driven by cost and utilization factors, plus member cost share. Payers need to be informed and educated about each of these important drivers of overall pharmacy trend.

This is an important time in the evolution of pharmacy pricing benchmarks. Employers are now in a position to advocate for fair and accurate pharmacy pricing while the new pricing benchmark is established.

Employers should benefit from the new pricing structure but keep in mind that long-term relief from escalating program pricing will only be achieved through the optimal balance of price, member cost share and utilization management.

Steps benefit managers can take now

1. Determine whether your current PBM agreement includes a provision allowing contract pricing renegotiation based on industry-wide changes to reimbursement and/or pricing mechanisms.

2. Estimate the impact of any proposed modification to WAC/AWP spread adjustments to your current program.

3. Implement potential alternative pricing mechanisms as part of future procurement activities.

4. Implement language into current and future contracts to protect against artificial price inflation and manipulation.

5. Don't forget that the most important driver of pharmacy program costs is utilization. Implementing effective programs to influence the use of generics and OTC drugs can generate 10% to 15% savings over current program costs.

6. Contact Arxcel to review contract renegotiation options.