Hi. I’m George Van Antwerp. I’m the SVP of Pharmacy Services at Silverlink Communications which is a technology services company that works with many of the PBMs. I spent 5 years at Express Scripts working on many of the programs that are now called “Consumerology” and have spent the past 5 years working on direct to consumer programs for over 15 different PBMs. Today, I’m going to talk about the rapidly changing market dynamics which is keeping us all jumping. Ultimately, the question you should be asking yourself as a PBM is how do I grow through differentiation or are we just a commodity. As a client, you should be thinking about what are the tradeoffs you’re willing to make around price. Where are the value drivers for your business? For example, would you pay for outcomes or pay PBMs a capitated amount?
Here’s a bunch of the key topics that I hear as I’m out there in the marketplace.
http://georgevanantwerp.com/2011/02/17/pcma-interview-%E2%80%93-the-core-pbm-skill-adaptability/I think Mark Merritt from PCMA summed it up well when I interviewed him last year…it’s about adaptability.
Of course, the primary topic in today’s news is the Express Scripts acquisition of Medco. We’re all waiting on the FTC’s decision, but I feel very confident that it will get approved. There have been a few people who have come out against the acquisition, but most of that is driven by the independent pharmacies.
The question of course is what does this mean. The acquisition is based on an older model which says that scale matters. It drives down acquisition costs. It increases leverage over the supply chain. Is that true? I believe that the curve flattens out so while scale matters to some degree that has decreased in recent years. It should also create more opportunities for PBMs to differentiate themselves. (read list)
You are certainly seeing lots of different discussions out there around direct model like Caterpillar, limited networks like ReStat, preferred networks like Humana and Walmart, and many others. But, the big benefit here for many of you is that everyone expects 2x as many clients to be in play in 2012. This churn will bring lots of different PBMs into play in a broader set of RFPs.
The other big topic in the news also involves my old employer – Express Scripts and Walgreens. While I thought this would take a while to get resolved, I didn’t expect it would flip into 2012. I thought clients and the pressure of going into the selling season with a proposed acquisition and no Walgreens in their network would be enough to get both sides to the table. But, the reality is that no one seems to be budging.
I did an e-mail interview with Michael Polzin from Walgreens last month. He reiterated a lot of the key points that they’ve made in their whitepapers and the press. They seem to want to get a deal done, but they also want to be acknowledged for engaging the consumer differently. It’s a great question…will we as an industry pay for better experience and better outcomes? And, if yes, how do pharmacies and PBMs demonstrate that?
On the flipside, Express Scripts is about to pull off what many PBMs have talked about for a while. Creating a limited network without one of the two big chains. The key question is whether this creates enough savings for clients (and whether it gets passed through). This will be a great case study. Do clients leave? Is the disruption manageable?
I thought some of the comments from Drew Crawford were helpful the other day. Drew spoke about getting more RFPs that require retailers to be included or asking about language that allows them to contract directly.
While 2/3rds of our clients are skeptical of the adoption of limited networks, you are seeing some adoption built upon the success of Humana and Walmart. We’ve seen Aetna offer a program with CVS and Coventry offer a program with Walmart, Walgreens, and Target. Of course, there are several offerings out there in the market such as the Align network by ReStat and the Maintenance Choice offering by CVS Caremark.
My expectation is that price will always be important, but there will be other ways to create differentiation.
And, this echo’s what we heard in our Silverlink client survey in pharmacy in December. A focus on mail order has dropped down while customer experience has leapfrogged to the top. Unfortunately, specialty (the fastest growing area) has the least innovation in most PBMs.
So as you look at the broader market, there is lots of other activity and even more speculation. Here’s a few of the recent deals. Of course, everyone is also monitoring the captive PBMs to look for long-term deals like Wellpoint or ways to buy that book of business.
Mail order use is down with 2011 being the first year with negative growth. Costs continue to go up. Specialty is exploding.Utilization is down.
Fortunately, generic utilization has gone up keeping trend to much more reasonable levels in recent years, but with Specialty spend expected to account for 40% of the pharmacy spend by 2015, everyone is worried. I just used this at PCMA re: copay cards.
So, what you’re seeing is people looing at different areas of focus.
A big piece of this is engagement. And, to a certain degree figuring out new channels like mobile.
Another big focus is adherence. This is one of those rare areas where everyone is aligned. The challenge of course has been finding the ROI in these programs with a few rare exceptions like diabetes.
But, this is changing with things like Star Ratings in Medicare. You now have companies getting paid on outcomes! Wow…what a radical concept.
The question in any of these programs is how do you actually drive change. The easy answer is to close the formulary, raise the copays, put in place a bunch of UM tools like PA and ST, and implement mandatory mail and mandatory specialty. How many of you want to do that?
So, if you’re not going to do that, you actually have to focus on engagement. We’ve all seen the marketing push behind Express Scripts consumerology story. Or last year, we heard some fascinating research from Dr. Whitehouse at Catalyst about the work their doing. And, everyone has something their working on from behavioral economics or the “nudge” concepts.
This is where we’re seeing a new focus around growth and differentiation which is creating blended databases of medical and pharmacy data. Some companies are also including lab. You’ve certainly seen this from ActiveHealth and Optum, but last year Prime Therapeutics announced their Guided Health product. I’ve also talked with several of you that have similar efforts underway.