Is This the Year of Regulatory Change and Special Legislation? (Part 1)

2018 Set the Stage for 2019, as Pharmacy Benefit Managers and Drug Wholesalers Found Themselves on the Hot Seat.

Last year brought about another notable increase in the public consciousness of how the world of pharmacy operates.

Pharmacy benefit managers (PBMs) replaced pharmaceutical manufacturers as the industry’s punching bags, and drug wholesalers found themselves on 60 Minutes explaining the failure of computer algorithms that were supposed to prevent large shipments of opioids from landing on the doorsteps of pharmacies that made headlines for outlandish prescription fill counts (21 million pain pills to a rural town of 3200?).

Meanwhile, Wall Street awoke to the juggernaut that could be the “front door to the health care system,” as Aetna’s chief executive officer (CEO) unabashedly promoted the promise of brick-and-mortar pharmacies as health care referral and service hubs in every community.

If 10 years ago you had asked a random person what he or she thought about the pharmacy industry, none of these actors or storylines might have come to mind. It is unlikely that a person on the street would have had even a rudimentary understanding of the distribution and financing of pharmaceuticals. Yet, as we enter 2019, it seems that what used to be inside baseball discussions on health care blogs, on pharmacist-networked social media, and in pharmacy trade journals is finding its way into mass media. As an industry, we are all now on the front pages of widely read newspapers and websites amid activist journalism laced with human interest stories for the first time since reimportation of medications from Canada and Mexico forced the federal government, through a heck of a lot of lobbying on all sides, to create Medicare Part D. Rising public awareness (for bad or good) tends to lead to increased administrative, boards of medicine and pharmacy actions, as well as Medicaid state plan changes, regulation, special legislation, and other ways of telling the marketplace that it is not working. So, what government-compelled actions might 2019 bring?

Mergers, Acquisitions, and Vertical Integrations

Everyone has an idea about what Aetna-CVS will look like post merger, but none of these opinions will matter if the merger is not ultimately approved.

In December 2018, a judge in the District of Columbia lifted his pause button on the merger and added an order to “operate as a separate and distinct unit” from the PBM and pharmacies of the “CVS Enterprise.” Provisos seem to continue to be added to this merger as it rolls on through the regulatory process.

Almost forgotten in the midst of the Aetna-CVS deal are the Cigna-Express Scripts merger and other emerging “strategic partnerships” (think first or second dates with promise rings) of a few other major players in the medical insurance and pharmacy arenas with the continued fueling of vertical integrations. On the horizontal integration front, Kroger and Walgreens said that they are “going steady” in a similar trajectory to that of CVS and Target before those 2 companies tied the knot. All these proposed marriages will no doubt spark regulatory review and action, as well as newspaper articles raising the public profile of change in our industry.

Spreadsheet Shenanigans

Pharmacy just would not be pharmacy without spreadsheets with tens of thousands of rows of national drug codes and column after column of different prices for different actors in different circumstances, applied differently in different time periods. Drug product reimbursement is a byzantine process at best. Spread, direct and indirect remuneration (DIR), and now generic efficiency rates are just the latest in a long and proud history of pharmacy spreadsheet sleight of hand. Remember average wholesale price—or, as it is often known, “ain’t what’s paid?” PBMs are most visible and arguably the most aggressive users of spreadsheet manipulation to drive margins, but honestly, hasn’t the whole industry thrived on optimizing the spreadsheet game for decades?

Well, 3 foundational inflection points reached in 2018 mark the beginning of a long-term turn in how the entire industry finances and reimburses for medications, and government will no doubt have its say.

First, purchasers of health care have gained the political will to unmask spreadsheet games. Employers and taxpayers are the major financiers of health care in the United States, and between yet another 60 Minutes expose on PBMs and their lack of a “fiduciary” relationship with employers (What? We were supposed to save employers money? We did not agree to that.) and the Trump administration’s consistent and seemingly resolute strategy to place a floodlight on drug pricing (clearly viewing the decrying of the pharmacy spreadsheet game as a populist political win), these purchasers will no doubt seek regulatory action over time.

Second, the industry is losing cohesiveness and beginning to fracture. Part of this is owed to vertical integrations and mergers as nonpharmacy actors get into the pharmacy business. It started with mail order and PBMs, but now Amazon, health systems and 340b, and online niche medical provider—pharmacies that serve conditions such as erectile dysfunction and hair loss, have moved in, and, of course, pharmacies are getting into the medical insurance business. When so many of the nation’s prescriptions are filled by 13 of the Fortune 300 companies where prescription fills are not the main business, it should not be a surprise that everyone’s lobbyists are no longer on the same page. Ultimately, the idea that “everybody is in on the game” has had a masking effect but was lost over the past few years when some of those left out of the game in the industry—namely, independent pharmacies but also some large and midsize chains—were left out of the game. The federal government started a chain reaction a few years ago when it sought to remove spreadsheet games from Part D, leading to DIR fees. Its intention was to recoup the padding in the rebates to the benefit of enrollees and taxpayers. Naturally, that action rolled down hill, as the “don’t take my margin, take theirs” attitude flowed through the entire chain to the very end, where the pharmacies reside. It gets real when your family and friends are still getting bonuses and buying second homes while your own home is being foreclosed. Independents were going out of business, and chains were slashing pharmacist benefits and rolls. We have seen out-and-out war between PBMs and pharmacies in Arkansas, Ohio, and Pennsylvania. Expect those fires to grow and more politicians to see an advantage in jumping into the fray throughout 2019.

Third, Pharmaceutical Research and Manufacturers of America (PhRMA) sent the shot heard around the world when it acknowledged that the spreadsheet games have gotten out of hand.

Most forcefully and notably, Lilly CEO David Ricks this year said that “it’s time for a change.” He noted that eliminating manufacturer rebates is “a good idea,” which is ironic, because PhRMA invented the drug rebate system to optimize reimbursement from payers—except now patients are becoming payers through high-deductible health plans with first dollar coverage often in the many thousands of dollars in deductibles. This begs government oversight and regulation.

Next month, part 2 of Is This the Year of Regulatory Change and Special Legislation?: Potential Actions Related to the Opioid Epidemic and Pharmacist Provider Status Are on the Horizon.

Troy Trygstad, PharmD, PhD, MBA, is vice president of pharmacy programs for Community Care of North Carolina. He also serves on the board of the American Pharmacists Association Foundation and the Pharmacy Quality Alliance.