Category: Pharma

Can Wal-Mart save the American health care system?

published date
September 21st, 2006 by

Can Wal-Mart save the American health care system?

No one seems to have an answer to high and rising health care costs. A parade of solutions –managed care, disease management, health care IT, pay for performance, consumer directed care and so on– are tried, but nothing really works. Costs continue to rise at double digit rates with no end in site.

A big problem with health insurance now is that it covers everything, from the most routine items like checkups to the most expensive, like transplants. That coverage for everything has a way of distorting the market. If car insurance paid for gasoline, oil changes, wiper blades and car washes it would likely dull consumers’ shopping skills and boost costs by adding an administrative layer. Initiatives like “consumer driven auto care” wouldn’t change things that much.

Wal-Mart seems to have a strategy that could fundamentally shift the market: it’s making routine items cheap enough that insurance for them isn’t even worth the hassle. Today’s announcement of $4 generics is an important step in that direction. It makes the cash price lower than the typical co-pay. In-store clinics with low prices are the other component.

Why did Wal-Mart’s generic price announcement put such a dent in the stocks of pharmacy retailers and mail order players? It’s because those companies have been making very juicy profits on generics while payers weren’t noticing. Because of the dynamics of the insurance market, payers focus on getting patients switched over to generics from high-priced branded products. They haven’t really paid attention to the fact that while generic wholesale prices have been sliding due to the entry of many new players, prices haven’t been dropping at the retail level and payers haven’t been ratcheting down reimbursement.

Generics are a great market for Wal-Mart to play in because it can use its traditional supply chain management, scale and negotiating expertise. Even before today’s announcement Wal-Mart was selling many generic drugs below its competitors’ cost of acquisition, just like it does in other segments. It’s true that only cash customers –a small segment of the market– are directly affected by the announcement. But the long-term implications are significant.

In-store clinics are the other area where we can expect some serious moves by Wal-Mart. The typical independent physician office is a lot less efficient than the mom and pop stores Wal-Mart has buried. Physicians aren’t exactly like store owners, but in some parts of the country they will have plenty to fear as Wal-Mart (and maybe others) pull away patients for routine services and minor ailments. That will encourage patients to drop coverage for routine services (if they can) and enable health plans to set lower rates. I wouldn’t be at all surprised to see Wal-Mart start to hire significant numbers of doctors and put them to work in its stores.

If Wal-Mart can spur significant reductions in the cost of routine services and products, it will go a long way to cutting overall costs. It may also enable the emergence of appealing catastrophic insurance policies.

Finders keepers?

published date
September 21st, 2006 by

Finders keepers?

Last month 230,000 Medicare beneficiaries were accidentally reimbursed for the Part D premiums. The average amount was $215. As I wrote last month:

Unfortunately for the recipients, they’ll have to give the money back.

But not so fast. According to the Kaiser Family Fund, The Center for Medicare Advocacy (CMA) is suing the government.

According to CMA… federal law allows for waiver of recovery of funds when a beneficiary is not at fault in an overpayment. In response to the suit, CMS on Monday agreed to stop mailing letters that instruct beneficiaries to return the money and to remove content on the recovery of overpayments from its Web site.

Medicare recipients are getting an overly-generous subsidy on Part D from the rest of us as it is. Anyone who got the mistaken refund should pay it back instead of taking further advantage of the system. The government should apologize, but that’s it. Meanwhile, shame on the CMA for pursuing this.

Will it play in Palo Alto?

published date
September 13th, 2006 by

Will it play in Palo Alto?

Saw the news today that Elephant Pharmacy raised a $26 million Series C round. The company, which bills itself as “the leading complementary pharmacy and one-stop wellness store” has two stores now, both in Northern California. I visited the Berkeley store last year and it was a heck of a lot different from anything we have on the East Coast, even in Cambridge, our closest local approximation of Berkeley.

There was a regular pharmacy counter, but that’s about the only thing that was similar to the typical CVS or Rite Aid. The herbalists were busy in their own department, concocting potions of various kinds. A nutritionist, who “uses a caring, nonjudgmental approach to food to help clients prevent illness and improve wellness through diet and lifestyle” was working that day, as was a massage therapist, but I missed the nutripuncturer.

The shelves were lined with a variety of herbal preparations, vitamins, pilates and yoga equipment, “fair trade” goods. and other sorts of alternative fare. Reference books were interspersed among the merchandise and there was also a dedicated book section. I purchased some natural lozenges (sweetened with rice syrup) and a “Bucky” pillow and eyeshade I use on long flights.

The press release for the new investment describes the opportunity as follows:

Americans spend $27 billion annually on alternative and complementary medicine. Increasing numbers of Bay Area consumers who are looking to take the next step in self-managing their own health and wellness are turning to Elephant Pharmacy as a key resource…In addition to its present locations in Berkeley and San Rafael, Calif., Elephant expects to announce the opening of locations in Los Altos in 2006 and Walnut Creek in 2007.

I got a kick out of the store. The customers looked dead serious as they loaded up on high margin merchandise and listened to advice from some of the whacked out staff members. You should visit if you’re in the neighborhood.

It does seem to make sense to merchandise alternative/complementary items with prescriptions, since lots of people use both. But it’s something that mainstream pharmacies haven’t done. Pharmacists tend to be uncomfortable with alternative therapies, often with good reason.

I don’t have any special insights into the economics of Elephant, but my hunch is that the concept will have limited appeal outside its home market. I wonder how many new locations are required to achieve a return on the new investment. Do they really need $26 million to open two stores? They probably have some other plans.

Elephant seems a little too funky for the mainstream, unlike some other California-based retail concepts like Trader Joe’s. I also expect that increased scientific scrutiny of the safety and efficacy of herbal medications will hurt the category in the long term, although there’s a big group of true believers that won’t be easily deterred.

I’m upset about the Bextra withdrawal

published date
April 8th, 2005 by

A close friend of mine has rheumatoid arthritis. Under the supervision of her rheumatologist she’s tried all the prescription and OTC options and found that Pfizer’s Bextra –and not any other COX-2 inhibitor or other medication– worked well for her. I know someone else with a similar story about Vioxx.

Yesterday the FDA asked Pfizer to withdraw Bextra from the market. A number of cardiovascular, gastro-intestinal, and dermatological adverse events –some fatal, along with Bextra’s failure to prove its superiority to other treatments, doomed the drug. In an unusual move, the FDA overruled its Advisory Panel, which had recommended that the drug be allowed to stay on the market. The only hope the FDA left for patients who feel they need Bextra was to state that a proposal for a compassionate use program would be received favorably, if Pfizer wants to propose one.

Something’s gone terribly wrong here. The pharmaceutical companies made a big mistake by promoting COX-2 inhibitors to the widest possible customer base. As a result it looks like a number of people who should have been treated with the occasional Tylenol or nothing at all ended up sick or dead. And after the FDA was caught asleep at the switch, it may have overreacted to the latest data. As I wrote last month, J&J is taking the lead in balancing risks and benefits in its direct to consumer advertising –this is in the industry’s own best interest.

I read Marcia Angell’s book, The Truth About the Drug Companies when it came out, and there is a lot of truth in there. But I disagree with one of her main arguments –that me-too drugs (similar drugs in the same class) are bad and should not be allowed. Celebrex, Vioxx, Bextra, and the rest may be quite similar, but for whatever reason each seems to work better in some patients than others. There are similar stories in other drug classes, notably in drugs for depression. It doesn’t matter to me whether the motives of the drug companies are pure; I’d rather have more choice than less.

In 20 years or so, when pharmacogenomics and personalized medicine are the norm, we won’t have to go through trial and error treatment with many different drugs. But for now it’s the best we can do.