NCPA Executive Update

NCPA Executive Update delivers insights on legislative, regulatory, policy, and industry developments from NCPA CEO B. Douglas Hoey, Pharmacist, MBA, to NCPA members and pharmacy leaders every Friday.

Walmart vs. CVS: Who wins? | NCPA Executive Update | January 18, 2019

by NCPA | Jan 18, 2019

Dear Colleague,

Doug Hoey

We all know the story of David and Goliath. Armed only with a sling and five stones, boy slays giant. Score one for the underdog.

This week, we had a new twist on that story. Walmart and CVS/Caremark: A Goliath vs. Goliath match fought it out in the pharmacy space before quickly reconciling their differences.

While the lesson of the original story is to never underestimate the little guy, here's what Goliath vs. Goliath tells us: Business decisions have consequences.

Business decisions so far: Walmart made a decision to ask for higher reimbursements from CVS/Caremark. CVS/Caremark made a decision to say no, which would have prompted Walmart to stop accepting CVS/Caremark commercial and Medicaid managed care plans in its nearly 4,500 pharmacies.

Walmart is the company that rode the generic deflation marketplace trend and made the business decision to accelerate an unsustainable generic drug free-fall with its $4 prescription marketing ploy.

Walmart also is the company that got its start in the pharmacy business through independent pharmacy owners opening pharmacies in leased space in Walmart stores. As those leases expired, Walmart made a business decision – it ditched the independents that built its pharmacy business, and the corporation took over.

For many consumers, their prescription drug insurance benefit surely "ain't what it used to be." Copays have gone up and PBMs have shifted more costs to patients. The popularity of high-deductible HSA plans has increased, up 400 percent over the last decade.

And, these days, nearly 90 percent of prescriptions are for generic medications with hundreds of millions of those prescriptions making my list of "bubble gum drugs" – effective medications whose prices have fallen to a level in the neighborhood of a pack of gum. For some patients, paying cash may be less expensive than using their prescription benefit.

It's possible that some consumers may be making the business decision – call it a bet if you want – that they may save as much – or more – by not using their prescription drug insurance and just paying out of pocket.

Back in 2012, Walgreens-Express Scripts had their feud, and most industry pundits say Express Scripts won. In the CVS-Walmart dustup, the news of their reconciliation was just announced this morning, so the verdict is still out as to who came out ahead. Walmart represents a different dynamic than Walgreens does because its pharmacy business represents only single digits of the retailer's half-trillion dollars (!) in revenue. By contrast, prescription business for Walgreens represented about two-thirds of its revenue. So, it would have been less of an "ouch" for Walmart if they had made business decision to walk away.

While the analysts speculate on who came out on top, one thing we know for sure: If the country's largest company says "enough," even if for only 72 hours, the nation's nearly 22,000 independently owned pharmacies don't have a fighting chance in contract negotiations. Unfortunately, current laws don't allow independents to say "no" with one voice in the same manner Walmart did. That's why horribly one-sided "take it or leave it" contracts get signed under duress. That's why we need continued investigation into these contractual relationships. And, that's why continued evaluation of each and every contract that is signed is needed.

The Goliaths collided – even for a brief moment – and cast a spotlight on an unsustainable negotiating dynamic.

Best,
Doug Hoey

P.S. Have you let CMS know how you feel about provisions in its proposed rule that would #FixDIR? There's one week left – make your comment and encourage your patients to do the same. It's the most important business decision you can make today.