Laura Landro reports in the Wall Street Journal today that “a coalition of health-care purchasers, quality groups and government agencies working with the National Quality Forum, the leading government advisory body on health-care quality measurement and standards, have agreed for the first time to endorse a single set of 30 ‘safe practices’ that all hospitals should use to prevent death and injury to patients.” That’s progress.
What was hinted at this morning became reality this afternoon when CVS, a major pharmacy chain which has a prescription benefit manager affiliate Pharmacare and a major PBM Caremark announced their merger. Caremark shareholders will receive 1.67 shares of CVS stock for each of their Caremark shares. The new company will be called CVS /Caremark and it will be headquartered in Woonsocket, Rhode Island (gateway to the Taunton). The stock swap deal is valued at $21 billion and the projected 2006 revenues for the combined company are $75 billion. The Wall Street Journal notes that CVS has been very acquisitive this year and that PBM stocks have been down since September when Walmart announced its $4 generic prescription price. The proposed settlement in the AWP price fixing litigation has added to the PBM stock woes as discussed in the blog last week.
The AP reports that
Glenn Garmont, an analyst with First Albany Corp., said before the announcement that the deal was likely spurred in part by the fear that Wal-Mart, “will emerge as a fierce new competitor following its introduction of selected $4 generic drugs.” Wal-Mart announced last week that it is extending its $4 for a one-month supply of 314 different generic prescriptions to make the program available at 1,008 stores in 27 states. However, [CVS CEO Tom] Ryan and [Caremark CEO Tom] Crawford said Wal-Mart’s action didn’t affect their decision to merge. “We’ve been working on all this for some time,” Crawford said. “This didn’t have anything to do with Wal-Mart.” Garmont said such a deal between Caremark and CVS “would spawn others, and we view all PBMs … as potential take-out targets.” Still, some analysts said the deal might face antitrust concerns. Barry Barnett, a health care consultant for PricewaterhouseCoopers, said regulators might be concerned that Caremark might unfairly funnel business to CVS pharmacies at the expense of other drug stores.
Several years ago Caremark acquired Advance PCS, one of the original PBMs. Earlier in its history, PCS had been owned by a drug manufacturer Eli Lilly, a drug wholesaler McKesson, and a pharmacy chain Rite Aid. None of those arrangements were profitable, as I recall. Another major PBM Medco recently split away from its drug manufacturer parent Merck a few years ago following considerable antitrust scrutiny. So the experience of this new combination will be worth following.
The Wall Street Journal and the New York Times are reporting this morning that a major pharmacy chain CVS (which has its own prescription benefit manager operation) and one of the largest PBMs Caremark are in merger talks.
Caremark and CVS confirmed the talks in this joint press release:
NASHVILLE, Tenn. and WOONSOCKET, R.I., Nov. 1 /PRNewswire-FirstCall/ — Caremark Rx, Inc. (NYSE: CMX) and CVS Corporation (NYSE: CVS) confirmed today they are engaged in discussions relating to a possible merger of equals transaction. There can be no assurances that any agreement will be reached or that a transaction will be consummated. There will be no further comment until the discussions are concluded.
From 1938 to 1962, federal law permitted manufacturers to market drugs that had been tested for safety. In 1992, Congress amended the law to require that the Food and Drug Administration approve drugs for marketing based on evidence of safety and efficacy. (Click here for an historical timeline of FDA regulation.
In 1968, the FDA commissioned the Drug Efficacy Study Implementation (DESI) that identified 3,400 active drug ingredients marketed between 1938 and 1962 that were safety tested but not proven effective. The FDA explains that
“One of the early effects of the DESI study was the development of the Abbreviated New Drug Application (ANDA). ANDAs were accepted for reviewed products that required changes in existing labeling to be in compliance. In September 1981 final regulatory action had been taken on 90% of all DESI products. By 1984, final action had been completed on 3,443 products; of these, 2,225 were found to be effective, 1,051 were found not effective, and 167 were pending.”
Federal law permits the manufacturer to continue to market DESI drugs until the FDA deems the drug unapproved based on lack of efficacy following notice and a hearing.
Forty years later, the FDA has not completely closed the loop on these DESI drugs. The FDA’s web site explains that
For a variety of historical reasons, some drugs, mostly older products, continue to be marketed illegally in the United States without required FDA approval. Many healthcare providers are unaware of the unapproved status of some drugs and have continued to unknowingly prescribe unapproved drugs because the drugs’ labels do not disclose that they lack FDA approval. Often these drugs are advertised in reputable medical journals or are included in widely used pharmaceutical references such as the Physicians’ Desk Reference (PDR).
The FDA recently released compliance guidance on unapproved drugs and plans a workshop in January 2007.
BNA reports that Sen. Charles Grassley (R – Iowa), Chairman of the Senate Finance Committee, is concerned that the compliance guidance “estimates that there are several hundred unapproved active ingredients in drugs currently on the market”, and he is pressuring the agency to remove these drugs from the market.
The Wall Street Journal reports today on several web sites that adults can use to calculate their health risk for various diseases. The Journal highly recommends a comprehensive risk assessment site created by the Harvard Center for Cancer Prevention. The site called “Your Disease Risk” also offers an customized action plan. I just tried to log onto the site, which has been receiving 2000 visits per day and the Journal article has crashed the site. So try it out in a few days.
The Journal gives honorable mention to a heart attack risk assessment offered by the American Heart Association and a breast cancer risk assessment offered by the National Cancer Institute.
Walmart expanded its $4 generic drug program to 14 additional states yesterday, including the states bordering DC — Maryland and Virginia. (There is no Walmart in DC.) The Washington Post compared Walmart’s price to the prices charged by Costco and retail pharmacies and there is clearly a savings. The knock on the Walmart’s program, as explained in the Post article, among others, is that the list of drugs eligible for the $4 program is limited and includes older generic drugs. From a health care policy perspective, I was struck by the following section of the Post article:
The American Pharmacists Association said it supports more affordable medications but cautioned that patients should consult medical experts about which drugs are right for them — and that they may not be the ones on the $4 list.”It starts to send a message that drugs are just another commodity,” said Kristina Lunner, acting vice president of policy and communications. “They’re very different.”
But is that really the case? The pharmaceutical industry’s direct to consumer advertising, which benefits the pharmacies, certainly presents drugs like commodities, notwithstanding the legal disclaimers and what’s more the direct to consumer advertising puts the doctor in the middle between the advertising and the patient. Of course, that’s the doctor’s responsibility and it strikes me that the doctor can fill that role in either situation. What’s good for the goose should be good for the gander. I am not a Walmart fan, but competition does benefit the economy.
The federal district court held a hearing on October 24 in the RICO lawsuit against First Databank and McKesson that has yielded a proposed settlement with First Databank that would require the publisher to reduced its Average Wholesale Price (AWP) listings for over 8,00 drugs by 4 -5% and to stop publishing that AWP listing in 2008. Prescription benefit managers (PBM) often use the First Databank listings as a benchmark for their pricing deals with health plan customers.
The Court did not rule on the motion to approve the proposed settlement at the October 24 hearing. Rather, it granted in part a McKesson motion to unseal a declaration submitted by the plaintiffs’ lead attorney, according to my review of the court docket on PACER.
AP reports that publicly traded PBM stock prices fell on Wednesday October 25 based on investor concern over the impact that the proposed settlement would have on those companies. According to an AP report, “Wachovia Capital Markets analyst Matt Perry [in a note to clients] said shares of Express Scripts and other pharmacy benefit managers are down due to the potential impact on drug prices. But he said the issue should not “obscure what was truly a very strong quarter” for the company.
According to a U.S. Justice Department press release, Intermune, a California-based biopharmaceutical manufacturer, agreed to pay the U.S. Government $39.2 million in settlement of Government charges that Intermune caused false claims to be submitted to Medicare, Medicaid, TRICARE, and the FEHB Program based on its illegal promotion of its Actimmune drug for a use — the treatment of lung scarring — that the Food and Drug Administration had not approved.
The Employee Benefits Research Institute’s annual Health Confidence Survey , released today, discloses that Americans generally are satisfied with the quality of our health care system but aren’t happy with paying the freight.
Merck announced today that the Centers for Disease Control’s Advisory Committee on Immunization Practices is now strongly recommending that adults aged sixty and older receive Merck’s Zostavax vaccine against shingles (herpes zoster). This recommendation follows the FDA’s approval of the vaccine which was given last May. FEHB plans generally adopt the Advisory Committee’s recommendations. Merck charges $150 per dose for the one shot vaccine.