Tuesday, February 07, 2023

Mark Cuban Cost Plus Drug Company ("MCCPDC") PBC May Be Able to Say "Mission Accomplished" Even if Sales Stop Growing



On January 19, 2022, a startup called the Mark Cuban Cost Plus Drug Company ("MCCPDC") opened its doors to the American public as a new online pharmacy and generic manufacturing startup. Initially, MCCPDC was also planning to launch its own Pharmacy Benefit Manager, but it later scrapped those plans, instead announcing several PBM partnerships with some PBM startups which do not engage in "spread pricing", including on generic, biosimilar and "authorized generic" drugs. 

The company bears the name of its famous principal investor, multibillionaire Mark Cuban, who is perhaps best known as both owner of the NBA team the Dallas Mavericks, and also as co-star of TV's long-running (now in its 14th season) reality show "Shark Tank". However, the MCCPDC was blind-pitched in an email sent to Mark Cuban by the brilliant Dr. Alex Oshmyansky (see "Meet the Genius Who Convinced Mark Cuban to Sell Drugs", October 11, 2022, D Magazine, https://www.dmagazine.com/publications/d-magazine/2022/october/mark-cuban-cost-plus-drugs-alex-oshmyansky/). Mr. Cuban was persuaded by his idea—so much that he told Forbes he was willing to put his own name on the company, something Mr. Cuban says he had never done before. When MCCPDC began operations, the company initially offered a limited inventory of just over 100 generic meds, although some were offered in different doses (potencies).

Unique Feature: Being Organized as a Public Benefit Corporation (PBC)

The Mark Cuban Cost Plus Drug Company (MCCPDC) is legally organized as a Public Benefit Corporation (PBC), which means that the company isn't a non-profit, nor is it a for-profit entity whose sole mission is to maximize returns to shareholders at the expense of everyone else. Instead, it is organized as a Public Benefit Corporation, hence it is a for-profit entity which has a broader core mission than simply ever-higher returns to company shareholders, its mission includes business objectives to fulfill a broader societal mission and that mission must be used by the company to navigate critical business decisions. It is not simply attaining Board of Directors rubber-stamp approvals as it is with many other corporations. Being a PBC also enables it to get funding from venture capitalists which non-profits don't typically enjoy the benefit of. 

The reason is because PBC's must include in their charters one or more specific public benefits as their statement of purpose, as opposed to the typical boilerplate "any lawful purpose" language usually contained in most for-profit business charters. This embeds a PBC's core mission into its founding documents and provides the company with a core mission that the company must be guided by, beyond simply maximizing returns to shareholders.

Mark Cuban Cost Plus Drug Company's mission is written into the company's charter (see https://costplusdrugs.com/mission/index.html for more) which is "to dramatically reduce the cost of [prescription] drugs, but it is just as important to introduce transparency to the pricing of drugs so patients know they are getting a fair price." That part is truly unique, and the mission has potential to be disruptive to drug distribution system leeches (such as PBM's) who profit from preservation of the costly status quo by withholding information from key stakeholders.

Counting Medicines Offered by MCCPDC

During the year since the company formally began operations, the startup has steadily expanded the number of drugs it sells. As of September 2022, MCCPDC was selling approximately 350 unique generic prescription drugs that it said reflected manufacturer prices plus a 15% margin, a $3 pharmacy handling fee and $5 shipping fee (including the cost of the pill bottle, an envelope and cost of shipping) with the biggest cost add-on being the amount it spends to send a prescription package with a carrier such as USPS. 

In October 2022, Katie Couric Media reported (see https://katiecouric.com/health/mark-cuban-shark-tank-cost-plus-drugs/ for the article) that the company was offering more than 800 drugs and counting, and the company was serving more than a million consumers at the time. Still, it was unclear if those figures included the same generic drugs sold in different potencies, unique NDC numbers or something else.

Early forecasts predicted that MCCPDC could potentially offer anywhere from 1,700 to more than 2,000 prescription (primarily generics) drugs by the end of 2022. We simply don't yet know what the final number ended up being, or what the reports even mean when they cite a number of prescription drugs offered.

But we got a little more clarity on November 22, 2022, when Becker's Hospital Review reported (see https://www.beckershospitalreview.com/pharmacy/mark-cuban-cost-plus-drugs-adds-82-drugs-to-portfolio.html for the article) that "Mark Cuban's online pharmacy now offers nearly 1,000 generics after adding 82 [more] drugs to its repertoire, the company said on November 21, 2022. The company now sells approximately 350 unique drugs, or nearly 1,000 total products when taking varying dosages of the same drugs into account."

As acknowledged, the discrepancies on the number of reported drugs MCCPDC actually sells depends upon whether the count is for truly unique products (for example, many would NOT consider 10 mg tablets different from 20 mg tablets of the exact same drug to be considered truly "unique" drugs sold), but we can safely say that that the company is on its way towards fulfilling its broader mission statement as a Public Benefit Corporation, which is broadly to ensure that "No American should have to suffer or worse—because they can't afford basic prescription medications". To put things into relevant context, it's helpful to remember that just over a year ago, the company did not even offer a single product!

According to a 2021 FDA Annual Report (see https://www.fda.gov/drugs/generic-drugs/office-generic-drugs-2021-annual-report/ for the report) published by the U.S. FDA's Office of Generic Drugs, the FDA had approved more than 10,000 generic drugs.

Alex Oshmyansky
But, as MCCPDC company co-founder Dr. Alex Oshmyansky revealed in an interview with D Magazine (which stands for Dallas Magazine, see https://www.dmagazine.com/publications/d-magazine/2022/october/mark-cuban-cost-plus-drugs-alex-oshmyansky/ for the article), telling the magazine that he found that many [generic] drugmakers actually prefer to work with his company because they eliminate the drug distribution system middleman who distort prices, including PBM's. 

That's great!

Indeed, journalist Teresa Carr reported in Salon (and elsewhere, see https://www.salon.com/2022/03/05/mark-cubans-new-pharmacy-business-and-the-future-of-pricing_partner/ for details):


U.S. prescription drug pricing typically works by using intermediary companies known as Pharmacy Benefit Managers, or PBM's, to negotiate rebates on behalf of insurers and, in turn, keep a sizable bounty for themselves. So, even though a PBM may negotiate 90% off the price of the cancer treatment imatinib (generic Gleevec) they play games with patient out-of-pocket prices keeping the difference for themselves. This enables Mark Cuban's company to offer a one-month supply of the same drug for just $47. Yet employers and people with high-deductible plans may still wind up paying about $3,200 monthly until their deductible is met—for a drug that costs about $35 to make, said Oshmyansky. The Mark Cuban Cost Plus Drug Company's strategy is to eliminate these middlemen. 

So far, the underlying Mark Cuban Cost Plus Drug Company's strategy of bypassing the greedy, self-serving middlemen appears to be working. 





Today, the Mark Cuban Cost Plus Drug Company (MCCPDC) sells all of the products in its online pharmacy at the lowest possible cash-prices with a fixed margin of 15% on every product it sells used to keep the company going. In fact, the company often makes a big deal on social media when it announces price reductions. In that way, MCCPDC operates similarly to some independent pharmacies whose goal has always been to serve the communities in which they operate, or even similar to some bigger retail rivals like Costco Wholesale do with its pharmacy operations (catch my previous post on that at https://blog.sstrumello.com/2023/01/costco-pharmacy-what-is-its-pharmacy.html for more). The underlying business model enables patients to simply bypass their own insurance companies to save themselves money to buy what should be less-costly generics, but frequently are not thanks to drug pricing arbitrage (catch my post introducing the term "arbitrage" at https://blog.sstrumello.com/2022/07/turning-pbm-arbitrage-on-its-head.html for more) of drug wholesalers and pharmacy benefit managers ("PBM's"). 

Quite frequently, as many of its customers have discovered, the MCCPDC's out-of-pocket costs for the drugs are often even cheaper than insurance company co-pays would have been for the very same drugs. Indeed, academic research from University of Southern California has proven this to be accurate one-quarter (25.5%) of the time ("U.S. Consumers Overpay for Generic Drugs", By Erin Trish PhD, Karen Van Nuys PhD and Robert Popovian PharmD, May 31, 2022, University of Southern California, https://healthpolicy.usc.edu/research/u-s-consumers-overpay-for-generic-drugs/). This is especially true for anyone who has a deductible to satisfy before their insurance covers much of anything. If MCCPDC's prices are not lower, the patient always has the alternative to use their insurance/Medicare/Medicaid if that's cheaper for them. However, many patients (including me) find that it's easier to stick with MCCPDC even after satisfying their deductibles which ordinarily would put their PBM's on the hook to cover those drugs. The patients say that MCCPDC offers them an honest price, and there's no reason to switch back and forth between suppliers for a few months as long as they're getting a fair price.

(see https://www.motherjones.com/politics/2022/02/mark-cuban-cost-plus-civica-osh-affordable-pharmaceuticals-bir-pharma-drug-pricing-skrelli-scandal/ for more information)

Bypassing Drug Channel Middlemen is a Core Business Strategy to MCCPDC

Hence, it seems abundantly clear that a key component of MCCPDC dramatic cost-savings is accomplished by cutting out or simply bypassing the self-serving drug channel middlemen (including both drug wholesalers and PBM's, who are both responsible for most U.S. drug price inflation through a combination of list price inflation, brand-name drug rebate aggregation, and egregious "spread pricing" used to generate income for the PBM's on what should be low-cost generics). That's something Mark Cuban Cost Plus Drug Company is fundamentally disrupting with its business model.

Mr. Cuban told Axios: "Not everyone sets the goal of being the lowest cost producer and provider. My goal is to make a profit while maximizing impact." Note that Mr. Cuban did NOT say his aim was to become the most profitable drug company on earth, or to someday sell his company for mega-profits down the road. Part of the PBC objective is to "maximize impact" across society. The pharmacy role is essentially a 503(b) compounding pharmacy, focused on drugs that appear on the Food and Drug Administration's shortage list. Those are some unique aspects which differentiate MCCPDC from some other creative startups in the space, such as GoodRx.

For example, the MCCPDC venture is partially an online pharmacy for generic medications (it currently outsources Rx fulfillment right now to a third-party known as TruePill), but it is also a registered pharmaceutical wholesaler (such as McKesson, Cardinal Health or Cencora [which was formerly known by the cumbersome name of AmerisourceBergen]). It does all of those things internally, aiming to bypass the cost markups associated with each layer in the distribution system. MCCPDC is unique in that it cuts out the middlemen (collectively, insurance companies, PBM's, drug wholesalers, etc.) rather than relies upon those entities as most others in the prescription drug supply chain do, and can therefore offer price transparency for its customers. In particular, this differentiates MCCPDC from other entities like Amazon Pharmacy which cannot do under its current business model.

In June 2022, researchers from Harvard University published data showing that Medicare could have spent $3.6 billion less on generic drugs if they had bought the drugs from Mark Cuban Cost Plus Drug Company and insurers, including Medicare, could also benefit from the cost plus business model. In essence, the PBM business model which in recent years has been eviscerated through public research and it was further discredited by the Harvard study as well. 

However, of particular relevance is that other researchers outside of Harvard have since replicated key findings of the Harvard study, which proves it is not simply a one-off oddity designed to be used in sales pitches made to doctors (as most other pharma studies are), the Harvard finding is likely a reliable one. 

The Mark Cuban Cost Plus Drug Company business model does appear to be disruptive to the "business as usual" status quo in the pharmaceutical industry, which tends to have many entities which work tirelessly to ensure nothing ever changes (because it makes them so much money for doing practically nothing). Opaque PBM and drug wholesaler business practices are predicated upon withholding information from key stakeholders within the system, rendering the stakeholders unable to make informed decisions which directly impact what they're expected to pay. But when patients are expected to pay a portion, they are not quiet about whatever savings they achieve. Leveraging that positive word-of-mouth is a key part of the MCCPDC marketing strategy.

The Mark Cuban Cost Plus Drug Company disrupts how pharma is marketed today by simply cutting the middlemen out of the equation, and it seems to be working for many. The company has a trial underway for insulin, limited thus far to Lilly's unbranded "authorized generic" version of Humalog (see https://costplusinsulin.com/ for details) which patients can buy from most any pharmacy with a coupon from Lilly at a price of $35/vial. However, there is an expectation that as the half-dozen or more genuine biosimilars emerge starting in 2024, MCCPDC could switch suppliers on insulin and sell a wider spectrum of insulin products. Indeed, there is a small but growing chorus of academic researchers whose research concludes that perhaps it would be better for covered patients and employer health plan sponsors alike that generic/biosimilar/authorized generic drugs should be removed from insurance pharmacy benefits, effectively leaving PBM's to focus only on more-costly branded and "specialty" drugs (although the very designation of "specialty" drug was invented by the PBM industry, and should not be enabled IMHO). 

The argument is that patients may actually be better off bypassing insurance to buy many generic drugs. I have discovered that to be true for at least a handful of generic drugs (and yes, I did find MCCPDC offered the lowest prices on those). The PBM's now make so much on "spread pricing" on generic drugs they don't want to give that revenue-stream up, but patients can easily cut them out of the transaction completely (which is what I did). Their PBM price differences are often so glaring it is hard not to notice, and consumers are not shy when they boast about how much they saved by patronizing entities like MCCPDC to their friends, neighbors and co-workers about how much money they saved by cutting insurance out of the equation; that's self-inflicted damage that PBM's are doing to themselves, and its why USC research finds that about half the time, patients can save by simply paying cash for generic drugs

Will a Divided Congress Act on PBM's? It's Possible; But Only Time Will Tell.

Fascinatingly, on January 26, 2023, RollCall (a publication similar to Politico, except focused on what lawmakers in Congress are doing, rather than all of government) reported that (see https://rollcall.com/2023/01/26/drug-company-middlemen-likely-to-be-a-focus-in-118th-congress/) "members of Congress may soon be turning their fire on PBM's".

The article also reported: "We want to address the whole kit and caboodle," said Georgia Republican Rep. Earl L. "Buddy" Carter of Georgia (who is formally trained as a pharmacist), referring to the full suite of PBM business practices. He said that he and other lawmakers, including a number of Democrats, plan to soon launch what will be called a bipartisan "Patient Access Caucus" to focus on issues impacting access to healthcare. "That is going to be the first issue that we address: PBM's."

Finally, the RollCall article also quoted Republican Rep. James R. Comer of Kentucky, as the new chair of the House Committee on Oversight and Accountability, who added: "We're concerned about a lot of the decisions being made by the PBM's, the lack of transparency by many of the PBM's, the vertical integration by many of the PBM's, adding the committee would have hearings soon."

Readers may recall that nearly a year earlier, on May 5, 2022, the U.S. Senate Subcommittee on Consumer Protection, Product Safety, and Data Security chaired by Democratic Senator Richard Blumenthal of Connecticut held its own hearing entitled "Ensuring Fairness and Transparency in the Market for Prescription Drugs," and that hearing, PBM's were discredited (watch a recording of that hearing at https://www.commerce.senate.gov/2022/5/ensuring-fairness-and-transparency-in-the-market-for-prescription-drugs for more) and that proved very revealing to lawmakers.

Beyond that, the Washington Post reported (see https://www.washingtonpost.com/politics/2023/01/13/lawmakers-are-readying-fresh-attacks-pharmacy-middlemen/ for more): "Lawmakers have also called for and introduced bills aimed at prohibiting 'spread pricing' — which the PBM industry contends can be an important 'risk mitigation model' for PBM's — requiring public disclosure of the total amount of rebates which manufacturers pay to PBM's, and how much of that is then passed on to health plans (of course, many health plans towards the end of that money-tree routinely fail to pass ANY of that cash on to patients with deductibles, so lawmakers must  realize that also needs legislation). 

As noted, Mark Cuban Cost Plus Drug Company initially intended to operate as its own PBM, but the company later abandoned that plan when it signed contracts with several PBM startups which do not engage in "spread pricing". Opportunities there remain, and other PBM's which it can still do business with remain, such as the startup CapitalRx (which has a coupon-generating website/app called the CapitalRxAdvantage savings program open to anyone), although that PBM engages in selective spread pricing, maybe not on generic drugs, so the devil is in the contract details.

The Washington Post added: "Meanwhile, Republicans will 'prioritize making health-care costs and prescription drugs more affordable,' including working on actions related to PBM's, per a House Energy and Commerce spokesperson."

High-profile Congressional hearings tend to make news, but unless lawmakers actually use the info. revealed in those hearings to implement changes, nothing changes (and PBM industry trade group Pharmaceutical Care Management Association ("PCMA") knows that, and it selectively bankrolls candidates to ensure there will always be a divided Congress where nothing ever happens when it comes to PBM legislation). But, the implication seems to be that in spite of Republican's razor-thin control of the U.S. House of Representatives (they have just an 8-vote majority, which means that under parliamentary rules, committees are required to be bipartisan) there is at least potential for bipartisan action on new governance of PBM's, something the secretive industry has pretty much been able to avoid for decades. 

And, thanks to agreements Republican House Majority Leader Kevin McCarthy of California made with the House Freedom caucus, giving up some of his power as House Leader to the very chamber he supposedly controls, it remains possible the concessions Mr. McCarthy made with that particular faction of his caucus could also potentially be leveraged by other House members (such as Buddy Carter) in order to potentially force a House vote on PBM legislation, which was not necessarily something Kevin McCarthy had envisioned from the more moderate members of his own caucus. But thanks to his agreements with the holdouts who refused to vote for him as House Majority Leader, that could potentially be on the table now, and the Senate already has provisions in several bills to govern PBM's which could potentially be negotiated into law. Right now, all of that is speculation. 

U.S. House of Representatives Remains a Proverbial Wild-Card

The House remains a proverbial wild-card considering how much Speaker Kevin McCarthy had to give of his own power in order to unite a disjointed caucus to officially name him as House Speaker, and because the "red wave" never happened during the midterm elections (see https://www.usnews.com/news/elections/articles/2022-11-09/the-red-wave-that-wasnt for more), McCarthy's party now only has the narrowest of margins to accomplish anything, and with the Senate controlled by Democrats and a Democrat with the veto pen, little is expected of the House. Most of what the House actually does will require bipartisan agreement (and votes), so they're trying to rearrange committee members from Democratic House members whom they think they'll be able to persuade into going along with whatever the Republican majority wants on things such as intelligence, but the composition of other House committees remains unchanged. Instead, they are focused on useless hearings and studies to placate their voter base.

High-profile ejections of some House Democrats from key House (intelligence) committees have made headlines, but it's less clear how more mundane committees (such as those with potential to address healthcare and PBM reforms) might align in this new, still uncharted environment. Recall that two previous Republican House leaders ended up quitting in frustration (including both former House Speakers Paul Ryan and John Boehner), so Rep. McCarthy's leadership is by no means assured for the next two years.

House Members Who Support PBM Reform Could Use McCarthy Concessions to Advance a Vote on PBM Reform. Maybe.

On drug pricing, PBM's engaging in "spread pricing" on cheap generic drugs was previously something PBM's were formerly able to freely use for their own benefit. But with the advent of new tools, "spread pricing" used on generics is crumbling underneath the PBM's, as more patients discover how much their own insurance PBM's are ripping them off on generics. Patients are voting with their dollars. They can save a lot by paying cash at Costco, MCCPDC, Amazon and/or by using GoodRx and similar coupons, which collectively enable a new dynamic, whereby PBM's former air-tight control is eroding. Consumers aren't shy about telling other people how much they've saved by bypassing their insurance. MCCPDC marketing is done entirely on social media. 

These things open sales opportunities for startups such as Mark Cuban Cost Plus Drug Company. And, the PBC mission statement plays a role here. If it disrupts pharmaceutical marketing and loses sales, MCCPDC will still be able to say: "mission accomplished". That is a new, and previously non-existent market dynamic.

Wednesday, February 01, 2023

Podcast Episode Recommendation: The Huddle Conversations with the ADCES Diabetes Care Team

First of all, I need to acknowledge that ADCES is a trade organization for the Association of Diabetes Care & Education Specialists, which is the most recent name for one of the associations for diabetes educators. Frankly, I am only recommending this particular podcast episode, but honestly, I cannot really recommend a subscription to its podcast; in fact, I don't even remember what the organization's old name was because it seems to have changed its name so many times over the years. 


 

Beyond that, ADCES tends to focus far more extensively on subjects related to Type 2 diabetes since that group constitutes the bulk of the patients with whom they work. But, if I'm being honest, that's not my area of particular interest, so why would I spend a lot of time listening to stuff about a topic I don't feel passionate about?

However, as noted, I DO recommend this particular podcast episode, specifically the one entitled "Affordable Insulin: A Breakthrough on the Horizon" (Episode 96, Interview with Aaron Kowalski, CEO of the JDRF on the Civica Insulin Announcement) which was released on April 5, 2022.

The episode website is at https://thehuddle.simplecast.com/episodes/affordable-insulin-a-breakthrough-on-the-horizon-9oyCmYHh/ and the podcast can be listened to below.




The primary reason I'm recommending this episode is because it includes some questions for Aaron Kowalski about the Civica biosimilar insulin announcement which other interviewers did not ask.

Still, my impression of ADCES is one of a professional organization whose primary objective is to lobby for higher reimbursement rates from payers for CDE's services. Frankly, that overwhelming focus tends to offset whatever positive work the organization does. Lobby for higher pay without dragging everyone else into it is my perspective.

Frankly, that push for higher reimbursements is REALLY annoying to me, and it reflects the choice to title of this particular podcast by reiterating how CDE's should be viewed as part of a healthcare "team". But as someone who has lived with autoimmune Type 1 diabetes for nearly a half-century, truthfully, I don't really consider a CDE as a core part of my diabetes care "team". I seldom consult with a CDE unless I have a very specific need, such as training on a specific new piece of diabetes technology, but I certainly don't run to them with many questions. And, my interactions have been reaching out, and receiving a cursory email response I could have found by Google'ing the question for myself (so not terribly positive). I call them as I see them based on personal experience. 

That said, do listen to this particular episode. As I said, they interview JDRF's Aaron Kowalski about the Civica biosimilar insulin announcement, and they ask him some questions other interviewers did not, so its worth 25 minutes of your time.

Saturday, January 21, 2023

Costco Wholesale: What Is Its Pharmacy Strategy? It's Complicated.

In recent years, there seems to be two general paths to success in the retail pharmacy business unless you're a national giant like CVS, Walgreens or Rite Aid (the giant pharmacy chains have more store locations than ALL of the independent pharmacies combined; after them, the size falls rather precipitously except for one particular retail giant: Walmart Stores, Inc.). However, there is yet another retail player in this conversation which is the subject of today's post: Costco Wholesale Corp. Costco reportedly operates more than 550 pharmacies in the U.S. (according to the company's most recent SEC filing, 582 as of November 20, 2022, all located in its warehouse stores). More on Costco's Pharmacy business in just a second…

The two different business strategies for success in the retail pharmacy business are: 

  1. Either to go entirely into the insurance company route whereby all of the pharmacy's sales are claims paid for by insurance company PBM's or by Medicare. But in the insurance/PBM/Medicare strategy, the pharmacy effectively cedes its entire control of its business strategy (and profit margins) to third-party PBM's becoming just a dispensary of prescription drugs, hence it requires very high insurance claim volumes to make any money, or

  2. Go the cash-only route, whereby no insurance is accepted. I'll get to the cash-only business strategy shortly

In fact, independent pharmacies justifiably complain about opaque PBM business practices, random PBM "audits" and especially PBM Direct and Indirect Remuneration ("DIR") fees which are payment "adjustments" which PBM's make after the point-of-sale, whereby the PBM's effectively change the cost of Medicare Part D-covered drugs for Part D insurance plan sponsors after the drugs have already been sold. DIR Fees enable the PBM's to "clawback" money when an insurance company PBM assigns overly-expensive copays to a drug, often at prices that may be significantly higher than the actual value of and the pharmacy's acquisition costs for certain drugs. DIR fees are a very questionable and shady business practice which are no doubt something the U.S. Federal Trade Commission needs to examine in its formal study of the PBM industry.

"Clawbacks" occur when the pharmacy submits a payment claim for a prescription drug, and the pharmacy is directed by the PBM to collect a specific dollar amount for the patient's copay. The pharmacy has no control over the amount the PBM tells them they must charge a customer. The amount will likely be excessive and unrelated to the pharmacy's acquisition cost of the drug, yet due to pharmacy contracts with PBM's, the PBM later claws the excess payments back from the independent pharmacy and keeps the money for itself, often many months after the prescription drug sales took place, and independent pharmacies are powerless due to the contracts they've signed with the PBM's.

The Second (Alternative) Retail Pharmacy Business Strategy 

The second (alternative) retail pharmacy business strategy is for a retail pharmacy is still relatively new, but is to sell prescriptions at low cash prices by skipping the messy and marginally-profitable (and occasionally money-losing, thereby necessitating sufficient claims volume to offset reimbursements which are lower than the acquisition cost of certain drugs) insurance claims process (facilitated by PBM's), effectively becoming a cash-only pharmacy business that doesn't accept anyone's insurance. Some independent pharmacies attempt to do both, but they aren't always successful doing both. The reason is because they're unable to focus on both strategies, and may ultimately be forced to choose one business strategy or the other to keep their businesses going. 




 

Anyway, as noted, Costco Wholesale (you know, the giant warehouse club) remains in the pharmacy business, and is a retailer whom I have been trying to figure out its pharmacy strategy: Costco is a unique and interesting hybrid between the two successful retail pharmacy strategies: it sells generics at prices which are often (but not always) cheaper than customers can get using their insurance, yet it also accepts insurance. 

 




 


It seems Costco is doing that combination strategy reasonably well for the estimated 94% of all Rx fills which are for generics. In other words, consumers often find it cheaper to just pay cash for some generic drugs than they will by using their insurance cards at Costco. In fact, we are seeing more and more consumers willing to bypass their own insurance for generic drugs because PBM price arbitrage is so messed up and disconnected from reality.

That said, Costco Pharmacy is not always the low-price leader for a fair number of generic drugs, which is somewhat peculiar in my assessment. The Costco cash-pay Rx strategy is similar to what the Mark Cuban Cost Plus Drug Company startup does, except that Costco Pharmacy also happens to accept insurance. That makes Costco a bit odd in the retail pharmacy space. Costco is not strictly a cash-only pharmacy as Mark Cuban Cost Plus Drug Company is (right now), although Costco is more than happy to sell generics to consumers at lower prices by having them bypass their insurance and just pay cash instead. As best as I can tell, Costco Pharmacy is simply one of the biggest pharmacies which is happy to tell customers whether they can save patients money by bypassing their own insurance. Many smaller, independent pharmacies do the same; Costco is just much bigger and is doing the same thing.

Pay-to-Play Membership Fee? Maybe Not at Costco Pharmacy.

Other players in the cash-only pharmacy space, such as Blueberry Pharmacy or ScriptCo Pharmacy, appear to charge membership fees to patients who live out-of-state (they are based in Pennsylvania and Texas, respectively). Membership fees aim to cover shipping costs for those pharmacies (which is odd, because under Federal tax law, shipping is considered a tax-deductible business expense, although it may require more fastidious accounting in order to deduct the expense). 

Others, like Ohio-based Freedom Pharmacy, does not charge membership fees, but I don't believe it conducts business with patrons outside of Ohio. (Recall that Freedom pharmacy was featured in a fascinating NBC News clip about "Buying from Pharmacies Without Insurance to Save" - I believe the segment is archived on YouTube at https://youtu.be/o8B4e0inbCU if you wish to see it; it was one of the more informative news segments I've seen on the topic). But Costco is a membership warehouse "club" which charges annual membership fees. Costco's membership fees are a major source of revenue for the company. Costco's membership renewal rates in the U.S. and Canada have remained at roughly 90%. But, a unique wrinkle is that in many U.S. states, a pharmacy must do business with anyone who walks into the pharmacy with a valid prescription; hence membership fees for pharmacies are not typically allowed under many state pharmacy licensing laws.

According to Costco, its pharmacy locations may technically be open to non-members, and that is true where it's required under state law. However, in practice, that means in most U.S. states where Costco actually conducts business. Therefore, in most places, Costco pharmacies are required under state laws to be open to anyone and everyone even without a paid Costco membership. If in doubt, ask your Costco pharmacist. You might consider asking something like: "My friend lives out-of-state, and she tells me that some Costco Pharmacy patrons where she lives are not required to have Costco memberships. Is that also true in THIS state?"

Costco describes its Costco Member Prescription Program (CMPP) https://www.costco.com/cmpp as a "value-added benefit" of a paid Costco membership. I question whether it's really a "value-added" benefit, because if you do not even have to be a paid Costco member or even join CMPP to continue buying prescriptions at the Costco Pharmacy and pay-cash for the prescriptions (sometimes at prices lower than using insurance, and occasionally sold in quantities which are larger than ordinary pharmacies will sell them), then it's not really a "value-add" in my opinion. Still, Costco Pharmacy encourages cash-payments for prescriptions, although technically, it also accepts insurance (at least some insurance plans).

One big downside is that Costco's pharmacies are often buried deep inside its huge warehouse stores (which makes sense to Costco) and some people mistakenly believe that prohibits them from entering Costco without having a Costco membership card (it doesn't if you're going to the Costco pharmacy in most states). However, Costco itself is the very definition of a big box retailer. In my mind, being a big box store is the antithesis of convenience; it's a hassle dealing with parking and getting into and out of most Costco locations quickly.

I patronized my local Costco Pharmacy for my first Covid booster shot a few years ago since I was readily able to get an appointment there (I chose to get the Moderna booster, and Costco was one of the few pharmacies around me which carried the Moderna Covid booster shots at the time) there, and it was a pleasant enough experience. Still, getting a parking space at my local Costco was (and still is) a pain in the neck.

Honestly, I don't especially enjoy going to my local Costco unless it's during an off-peak hour (like on a Wednesday morning, which I was known to do occasionally when everyone was still working from home). Otherwise I spend hours waiting in line to check-out. I could actually walk to my local Costco since it's literally down the street from me, but I usually drive because if I buy anything, I also need to get my purchases home and carrying a huge package of paper towels home means I'd be rendered unable to carry anything else. Still, parking at my local Costco is a time-consuming ordeal, hence getting into the store, parking my car in the multi-level garage and going to the pharmacy checkout can literally take me an entire afternoon. That means Costco Pharmacies really aren't convenient, so quick visits to regularly refill scripts at Costco Pharmacy are simply not possible. That is unless I can buy the script in bulk (which, as it turns out, Costco actually encourages, although it's mostly for generic maintenance medications, and I use few of those).

On the upside, as noted, Costco as a retailer seems much more willing than most other pharmacies to sell much larger-sized prescription refills (consistent with the warehouse club model) which can save people money, so I could theoretically buy a 180-day or potentially even a 360-day prescription refill at Costco, and the pharmacist wouldn't find the request unusual (unless it was for a controlled substance), and on generic drugs, that may have potential to deliver very meaningful cost-savings if the customers are willing and able to pay a higher price up-front (some may not be; it really depends on how much the script actually costs).

According to USC research, Costco offers better prices than CVS or Walgreens about half the time (see https://news.usc.edu/188285/costco-medicare-savings-generic-drug-prices-usc-study/ for details). Costco also operates an active mail-order pharmacy business for customer convenience (the price costs $2 more for mail order vs. in-store fulfillment, and for a smaller 30-day supply, the extra cost for mail order offsets the benefit. But the $2 fee for shipping to order by mail may be worth it for a 90-day, 180-day or 360-day supply since the Costco Pharmacy prices are frequently better than rivals like CVS or Walgreens offer on different prescription drugs, especially on generics, biosimilars and/or "authorized generics".

My readers may recall that the FDA defines an "authorized generic" as exactly the same product as an approved branded drug, but is marketed without the brand-name on the label (it is sold with the generic drug name on the label). Manufacturers historically made "authorized generics" to try and retain market share and destroy the market for generics-makers once generic products hit the market, but lately they have been using them as a method to circumvent rebate-driven price inflation due to the role PBM's play in the system on heavily-rebated drug classes like insulin. In fact, readers may recall I blogged that the FDA has been forced to expand the number of digits in the NDC numbering system because of rapid growth in "authorized generics" which I covered at https://blog.sstrumello.com/2022/08/fda-moves-to-expand-ndc-numbering-to.html).

For me, I use very few maintenance drugs aside from insulin (and test strips, CGM sensors and all the other diabetes stuff). I take a single statin drug for preventative purposes, and I shopped around when my own insurance company Aetna (and its PBM unit CVS Caremark) wanted to charge me $33.85 for a 90-day supply, so I circumvented my own insurance to buy that particular medication. Initially, I went with United Healthcare's Optum Store, used an OptumPerks coupon and bought a 90-day supply for just $15, saving myself 56% on that drug by simply bypassing my own insurance. Then, a year later, Optum unexpectedly raised its prices on the statin by 40% from $15 for a 90-day supply to $21 for the same quantity, so I shopped around again for a better deal. As it turned out, Costco's price on that generic drug was $20.99 for a 90-day supply, which was only one cent cheaper than Optum's new, higher price was, so it wasn't even worth switching from Optum Store.

However, I still managed to find a better deal than both Costco and Optum were offering. I selected Mark Cuban Cost Plus Drug Company, which saved me 68% off the original price CVS/Caremark had intended to charge me, which happened to be even more than the 56% I saved with my first decision to bypass my insurance. Ultimately, I ended up buying the generic statin for a fully-loaded price of $10.70 for a 90-day supply from the Mark Cuban Cost Plus Drug Company. The fact that I did NOT get a better deal on a generic statin at Costco Pharmacy was a disappointment, and raised some questions in my mind about what Costco's pharmacy strategy really was?

In theory, I could potentially have bought that particular generic statin at Costco by using a PBM-powered coupon from the PBM startup known as CapitalRx, and if I'd used the company's free CRxAdvantage Savings https://capitalrxadvantage.com/ coupon, and doing so would yield a price at Costco Pharmacy of $8.69 (compared to the $10.70 I paid) for a 90-day supply of the statin. CapitalRx uses a NADAC price+ pricing model making it unique compared to virtually all other PBM's. NADAC is the acronym for "National Average Drug Acquisition Cost", which is the approximate invoice price pharmacies actually pay for medications. NADAC is an estimate of the national average drug invoice price paid by independent and some retail chain pharmacies which is calculated by the Centers for Medicare and Medicaid Services ("CMS"). 

But NADAC prices aren't perfect. The NADAC price excludes "specialty" and mail order pharmacies (the biggest being Express Scripts' Mail Order Pharmacy which is owned by the insurer Cigna), and NADAC does not always reflect all rebates, price concessions, or off-invoice discounts. Still, CMS randomly surveys retail pharmacies to determine NADAC. Out of approximately 67,000 U.S. pharmacies, CMS selects 2,500 (mostly independent) pharmacies per month and approximately 450–600 pharmacies voluntarily respond with actual drug price data. Recall that I had considered using Costco Pharmacy along with its CRxAdvantage coupon to buy a generic statin, but I ultimately chose to use Mark Cuban Cost Plus Drug Company instead.

The reason I made the decision to skip the Coscto/CRxAdvantage was because I felt pretty burned by using two PBM-powered coupons in the past, both of which saved me money, but only temporarily, followed by arbitrary price increases later. My household had a similar experience with a second PBM which offered a discount on a different generic which my spouse uses of a stunning 82% which then later stopped selling prescriptions directly-to-consumers.

Hence, I felt that the price transparency provided by the Mark Cuban Cost Plus Drug Company with a known 15% margin was worth maybe spending marginally more (after all, I was still saving a lot compared to my previous supplier CVS Caremark/Aetna offered) and knowing I won't be compelled to find a completely brand new supplier a year from now. Fundamentally, I don't want to change suppliers all the time; it's a hassle. However, I was really disappointed that Costco's prices were not lower on my generic statin drug; they really should have been.

Those experiences raised a question for me about whether Costco Pharmacy was really such a great deal on generic drugs? 

After all, my personal experience with rosuvastatin calcium 10 mg tablets and my spouse's eplerenone 50 mg tablets proved: not always.

 

My finding is that the cash price savings at Costco Pharmacy may be good on some drugs (often on selected generic medications, apparently just not on ALL generics); but as my experience proved, its prices were also significantly higher on other generics. But Costco Pharmacy sometimes also has lower prices on selected branded medicines (and perhaps more importantly, on medical devices too; for example, Costco's cash prices on CGM sensors including both Dexcom sensors and Abbott Freestyle Libre sensors, are among the lowest anywhere), just not on ALL branded or generic drugs. In fact, Costco Pharmacy's prices were only lowest on a finite selection of generic drugs, and none of which I or my spouse used.

My spouse uses several generic hypertension drugs (some of which are extremely cheap using insurance), but as noted, on another generic, we discovered it was significantly less costly to simply bypass our own insurance and buy at least one of them (for cash) instead. I have written that we discovered it was 82% cheaper to buy a 90-day supply of one called eplerenone 50 mg tablets (a generic of the brand-name drug called Inspra) by bypassing insurance and paying cash, buying it from Express Scripts Cash-Pay Mail Order Pharmacy by InsideRx; we saved a lot of money by doing that. In fact, the drug was so much cheaper bypassing insurance that we continued doing so even after satisfying the annual deductible.

But then, in November 2022, Express Scripts bu\y InsideRx mailed us an odd letter (see my blog post on that at https://blog.sstrumello.com/2022/11/cigna-express-scripts-by-insiderx.html for more) announcing its intention to discontinue its cash-pay pharmacy by InsideRx, hence we were forced to find an alternative supplier at the start of the year.

As noted, I felt burned by not one but by TWO different big PBM's (United Healthcare's Optum on the statin, and Cigna's Express Scripts on the eplerenone), and on both, the alternative source where we found the lowest prices on those two prescriptions was at Mark Cuban's Cost Plus Drug Company, which simply offered us a better deal (one was not quite as cheap as Express Scripts by InsideRx was, but its price was a mere $2 more, yet still significantly cheaper than Aetna/Caremark intended to charge us; or any other PBM-powered coupons), but Costco Pharmacy did not save us for either generic drug.

Which raised the question in my mind: what, exactly, is Costco Pharmacy's business strategy? Is it as a cash-pay pharmacy, an insurance company fulfillment pharmacy, or something else? 

My conclusion seemed to be that Costco Pharmacy is a unique hybrid model which may or may not save you money, so just beware of that.

A Number of Major Retailers Have Exited the Retail Pharmacy Business

Another reason I ask about Costco's Pharmacy strategy is because a fair number of big retailers including giants such as Target Corp. have simply sold their retail pharmacy businesses (for example, Target sold its pharmacy business to CVS in 2015) and/or have simply exited the pharmacy business completely. Another example: in early 2021, the big New Jersey-based supermarket chain known as Shop Rite (which is incorporated as Wakefern Food Corp.) with stores in New Jersey (where it's the dominant supermarket chain), New York, Connecticut, Pennsylvania, and Delaware announced the closure of 62 of its in-store pharmacies, and the company then sold its prescription files to CVS (just as Target had done a few years earlier).

Evidently, it is challenging to operate a retail pharmacy … profitably, due in no small part to doing business with PBM's (of which, CVS Caremark happens to be one of the biggest). Still, even giant CVS (whose Caremark PBM unit is the nation's largest PBM by numbers of claims processed) announced in November 2021 that it, too, was closing 900 store locations (it appears the company had vastly over-expanded, including the Target acquisition, and it needed to downsize its sprawling retail pharmacy operation as many locations were literally next door to one another). Apparently, the prescription files were worth more to CVS Caremark than the retail store locations the company acquired. More recently, drugstore giant Rite Aid also announced it was closing 145 "unprofitable" stores as it looked to significantly reduce its costs as it moved into the next fiscal year.

That makes Costco somewhat unique among bricks-and-mortar retailers in that it has retained ownership of its own pharmacy business while many others have left the pharmacy business, hence Costco's pharmacy business must be sufficiently profitable for the company to retain it. I can think of a few unique reasons Costco has remained in pharmacy while others have been forced to leave the pharmacy business.

Costco's Joint PBM Ownership of Navitus

Co-ownership of the PBM Navitus means that Costco's contracts with other PBM's are as as good as a retailer's PBM contract can possibly be, which helps Costco's pharmacy strategy

It's relevant to acknowledge here that Costco is unique relative to other retailers in that Costco happens to be a co-owner of a Pharmacy Benefit Manager ("PBM") of its own, which gives the company some unique advantages that retail rivals like Target or Shop Rite simply did not have. In 2020, Costco purchased a 35% ownership stake in a smaller PBM known as Navitus Health Solutions, LLC, which was at the time owned exclusively by SSM Health, a hospital chain that operates in five states.

Navitus itself is a smaller-sized PBM which reportedly serves 6.2 million covered lives, and of that, about 2.5 million of those are considered "commercial lives" (meaning they're covered by commercial healthcare insurance plans, as opposed to Medicare or Medicaid plans). By definition, that makes Navitus smaller in comparison to giant PBM's like CVS Caremark, Cigna's Express Scripts or United Healthcare's OptumRx.

While owning a PBM in-house doesn't provide Costco the ability to buy prescription drugs at lower prices (Navitus is not a drug wholesaler), and Costco has a drug wholesaler contract with AmerisourceBergen or McKesson for branded pharmaceuticals, though Costco directly negotiates pricing deals on other prescriptions (such as generics) internally. Still, co-owning a PBM enables Costco to better control its contracting terms it has with other PBM's. That's because Costco can leverage Navitus' knowledge of contracting in the PBM business. Navitus knows better than anyone (it's a PBM, after all) the loopholes PBM's write into their contracts and the ambiguity used in contract language which can be exploited by PBM's to enrich themselves at their retail partners' expense.

As a result, Costco likely has superior PBM contracts with Express Scripts, Caremark and/or OptumRx, and because it jointly owns Navitus, and it's able to use that relationship in order to avoid some of the pitfalls in negotiating its own PBM contracts which other retailers might accidentally assume in their own PBM contracting. Costco's PBM contracts can be written to benefit Costco as a retailer (at least to the extent possible), and co-owning Navitus enables it to avoid some of those very thorny issues.

Rival Walmart also retains its pharmacy business due to its sheer size, although Walmart has similarly struggled price-wise to deliver on its now-abandoned corporate slogan "Always Low Prices'' in the pharmacy space. Walmart does offer patrons a list of generic medicines for $4 for a 30-day supply. Walmart also recently extended its long-time relationship with the drug wholesaler McKesson to acquire prescription drugs (McKesson owns/operates a coupon-generating website/app known as ScriptHero, which is powered internally by CoverMyMeds as well as via SingleCare which funds coupon discounts from pharmacy margins, not PBM's). Even Amazon Pharmacy (a rebranded version of the old PillPack Pharmacy) routinely fails to always offer the lowest prescription prices; Amazon relies on Cigna's Express Scripts InsideRx for most of its drug discounts, but anyone can use InsideRx and get the exact same prices from other pharmacies. In fact, Costco Pharmacy occasionally beats Walmart's and Amazon's prices on SOME (just not all) drugs.

Let's Ignore the Term "Specialty Pharmacy" for Now Because It's a Bogus Term Made-Up by the PBM Industry Anyway

Through its co-ownership of Navitus, Costco also co-owns a "Specialty Pharmacy" known as Lumicera, although that doesn't really help Costco's retail Pharmacy as best as I can discern. For the time being, let's just ignore Navitus' Lumicera (which is 35% owned by Costco) as a "specialty pharmacy" because the term "specialty pharmacy" designation is a distinction completely made-up by the PBM industry. As Pembroke Consulting's President Adam J. Fein has acknowledged, the term "specialty pharmacy" reflects a pharmacy's BUSINESS DECISION, rather than any regulatory reality. Adam Fein says that any pharmacy can designate itself a "specialty pharmacy" if its business focus is primarily self-administered pharmaceuticals which must be carefully stored with particular temperature controls and those drugs also happen to be covered under a patient's insurance pharmacy benefit.

Opaque Business Practices are Endemic in Prescription Drugs; All of Those Practices May Not Necessarily Be on the Up-and-Up

New academic research suggests that PBM contracts negotiated behind closed doors on drug pricing and with retail pharmacies may be used to facilitate illegal, anti-competitive behavior; a formal FTC study of PBM business practices now underway may ultimately lead to litigation against PBM's by the U.S. Department of Justice. Watch this space!

The convoluted U.S. drug distribution system means that shopping for the best prescription drug prices is a major ongoing challenge for patients. U.S. Rx drug prices frequently increase even with the market having multiple generic suppliers which should theoretically reduce prices, which defies economics. The reason Rx drug prices fail to fall in spite of increased competition is due opaque PBM business practices predicated upon withholding information from key stakeholders within the system, rendering those stakeholders unable to make informed decisions which directly impact what they're expected to pay. That opacity needs to change.

However, PBM pricing "arbitrage" and widespread use of "spread pricing" on inexpensive generic drugs means that patients can increasingly find better deals by simply skipping their own insurance company's PBM (bypassing their insurance company's pharmacy benefit completely and paying cash instead). That is happening more and more frequently according to researchers at University of Southern California.

Still, for anyone who leads a busy life, bypassing insurance to buy prescriptions remains a challenge because most patients have other things they should be doing. It's also a particular challenge for those who are older and technologically-challenged, because finding the lowest prices on prescription drugs often requires internet/computer/mobile app skills (with access to those things), and particularly for patients whose illnesses interferes with their ability to shop around for, and patronize, different local pharmacies which might offer better prices on the drugs they require — hence, they may simply be unable to shop around and they pay more as result.

Costco's Pharmacy: A Limited Piece Of A Larger Overall Business

Costco's pharmacy appears to be a comparatively small part of the company's overall business, being a segment of one of the seven subcategories of Costco's ancillary business, and that subcategory collectively constitutes about 20% of Costco's overall revenues. Hence, pharmacy is a limited part of the company's overall revenue stream. But pharmacy is still there, while rivals like Target have exited and sold their pharmacy businesses and moved on. Costco's ownership of a PBM appears to help the company in contracting with other PBM's and also with drug wholesalers (for the drugs Costco uses a wholesaler to acquire; Costco's buyers do negotiate directly with certain branded pharmaceutical companies). Even though Walmart is a significantly larger retailer than Costco, you are only likely to find roughly 3,700 product SKU's in Costco, compared to 150,000 product SKU's in Walmart or 80,000 product SKU's in Target. Analysts believe that Costco achieves similar procurement strength to Walmart by concentrating its assortment of merchandise (including Costco's pharmacy business). In other words, Costco can buy merchandise at prices comparable to bigger rivals like Walmart (including in its pharmacy business) which helps the company's bottom line.

Costco's pharmacy strategy also relies heavily on its Costco Health Solutions https://costcohealthsolutions.com/ offering, which aims to provide pharmacy benefits to small businesses via Costco's own pharmacies (recall that Costco operates about 582 pharmacies in the U.S., all located inside its warehouse stores), and also a selection of third-party pharmacies in its own retail pharmacy network consisting of approximately 64,000 independent pharmacies located across the country. Costco Health Solutions and its PBM offering appears to target smaller employers who are more likely to rely upon Costco as a wholesale supplier (think of small businesses like restaurants which may buy items in bulk at Costco and either re-sell them, or use the supplies attained from Costco in the operation of their businesses, such as restaurants' which buy food, paper goods and take-out packaging from Costco).

Costco Health Solutions claims that it rejects the common industry practice of back-end rebate profit-taking (as well as so-called "spread pricing") widely deployed by rivals including Cigna's Express Scripts, United Healthcare's OptumRx and CVS Health's/Aetna's Caremark PBM business, and it says that Costco Health Solutions is one of just a few PBM's that contractually guarantees that 100% of all earned pharmaceutical manufacturer-derived rebates, income and discounts will be returned completely to the healthcare plan sponsors.

These features make doing business with Costco attractive to small businesses. There is, however, no guarantee that healthcare plan sponsors will share the benefit of drug discounts with patients who actually make purchases of rebated drugs. Insulin ranks among the most heavily-rebated categories of drugs, yet patients are struggling to afford it. The same is true in countless prescription drug categories. Remember the EpiPen pricing crisis? It never really went away. Today, too many plan sponsors rely on those Rx rebate dollars to offset their own insurance premiums (effectively becoming reverse insurance, whereby the sick subsidize the healthy) rather than sharing those with patients. The healthcare industry refers to that as a "misaligned incentive" but for patients impacted, those "misaligned incentives" have become a crisis, hence constituent complaints to Congress continue to grow louder.

Costco Pharmacy Offers Generics, "Authorized Generics" and Branded Drugs

Costco Pharmacy also actively promotes "authorized generics" (which FDA defines as exactly the same product as exactly the same product as an approved branded drug, but is marketed without the brand-name on the label; it's sold under the generic drug name instead). Costco Pharmacy says that it has partnered with Greenstone (a Pfizer Company) "to provide Costco members competitive pricing on high-quality "authorized generics" (AG's). Costco has also partnered with Prasco and Patriot Pharmaceuticals to bring a wider selection of high-quality "authorized generics" to Costco pharmacies (see https://www.costco.com/authorized-generics.htmll for more).

Still, Costco remains fairly selective on exactly which "authorized generic" it promotes. For example, Costco promotes Pfizer's Greenstone products, but it does not promote "authorized generic" unbranded insulins sold by Lilly's ImClone Systems business unit, Novo Nordisk's, Inc's subsidiary known as Novo Nordisk Pharma, Inc., or Sanofi's Winthrop US business unit, yet those unbranded insulins can easily sell for about 75% off the branded varieties of the same drugs when patients pay cash (although getting them at those lower prices likely requires the patient uses coupons). However, patients say that they've purchased the unbranded "authorized generic" insulins like Lilly Insulin Lispro Injection U-100 at Costco Pharmacy.

That said, on July 13, 2022, the the PBM Navitus which Costco co-owns (along with SSM Health) announced a partnership (see https://www.businesswire.com/news/home/20220713005349/en/Navitus-Health-Solutions-Joins-CivicaScriptTM-to-Further-Availability-of-Lower-Cost-Generic-Medications for the press release) with CivicaScript, which is the consumer-facing operating unit of the Lehi, Utah-based startup nonprofit drug company known as Civica, Inc. that it plans to initially develop and manufacture about six to ten medicines for which "there is currently insufficient market competition to drive down prices".

Recall that  on March 3, 2022, CivicaScript announced a plan (see the press release at https://www.businesswire.com/news/home/20220303005321/en/Civica-to-Manufacture-and-Distribute-Affordable-Insulin for details) to sell biosimilars of insulin glargine, insulin aspart and insulin lispro for a cash price of $30/vial or $55 for a box of 5 insulin pens once they're FDA approved and hit the market (forecast to happen in 2024 according to Civica). And, so Civica's insulin biosimilars appear very likely to be sold at Costco Pharmacies due to the company's co-ownership of the PBM Navitus.

Conclusion: Costco Pharmacy Manages Hybrid Cash/Insurance Payments for Rx Drugs Better Than Most Other Big Pharmacy Chains. Still, Costco Won't ALWAYS Be the Low-Price Leader Because of How the U.S. Prescription Drug Market Functions.

Costco Pharmacy's cash prices for many prescriptions may be low enough for people to simply bypass their insurance and pay out-of-pocket, which Costco welcomes, similar to how Mark Cuban Cost Plus Drug Co. or a number of other rapidly-growing, cash-only pharmacies which are popping up nationwide operate because their cash prices may be potentially even cheaper than by using insurance. However, many of those cash-only prescription drug outlets do not accept insurance, and Costco does.

Costco's niche is that it actually encourages cash-payers, yet it can also accept insurance if it has to. Costco doesn't ALWAYS have the lowest cash prices, such as on the two drugs I aimed to pay cash for (I bought them at Mark Cuban Cost Plus Drug Co. because it beat Costco's prices by a wide margin, just remember: Mark Cuban Cost Plus Drug Co. doesn't accept insurance). Costco Pharmacy's hybrid payment model, in my assessment, means that it can and will take most any form of payment (including insurance), which may save money and hassles for families which have multiple scripts to fill regularly. For me, Costco Pharmacy is not the most convenient option. And, as my experience proves, Costco won't always succeed at offering the lowest prescription drug cash prices, but its hybrid payment model may make things easier for those patients trying to have it both ways.

Tuesday, January 17, 2023

Farewell, Landleigh Nelson. I (and others in the Diabetes Community) Will Miss You.

Over the weekend, I learned that Landileigh Lee (nee James) Nelson died on Tuesday, January 10, 2023. As many of her friends knew, in recent years, Landileigh (or as those closest to her called her "Landi") had been dealing with a number of health issues. She faced seemingly one health issue after another, including dialysis which began at one point. And yet she handled it all incredibly gracefully and with her typical sense of humor, which was one reason I was proud to call Landileigh my friend.

In 2017, Landi posted that she had gotten a new haircut on Facebook. I thought it was a nice photo of her, and this is how I wish to remember her.

 

 

This was Landi's H.S. graduation photo taken in 1978, two years after my own T1D diagnosis.

 

Apparently, back in December 2022, she had gone to the ER with severe abdominal pain which she thought was her pancreatitis (one of the different health issues she'd been dealing with recently) flaring up, but it turned out that she had some type of leakage in one of her intestines. On December 18, she had surgery to repair that, and she had part of her intestine removed (FYI, my mother lived with autoimmune ulcerative colitis or "UC" and had her entire large intestine removed; only she was spared from wearing an ostomy bag with a multi-part surgery called J-Pouch surgery, which means intestinal issues are not necessarily fatal). But her husband Chuck told friends (Landileigh also remained very close with her daughter Holly) that she had healed from that surgery, but she'd apparently developed an infection caused by the gut leaking, and it appears the doctors were never able to get that infection under control. Her husband simply said something like "her body was unable to continue on its own". The night before her passing, her loved ones had seen her condition deteriorate, and her prognosis was not good, so they were expecting the worst to happen, and she apparently passed away peacefully around around 3:00 AM on Tuesday, January 10, 2023. 

The only published obituary (if you can call it that; not much was said about her other than the date of passing) I could find was at the following link https://obituaries.neptune-society.com/obituaries/walnut-creek-ca/landileigh-nelson-11103754

I can't speculate on the exact chain of events or even what her actual cause of death was officially (it doesn't matter, although I should note that the family was very careful to acknowledge that her passing was NOT diabetes-related, probably because she wanted them to), but like many others in the diabetes community, I am feeling a great sense of loss since I learned of Landileigh's recent passing. Just as I have responded when other friends in the diabetes community have passed (for example, I'm thinking of Kitty Castellini's passing which I wrote about in 2016, see my post at https://blog.sstrumello.com/2016/06/a-tribute-to-my-dear-friend-kitty.html), I feel it is appropriate to commemorate my friendship with Landileigh and her life with this blog post.

Landileigh and I shared a few things in common. For example, when I first met her, we talked about how I had lived in San Francisco throughout the early 1990's, and we knew many of the same local hangouts. We also joked about our most common bond, which was autoimmune Type 1 diabetes. Only someone who lives with the same thing (for as long as the two of us had) can share that commonality as well.

I essentially wrote the following on her Facebook page, but I think it summarizes what I want to remember about my relationship with Landileigh:

"I still look back fondly at the bond you and I had initially formed in Las Vegas at the Diabetes UnConference where we dined together at the Hash House a Go Go (and the laughter we both shared over your brief visit to the Planet Hollywood Casino days earlier), and then meeting up with you again in Indianapolis and going to the Indianapolis Indians minor league baseball game. Since we were among the few who were not drinking at the game, we just laughed together throughout the game and the others around us wondered what the heck we were doing! I know the last few years were incredibly tough, but you handled it with incredible grace. I will miss you, my friend."

I think that about sums up my sense of loss over Landi's passing. Farewell, my friend. Rest in peace. I will miss you!

Tuesday, January 10, 2023

Podcast Episode Recommendation: Politico Pulse Check - Can Mark Cuban disrupt prescription drugs?

Next up on my podcast episode recommendations is a podcast that comes from Politico, a media outlet that runs a podcast called "Pulse Check". Politico describes its Pulse Check podcast this way: "Politico Pulse Check delivers the latest news in healthcare with sharp policy analysis and a dose of real-world perspective". In other words, "Pulse Check" is about healthcare and healthcare policy emanating from Washington, DC.














On December 20, 2022, Politico Plus Check interviewed Mark Cuban about his cash-pay Cost Plus Drug Company. Before I get to the episode itself, I must acknowledge that Mark Cuban Cost Plus Drug Company is not unique. 

Indeed, other prescription drug retailers, including the giant warehouse retailer Costco Wholesale's Pharmacy business, was really an earlier version of the "Cost Plus" model which does the same thing (although Costco is not strictly cash-only pharmacy, it also accepts some insurance payments; someday I aim to write about Costco's Pharmacy business, because it's a bit of an odd hybrid retail pharmacy model which I've had trouble trying to figure out, but that's not on the agenda for today).

In the Politico Pulse Check podcast episode entitled "Can Mark Cuban disrupt prescription drugs?", Mark Cuban does acknowledge how his recent deal with Roche Diabetes Care for Accu-Chek test strips and meters as the company's first branded supplier, but he says he doesn't believe it will be his last. He elaborates a bit about how the contract negotiations with branded drug companies is extremely time-consuming because the pharmaceutical industry includes provisions such as "most favored nation status" which he says makes contract negotiations extremely time-consuming to execute. Mr. Cuban also talks a bit about the Cost Plus insulin trial with Eli Lilly and Company via its ImClone Systems business unit which commercializes Lilly Insulin Lispro Injection U-100. Lilly has been cutting prices on its unbranded version of Humalog (the manufacturer coupons can be found at https://www.insulinaffordability.com/, perhaps in anticipation of biosimilars coming in the near future). However, on that, my assessment is that Lilly's unbranded version of Humalog which is an "authorized generic" designed to bypass the PBM rebate problem and list price growth which plagues prescription drug pricing in the U.S. as an indirect result, will not necessarily be an exclusive insulin supplier for Mark Cuban Cost Plus Drug Company. They are agnostic to drug suppliers.

For example, rival Novo Nordisk Pharma, Inc. now offers an unbranded version of Novolog which it calls Novo Nordisk Insulin Aspart Injection U-100. As I covered in September 2022, Novo Nordisk also introduced an unbranded version of its newer basal insulin analogue Tresiba which is calls simply Novo Nordisk Insulin Degludec Injection U-100. Finally, it took rival Sanofi two years longer to do it, but as I covered in a previous blog post, today Sanofi (via the company's Winthrop US business) finally now offers a Lantus U-100 "authorized generic" version called Winthrop Insulin Glargine Injection U-100 as well. Sanofi also introduced a manufacturer coupon program, effectively matching Lilly Insulin Lispro's reduced price of $35/vial. I doubt we'll see Sanofi do anything with its proprietary prandial insulin analogue known as Apidra since patents on that product are due to expire, but with a manufacturer coupon from Sanofi, that insulin has become vastly more affordable.

However, "authorized generics" are by no means the only way to bypass PBM rebate-driven market failure driven by legally exempted cash kickbacks amounting to hundreds of billions of dollars annually. True biosimilar insulins made by companies other than the innovators are coming, which I have blogged about previously. We know that public companies including Sandoz, Lannett, Amphastar and Civica all have insulin biosimilars now in development. We should see the first of those coming starting in 2024.

Have a listen below, or by visiting https://politicos-pulse-check.simplecast.com/episodes/can-mark-cuban-disrupt-prescription-drugs-xd6r_5Hi

Monday, January 09, 2023

Podcast Recommendation: Selected Episides of Diabetes Connections with Stacey Simms

So, my next podcast recommendation is for two specific episodes of Diabetes Connections with Stacey Simms, and more specifically two in which she discusses the Civica insulin announcement which was first announced on March 3, 2022 (see the original Civica press release at https://www.businesswire.com/news/home/20220303005321/en/Civica-to-Manufacture-and-Distribute-Affordable-Insulin/ or the concurrent JDRF press release at https://www.prnewswire.com/news-releases/jdrf-announces-support-of-civica-to-manufacture-and-distribute-low-cost-insulin-301495050.html). 

Many people subscribe to Diabetes Connections, although I'm stopping short of recommending a subscription to the podcast itself. The reason is because Stacey Simms is a diabetes mom, but that alone isn't a reason for recommending subscribing (it's not a reason to avoid it, either).

But if I'm being completely honest, over the years I've learned to listen to podcasts and/or read blog postings from diabetes parents very selectively. If I didn't, I think I would drive myself insane. I'm a person who has lived with Type 1 diabetes for close to a half-century (I'll earn my Joslin 50-year medal in 2026), and I'm long past the learning curve or shock of living life with T1D as many parents of newly diagnosed children are. I have to listen to podcasts or read blog posts from mommies and daddies of kids with T1D only when time permits, and only when the topic they're covering is of personal interest.  My focus is ordinarily from a business perspective, and not everyone would necessarily ask the same questions I'd ask. 

That's OK.

Stacey Simms is not the person living with Type 1 diabetes herself, her son Benny is. Parents' concerns are often very different from an adult person with diabetes. I can give kudos to Stacey because some of the episodes and her guests have been fantastic, while other episodes are completely disposable IMHO. The great thing with podcasts is you don't have to listen to every episode unless you like the podcaster or the guest.
















Still, there were a few episodes which I recommend on Diabetes Connections with Stacey Simms. Specifically, was her coverage of the Civica insulin announcement. The episodes are below:

In particular, two episodes on the Civica insulin announcement were worth catching. First up was the interview with JDRF CEO Aaron Kowalski just a few days after the Civica insulin announcement was made. That podcast can be listened to below, or by visiting https://diabetes-connections.com/i-think-we-have-an-answer-jdrfs-ceo-explains-the-plan-for-non-profit-insulin/. Beware there are some details in the actual press release which are quite relevant, but might be overlooked unless you are someone who follows the biosimilars industry as I do. More on that in a second.


The follow-up was an interview Stacey Simms did with Ned McCoy, who is Civica's Chief Operating Officer. The podcast can be listened to below, or by visiting https://diabetes-connections.com/we-can-do-it-civica-rx-and-non-profit-insulin/.


Still, both JDRF's Aaron Kowalski and Civica's Ned McCoy seem to casually dance around the reality that Civica isn't technically manufacturing the insulin biosimilars at all. 

Instead, the actual bioreactors for Civica insulins will be located offshore in a co-development partner located in Hyderabad, India named GeneSys Biologics. The insulin "Active Pharmaceutical Ingredient" or "API" of the insulin biosimilars will actually be made there, then shipped to the U.S., and Civica will basically package it into vials and/or insulin pens in a "fill & finish" facility in Petersburg, VA just south of the state capital of Richmond. That's not really "manufacturing" the insulin in my view. Still, pharma considers that practice ordinary (to rely on offshore manufacturing to fatten their own bottom lines), they treat it as if it were completely normal. In biosimilars, nearly every company uses an offshore partner (in India, China, Malaysia or elsehere), only the margins are most typically used to pay PBM's legally-exempted, cash "rebate" kickbacks. The difference is that instead of the margins being used to fatten pharma's bottom line or pay multi-billion dollar rebate kickbacks to PBM's to secure exclusive drug formulary placement, instead, Civica will use the margins to reduce patient prices.

That part is very unique, and Civica is uniquely positioned to make that cost-plus insulin a reality. No doubt, that will put additional pressure on Big Three branded insulin-makers to either cut their prices (Lilly has already done so on unbranded Humalog), or stop making the patent-expired insulin varieties leaving only the patented product in their portfolio (I'm willing to bet we see Novo Nordisk "retire" Novolog/Aspart when the half-dozen or so biosimilars of that hit the market around 2024; expect them from Biocon, Sandoz, Lannett, Amphastar and Civica). The only difference is this time, Novo Nordisk won't be able to force patients to use its newest insulin unless the price is right; the alternative will be that patients can simply use biosimilars made by nearly a half-dozen other companies instead.

Friday, December 23, 2022

Podcast Recommendation: Relentless Health Value E356

Let me begin by acknowledging that my original source of this information was an individual whom I admire a great deal: David Balat who shared this particular podcast via LinkedIn. David is a Texan who happens to be one of the foremost authorities on the anti-consumer and anti-competitive behavior of Pharmacy Benefit Managers ("PBM's") and works as Director, Right on Healthcare for Texas Public Policy Foundation and also Executive Director with the nonprofit organization Free2Care. David Balat's LinkedIn profile can be seen at https://www.linkedin.com/in/davidbalat if you're interested in following him on LinkedIn.

This was an episode of the "Relentless Health Value" podcast. FYI: Relentless Health Value is a weekly interview podcast hosted by Stacey Richter, who is a healthcare entrepreneur celebrating fifteen years in the business side of healthcare. Ms. Richter is also a great hostess for the podcast, asking very pointed and relevant questions of her guests, plus her guests are healthcare business luminaries. I also recommend that you might consider subscribing to the overall "Relentless Health Value" podcast. It's available from most of the places where people subscribe to podcasts, but the website is at https://relentlesshealthvalue.com.

The specific episode I am recommending in today's post is Episode 356: "PBMs React to GoodRx, Mark Cuban, and Amazon Pharmacy, With Ge Bai." The podcast episode can be accessed at https://relentlesshealthvalue.com/episode/aee13. I will provide the actual episode itself at the end of this blog post.






















The guest in Episode 356 was the real reason for recommending this podcast episode. The guest was Dr. Ge Bai, PhD, CPA who was interviewed, and Dr. Bai is a professor of accounting at the Johns Hopkins Carey Business School and professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. She is an expert on healthcare pricing, policy, and management.  Dr. Bai is a real authority on what happens behind-the-scenes with PBM processing insurance claims and her knowledge is really great.

Dr. Ge Bai has a webpage at Johns Hopkins which is assuredly one you might find very informative, particularly with links to her published works. You may visit her page at Johns Hopkins at https://publichealth.jhu.edu/faculty/3887/ge-bai for more details. Also, her LinkedIn page can be found at https://www.linkedin.com/in/ge-bai-16945370/.

One other link: Dr. Ge Bai's Twitter handle can be found at @GeBaiDC and I do recommend following on both platforms. Even if Twitter is (right now, anyway) currently kind of falling by the wayside until the company either formally declares bankruptcy or is foreclosed upon by its many creditors. The reason is because under Elon Musk's failed leadership of Twitter, the social media platform has gone delinquent on virtually all of its bills, including its rent for the company headquarters in San Francisco. Musk recently tried to beg the Saudis to bankroll yet another investment in Musk-led Twitter, and while the Saudis generally support authoritarians who censor content they deem unacceptable, even the Saudis balked at how poorly their first big investment in Musk-led Twitter has gone. 

It's looking like a foreclosure on Musk-run Twitter, or a bankruptcy of the company appears almost certain in the near future. I remain on Twitter, although some people prefer not to provide Twitter any content which the company uses to attract advertisers who generate most of the company's revenue. Twitter has lost more than half of its advertisers since Elon Musk bought the company via a highly leveraged buyout. Recall that Elon Musk was forced to buy Twitter at a price of $46.5 billion even though the company was only worth maybe only about $14 billion because he foolishly signed an agreement to pay that price. Twitter sued him for breach of contract and a Federal judge ruled he had to buy Twitter at the agreed-upon price. Only now, it's looking as if the Emperor Has No Clothes! FYI, I have been finding LinkedIn has really evolved to an excellent social media platform owned and operated by Microsoft. On LinkedIn, I follow virtually everyone I once did on Twitter (and a few who did not have Twitter handles), plus LinkedIn has the added advantage of not being blocked in many corporations, so you can usually find the same content there as you once went to Twitter to get. Also, Elon Musk-run Twitter has aggressively increased the number of posts from users I do not even follow, but it appears to have no strategy for whose Tweets they share; it's haphazard and erratic. For that reason, I am spending much more time on LinkedIn these days although I don't share much of anything on LinkedIn, but I still turn to it for reliable news since I don't find it on Twitter anymore!

Anyway, back to the "Relentless Health Value" podcast. Start by listening to Episode 356 can be accessed at https://relentlesshealthvalue.com/episode/aee13 (or below), and then maybe consider subscribing if you enjoy informative "business of healthcare" related information.