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The new arrangement draws from a consignment approach, in which Walgreens will sell-but not directly own-Valeant’s products.
Perhaps in an effort to renew its soiled image following a problematic distribution arrangement with Philidor Rx Services and questions from Congress about its drug pricing activities, Valeant announced on Dec. 15, 2015 that it will enter into a direct distribution agreement with Walgreens. The agreement may also allow Valeant to reclaim a portion of the 20% of scripts that the company lost as a result of its separation with Philidor.
The arrangement will authorize Walgreens to “host” Valeant’s products on its pharmacy shelves, without the obligation for the pharmacy to purchase the drug inventory from Valeant. This means that Walgreens will not make its money on pharmacy spread, but will instead receive a flat distribution and dispensing fee from Valeant, according to Pembroke Consulting’s Adam J. Fein on his website, Drug Channels. In essence, Valeant will hold title to products, and Walgreens will provide a storefront in which the drugs can be purchased.
Although J. Michael Pearson affirmed in an interview with CNBC that Valeant’s drugs will be available for purchase in most other pharmacies, other chain competitors will not enjoy some of the same discounts, which are said to be about 10% off a branded drug’s wholesale list price. These discounts will be reserved for Walgreens and “other independent pharmacies;” the press release from Valeant did not specify which community pharmacies would be included. Valeant did, however, note in a slide deck on Dec. 16, 2015 that its new, decentralized model would “empower local leaders to make decisions that are right for their business.”
While Valeant plans to also offer 30 of its branded products at “generic prices”-representing discounts of an average of 50% or higher from its branded drug prices-the company did not specify how those discounts will be calculated. Pearson did not elaborate if Valeant will price-match its products to the lowest-priced generic equivalents or if it will choose generic drug prices that are at the higher end of the spectrum. According to Valeant, it alone will be responsible for setting prices to the patient. Additionally, it is unclear how much less patients will pay for Valeant drugs at Walgreens than they will at other pharmacies.
A recent Consumer Reports investigation showed that medication prices vary widely by pharmacy location and chain. This variation is partially due to existing distribution contracts with manufacturers, but can also be influenced by payer reimbursements. Whether a patient pays for his or her prescription in cash or not can also influence what a medication’s final price will actually be.
It is also ambiguous what a Walgreens pharmacist may be expected to do if there are cheaper alternatives to some of Valeant’s products. Because Walgreens Boots Alliance does not own a pharmacy benefit manager (PBM), its pharmacists may not face as much pressure from outside parties to substitute the least costly generic alternative. In fact, as Fein points out, Valeant may make more money from dispensing and distribution fees than it would from spread alone.
A past concern with PBMs is that a PBM could potentially steer a patient towards a more expensive medication to increase manufacturer rebate payments for said prescription, a phenomenon that was known as “drug switching”. A similar problem could emerge at the pharmacy level if pharmacists are instructed to steer patients to Valeant’s products over less expensive generic medications with spreads that would be smaller than the dispensing fee the pharmacy would get for Valeant products.
Although potential problems could arise with the novel distribution model, some experts believe the scheme could end up being beneficial to patients. "In general, this could be a positive move for patient access, since it moves away from the more traditional PBM model,” Ron Lanton III, Esq., president of True North Political Solutions, told BioPharm International. “We would have to see how this agreement will play out, but usually pharmacists are more concerned with providing their patients with the best healthcare options and value.”
The announcement from Valeant may not deter large PBMs, however. "There will be no changes to our formularies or protocols as a result of the Walgreens/Valeant announcement, and we will continue to focus on making medicine more affordable for those we serve," wrote David Whitrap, senior director of corporate communications and public affairs at Express Scripts, in an email to BioPharm International. "The contracts that we have with pharmacies in our network require that the pharmacies adhere to the plan design that our clients have established."
*Update from the National Community Pharmacists Association on inclusion of independent pharmacies:
If the distribution network proposed by Walgreens is restricted to just Walgreens pharmacies, the direct distribution model could have major repercussions on patients and pharmacies, said John Norton, director of public relations at the National Community Pharmacists Association, an industry trade group that represents community pharmacists, in an email to this publication.
"This is the first attempt at restricting common prescription products to certain pharmacies. If the network is broad (23,000 independent and regional chain pharmacies and Walgreens) then [direct distribution] could be a cost-saving move that allows patients to get brand products at generic prices and reduces some of the PBM middleman cost additions," Norton wrote. "If the network is narrow (Walgreens plus a small number of their pharmacies), then [the deal] could be very restrictive to patient access and [could] exponentially bump the hassle factor for getting prescriptions." Norton added that a small network could also be a "slippery slope"-subsequent price hikes on Valeant drugs could end up costing consumers more in the long run. Additionally, for states that require generic substitution, the new Valeant model could be problematic. Ultimately, a patient's payer or PBM may "reduce or refuse to provide any insurance benefit if the patient does not do what the PBM tells them to do," Norton asserted.
Sources: Valeant, CNBC, Drug Channels