Does Walmart (WMT) want to be lowest cost primary health care services and PBM company?

WMT PBM RESEARCH NOTE

WMT made an splashy entry into the PBM market  with new clinics about 6 years ago when it started offering generic perscriptions for $4.00.

So everybody thought that Walmart could use it’s business model and scale up with clinics to be a player in the PBM marketplace.

Walmart also moved into EHC (Electronic Health Record) and  in-store clinics with very limited success.

Companies such as WMT  and other companies are in a race to build more clinics before 2014 when President Obama’s health care overall will take affect and millions of americans will gain health-insurance coverage.

Right now Walmart lags the industry in the # of clinics

CVS – Caremark has 645 clinics

Walgreens has 347 clinics

Walmart has 141 clinics

So what does this mean for Walmarts bottom line?   Today WMT announced that it’s revenue exceeded Wall Street expectations however

it’s gross margin and profit number missed. This is not concerning short term as Walmart attempts to gain back market share that it lost in the last 3 years. The only way to do this is to keep prices low and sacrifice margin.

The primary health care services strategy would act as a “traffic driver” for WMT and that would eventually drive bottom line when prices are increased.

Here’s why WALMART WILL NOT BE A PLAYER IN THE PRIMARY HEALTH CARE SERVICE MARKET

Respondent is responsible for managing the Midwest region for large Biotech firm. He previously worked at Pfizer for 13 years where he launched Viagra, Ziphromax and other $B drugs. He worked as a Region Manager managing hospitals , PBM relationships and over 200 sales representatives responsible for a million dollar book of business.

 Participant – 21 years in Pharma and Biotech marketplace. Currently working at Sepracor and previously worked in sales management at Pfizer.

The respondent asked that he not be identified, and that his company not be identified.

What impact could Wal-mart potential entry as a PBM (Pharmacy Benefits manager) would have on the industry, especially the sale of

 Pharmaceuticals, and competitive impact/reaction for Target and  Walgreen’s and other drugstore retailers. (Impact on traffic, sales,

 pricing, etc. for Wal-mart, vs. other drugstore retailers?)

Answer: Mark said “ What a provocative question regarding Wal-Mart  entering the PBM arena.

The answer to that is a resounding NO.

Though the PBM business model is run much like the Wal-Mart business model, i.e. brand secondary, cheaper generic (knock

off) alternatives primary, there are several issues which exist that would inhibit Wal-Mart’s ability to be successful in

this area:

1. Other than Wal-Mart employees, most of who are underinsured already, I can’t think of another employer group

eager to be represented by Wal-Mart as their PBM. The brand of Wal-Mart, and their reputation of how their employees are

treated, would not be a good “PR” fit with most employer groups and I would think they’d be a bit hesitant in

diluting their brand with that association.

2. Secondly, PBMs are extremely expensive to run and I can’t think of any competitive  advantage they offer against more

veteran PBMs such as Medco and Caremark. For example, the cost eventually the customer sees in the tiered

 copay system is absorbed in the current system by the  employer, wholesaler and MCO (United, BCBS, ect).

The  advantages these firms have are longstanding relationships with major employer groups that will be hard to

supplant. Wal-Mart won’t be able to offer anything different what current PBMs offer, lesser priced drugs (generics) as the

preferred agent with step edits in place to ensure that branded agents are tried only after generics fail.

Most Tier 1 drugs already have a copay that is nominal ($2-$5) Wal-Mart will be unable to offer anything over what that current

PBMs offer other than some sort of  point of service discount since they run their own pharmacies. The problem with that

is Caremark and Medco already have lucrative deals in place with Walgreen’s, CVS and Target so I don’t see the business

opportunity for them, especially considering what their margin expectations will be from running the business.

Overall my guess is that, from a distance it appears to be potentially a good  opportunity; however when they look at

operation cost and other variables, this will…nowhere. Merck Pharma found this out sometime ago, when it purchased

Medco for 7.2 billion, lost a ton of cash, then divested itself from it. The reasons were not entirely the same; however the

cost was the major issue there as well.

For more in depth analysis and reports contact us at www.57thstventures.com

Which small and large cap health care and EHR technology providers to choose for your portfolio

EHR and Health care information technology

Problem:  Small medical groups  make up about 75 percent of all practices in the United States can’t manage Electronic Health Record (EHR) system and its ongoing cost of maintaining an IT department.   

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Solution: All U.S. hospital must update their billing software before an October 1, 2013 deadline.  These hospitals must convert their coding systems to the International Classification of Diseases ,Tenth Revision , (IDC – 10) , developed by the World Health Organization. It must be done to replace the serious outdated IDC-9 code used now. Hospitals that miss that that deadline face delayed payments , hefty fines from the federal government and could no longer be paid for some services.

Up until now, the benefits of electronic medical records that have occurred accrue to just about everybody — patients, employers, state and federal governments, and medical insurers — but the actual health care providers. Doctors get the least benefits, especially in small practice groups (those with fewer than five physicians) that make up most medical practices.

But even those who might benefit from electronic health records don’t, Why? Because there is little incentive to share information, the core of an electronic health record (EHR; also called an EMR for “electronic medical record”). For example, hospitals make money by doing tests. But once EHRs are up and running, a doctor ordering a test electronically might immediately receive an alert saying the test was unnecessary because the patient had the same test or procedure at another location. “There is not much revenue and profitability in putting in an EHR. There may be little financial incentive.

An ironic consequence of EHRs is that, by helping raise the quality of health care, they may penalize doctors and other medical providers for success. Issue : Doctors will see fewer patients.

Beyond the income factor, the total ownership cost of EHR systems today — not only the systems, but the setup and training — dissuades adoption by doctors, especially those in small groups. Physicians have been unwilling to invest anywhere from US$20,000 to $50,000 in an EHR system where the economic benefits tend to go to someone else. Today’s EHR systems are not as easy to use as they could be, so there is a large learning curve required.

Recognizing these factors the in 2009 the Obama administration has said that Hospitals submitting via EHR systems to Medicare and Medicaid will receive up to $6 million a year in additional payments for sending data electronically. This incentive will remove much of the adoption inertia seen so far,

And every medical practice that uses an EHR system to submit an invoice to the government Medicare and Medicaid insurance systems will be reimbursed at a higher rate than those who submit a non-electronic invoice: up to about $44,000 extra per year. To a physician in a small practice, this incentive is large enough to get doctors’ buy-in .It is a lot money, and and  physicians will have to  adopt it.

About $17 billion of the $19 billion allocation for EHR goes to incentive payments. Most of the rest goes for IT research in how to address all the technology issues.

Kaiser Permanente rolled out EHR systems in all eight of its regions in the United States. The first region to implement an EHR system was Northwest, which reached its goal of no paper records for its 450,000 to 500,000 members. Everything from lab test results, radiology tests, X-rays, and medications dispensed from the pharmacy is stored electronically.

But does that mean if you are a member of Kaiser Permanente in any of its eight regions, your records are available to any other region? The answer is a surprising no. Not really because the Systems EHR application that Kaiser Permanente uses is so complex that it wont work with any medical group with less than a hundred physicians due to the cost of implementing the system.

 

The expectation is that such small practices will either band together for EHR cooperatives or use a managed EHR service delivered over the Internet. But such sharing and cloud-based provisioning raises the tricky issue of keeping patient records offsite, which in turn brings up many legal issues due to the strict patient privacy requirements! Google discovered this fact and exited the health care electronic record initiative in 2011 after it learned that they (Google) have to rely on the end user to update their own information  because of the (Health Insurance Portability and Accountability Act) law.

The good news is health care IT is attracting IT companies with big enterprise systems, whether used by large hospitals and medical groups, provider collectives, or cloud-based EHR providers.

Winners- IBM,Oracle

Losers – Google

 

Large doctor networks and practioners

The buy and bill model has changed the business model for all branded pharma, doctors, specialty payment and insurance companies with the health care network. Specialty players such as Caremark are taking advantage health care reform and technology upgrades to boost top line revenue in processing payment for doctors.  This change is becoming more acute as e-detailing and tablet devices are gaining marketshare within doctors offices.

Losers – Insurance Companies

Winners – Caremark, Walgreens, Walmart

Which enterprise software companies are