The retail pharmacy sector is an exploding market that is experiencing tremendous change. Change is being driven by shifts in how prescriptions are bought and paid for, how prescription benefits are delivered to the market and by the composition of participants within the retail pharmacy sector. Within this dynamic market environment, Wellpartner has developed a set of innovative pharmacy home delivery pharmacy services that is propelling it to a position of leadership in the industry.

There are several significant market place shifts occurring today that are remaking how pharmacy benefits are delivered to the market, and how consumers take advantage of them. Among these trends are: (1) the growth of pharmaceuticals; (2) a shortage of pharmacists; (3) efforts by payors to rein in costs; and, (4) a shifting role of the Pharmacy Benefit Manager (PBM) as the benefit manager for the future.

Within the environment of change in the pharmacy benefit market, there are also emerging pharmacy delivery opportunities resulting from recent legislation at the federal and state levels for which Wellpartner has prepared solutions (e.g., 340B Public Health Service). These programs support a growing opportunity in the safety-net delivery and hospital outpatient pharmacy markets.

According to a report from the Pharmaceutical Care Management Association (PCMA), the demand for prescription drugs is exploding. Demand has increased 33 percent from 3 billion units dispensed annually in 2000 to 4 billion units in 2004. Within this market, mail service has outpaced the rate of growth for all other retail pharmacy sectors, and represents approximately 20 percent of the total pharmacy opportunity (measured in revenue). Demand for prescriptions is anticipated to accelerate even more as the Medicare Reform Act takes full effect in 2006 .

This explosion in prescription demand creates new opportunities to provide fulfillment solutions. Increased demand for prescriptions has also meant price increases between 14 percent and 18 percent annually. Drug costs now account for about 15 percent of all health care expenses. This has increased attention on identifying solutions to rein in costs and maximize value for the dollars invested in pharmacy health benefits.

The U.S. is experiencing a shortage of licensed pharmacists -- a trend that emerged over the past four years and shows no sign of abating. Projected growth in retail prescriptions could widen the shortage from 7 – 8% today to over 25% by 2010 with the onset of the Medicare drug benefit in 2006. As a result, the retail pharmacy market will continue to experience increased pressure as it struggles to meet market demand.

Because of this shortage of pharmacists, retail pharmacies are exploring alternatives to meet demand. Options being pursued include the obvious, such as closing stores and cutting back retail pharmacy store hours, and more innovative ideas such as expanding mail order pharmacy options and implementing pharmacy central fulfillment alternatives.

Exploding prescription demand, when combined with a shortage of available pharmacists, is creating additional impetus to establish robust mail fulfillment options that not only feed on unmet demand, but can be combined with retail pharmacy partners to provide relief at the retail prescription counter by using central fulfillment and mail order options – alternatives that are a part of Wellpartner’s business offering.

Increased prescription demand, new blockbuster drugs, and manufacturer price increases have combined to produce drug price inflation of between 14 percent and 18 percent annually for payers of prescription drugs. Drug costs now account for about 15 percent of all health care expenses. Many health plans have seen their share of pharmacy costs as a percent of operating budgets increase from 3 to 5 percent only a few years ago to as much as 15 percent today. At the current annual cost trends of 20+ percent, health care expenses could double in 3 years. As a result, organizations are seeking new and innovative ways to rein in their costs.

There are many options being employed today by payors of prescription benefits to control their per-member, per-month expense of pharmaceuticals, including increased use of generic drugs, creating tiered formularies and performing utilization reviews, mandating mail order fulfillment, and in-sourcing pharmacy benefit management to cut costs.

Throughout much of the 1980s and 1990s, many employers received their pharmacy benefit coverage through insurance programs. During this period, these organizations typically outsourced pharmacy benefit to a claims processing company (pharmacy benefit managers, or PBMs) which possessed better skills at managing benefits, processing claims and creating networks of providers. PBMs received a processing fee from these organizations for managing prescription claims. Gradually, as competition arose and more companies entered the PBM industry, claims processing became commoditized and these organizations sought out other, more profitable revenue streams. Eventually, the PBM industry evolved to incorporate the roles of both pharmacy benefit administrator and provider (through their mail order affiliates), while also establishing relationships with drug manufacturers.

In the 1990s, PBMs began to shift their dependence on revenue from claim processing to other sources, including manufacturer rebates, selling data to manufacturers, and selling mail order and retail drugs. More recently, these relationships with manufacturers have evolved to include business agreements with pharmaceutical manufacturers shrouded in secrecy, where PBMs receive payments for drug rebates, administrative fees, data fees, drug detailing fees and other sources of revenue that are not shared with payers.

Today, many PBMs, especially the largest ones including Medco, Caremark and ExpressScripts, have evolved to the point where their primary source of revenue is no longer the administration of benefits for health plans or employers; it is the sale of drugs through mail order or retail channels and the sale/control of information to drug manufacturers, with the financial return to the PBM either through rebates or the sale of claims data.

Health plans and employers have become increasingly skeptical about whether PBMs have their financial interests at heart . And because of the lack of transparency surrounding many of the agreements and programs between pharmaceutical manufacturers and PBMs, federal and state organizations have initiated investigations into PBM practices. In addition to several ongoing SEC investigations of PBMs and their business practices, no less than 11 states have proposed legislation to regulate the practices of PBMs to force greater transparency .

In the coming years payers will require a shift in the current PBM model to return the strategic and operational control of benefit administration back to the payer. As more and more organization in-source their pharmacy benefit management practices, PBMs will revert to their previously administrative roles. Still other employers have written out PBMs altogether, forming “buyers clubs.” These employers self-insure and self-administer drug benefits, negotiating discounts and purchasing drugs directly from manufacturers. Regardless of the actual method that is employed, the trend that health plans and employers will pursue is to reintegrate the pharmacy benefit with the rest of the health benefit, creating an opportunity for a more effective long-term response to the rising cost of prescription drug therapy.

PBMs will migrate away from being fully-integrated organizations managing claims, providing pharmacy fulfillment through their retail or mail order organizations, and providing utilization reviews using health plan / employer data, to a role of organizing purchasing alliances – an area where they have demonstrated tremendous capabilities. These organizations will bring private and public health plans, employer groups, and consumer organizations together in the purchasing of prescription drugs directly from pharmaceutical manufacturers. While this is just one option open to the PBM industry, the pressures they face on continuing with completely integrated organizations as a provider (retail or mail order) where they can police, manage, and even pay their own claims is coming to an end.

And this shift in the traditional role of PBMs creates the opportunity for stand-alone and independent mail order pharmacies, such as Wellpartner.

As the industry sorts through a shift away from the traditional role of PBM as manager, provider and payer of the pharmacy benefit to one in which pharmacy management is maintained by the payor, providers will contract based on open and transparent business agreements with payors, and payment will be made based on negotiated services. Wellpartner is leading the way with stand-alone mail order pharmacy solutions that can help organizations control costs and deliver value to their members in this new era. With services that are directed at controlling the costs associated with prescription delivery and maximizing the effectiveness of preferred drug lists, by extending the efficacy of care through innovative pharmacy programs and proactive patient care, and by engaging the consumer in health management by educating and encouraging them to become empowered health consumers, Wellpartner pharmacy leads the way in establishing tomorrow’s pharmacy services today.