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Walgreens: Purveyor or Provider?

Walgreens-store

An intriguing question emerged from last week’s merger announcement from Walgreens Boots Alliance and Rite Aid.  Led by CEO Stefano Pessina and his largely European executive team, will Walgreens be purveyor focused on retail sales or provider engaged with a transforming U.S. health care system?

The signals are mixed.  A tea-leaf reading of last week’s investor call suggests Walgreens is destined to be a purveyor, focused on selling products and services.  Today, however, Walgreens announced a big technology move that points to a provider future, closely integrated with payers and providers.

Purveyor or provider?  Read on.

Tobacco:  To Sell or not to Sell

“Are you considering eliminating tobacco,” Barclays Capital analyst Meredith Adler asked Walgreens president Alex Gourley during the investor call as the company fielded questions about earnings and the merger.

Gourley had just praised RiteAid for its new, sales-increasing wellness format, saying it was an opportunity for Walgreens, which also is seeing success with its new health, wellness and beauty positioning.

“It seems pretty clear,” said Adler, explaining her question, “that providers and payers feel uncomfortable working with a retail pharmacy that still sells tobacco.”  In the background was the 2014 tobacco sales halt of CVS Health, which boasts 49 clinical affiliations, including Cleveland Clinic.

Gourley’s answer:  No.

Walgreens would instead continue investing in smoking cessation.  Anyway, he noted, only about three percent of all tobacco sales occur in a drugstore.  He did not pivot to emphasize how Walgreens is working with providers and payers, notwithstanding tobacco sales.

A tea-leaf saying “purveyor”? Perhaps.

Outposts in Seattle

Gourley could easily have drawn the analyst’s attention to a Walgreens announcement just two months previously.  In August, Walgreens and Seattle-based Providence Health & Services launched a new “strategic clinical collaboration.”

Providence will own and operate clinics in 25 Washington and Oregon Walgreens stores under its Providence and Swedish brand names.  The first three will open in early 2016, with the remainder following in two years.

Rite Aid made a similar move in the Seattle market in May when it announced a joint venture between its RediClinic subsidiary and MultiCare Health System.   The joint venture will operate clinics in 11 stores staffed by board certified MultiCare Nurse Practitioners in collaboration with MultiCare affiliated physicians.

Seattle, home to only three CVS stores, will provide a sheltered environment for Walgreens and Rite Aid to test the strategy of developing “deeper and more strategic relationships” with health systems.  In particular, Providence is quite a catch, having directly contracted with Boeing to provide health care for the aircraft maker’s employees.

The EpicCare Connection

However, the nation’s 1,000 CVS MinuteClinics dwarf both Walgreens 400 Healthcare Clinics and Rite Aid’s small number of in-store RediClinics.  Surpassing 25 million patient visits since the opening of its first clinic, CVS says it is opening three new MinuteClinics a week.   Aiming for 1,500 clinics by 2017, CVS is acquiring all of Target’s 1,660 pharmacies and 80 clinics.

CVS is converting all of its MinuteClinics to the market leading EpicCare electronic medical records (EMR) system.  Used broadly across health care, Epic also has strong interoperability with other EMR systems.   This will provide seamless data exchange with most American hospitals.

“EpicCare will help us work more closely with physician practices as part of the medical home team, facilitate co-management of patients, and advance our mission to make health care more accessible, convenient and affordable for Americans,” said MinuteClinic chief medical officer Nancy Gagliano, M.D.

Dr. Patrick Carroll agrees.  Today, the chief medical officer for Walgreens Healthcare Clinics announced the clinics would begin moving to EpicCare early next year.  “As our clinics play an increasingly important role in health care, supporting the health care system, provider practices and patients’ medical homes, care coordination can be critical,” he echoed.

So, a provider future for Walgreens?  It certainly looks like it.  “This will benefit our patients, clinic providers and partners, and serves as an instrumental part of our strategic growth plan [emphasis added],” explained Carroll.

Confusing Signals

However, as recently as May, Walgreens quietly shuttered 35 clinics, a move two former employees described to Crains Chicago Business as signaling “uncertainty whether Walgreens really wants to spend more on primary care and in particular upgrading the clinics’ electronic medical record systems.”   Today’s announcement erases some of that uncertainty, at least with respect to the EMR system.

In Seattle, Walgreens will provide in-store space, overseeing any needed build out.  Providence will be using its own Epic system.  “Patients will experience a seamless patient experience through our existing electronic health record system, providing direct connectivity to the clinics and billing systems, which will ensure better continuity of patient care and collaboration among providers,” said Providence senior vice president of physician services Mike Waters.   Now, Walgreens will be able to connect directly.

Convincing Collaborations

In Seattle, a provider land lord; in Tampa, still a provider.  There, Walgreens partners with a multi-specialty practice, assuming risk in an accountable care organization (ACO), Diagnostic Clinic Walgreens Well Network.  Serving 7,500 patients, the ACO saved $1.5 million or 2% in costs.  However, Walgreens has exited ACO partnerships with Baylor Scott & White in the Dallas-Fort Worth area and New Jersey’s Advocare.  The company continues a clinical affiliation with Baylor Scott & White.

Meanwhile, Walgreens has launched additional collaborations with CHE Trinity Health, a 30-hospital, Michigan-based system, Arizona Priority Care, a unit of California’s Heritage Provider Network, and Mercy Health – Cincinnati.  Leading Trinity Health is former Medicare official Dr. Richard Gilfillan, chair of the Health Care Transformation Task Force; Mercy Health is part of the nation’s largest not for profit health system, Ascension Health; and Arizona Priority Care specializes in accountable care.

In Baltimore, Walgreens has a long-standing relationship with Johns Hopkins Medicine (JHM).  The company provides grants for population health research overseen by a joint committee.  Two years ago, it opened a store, including a Healthcare Clinic, adjacent to the JHM campus.  In this case, Walgreens’ board certified nurse practitioners staff the clinic, although they and company pharmacists can work with JHM faculty.

Rite Aid’s Health Alliance program should dovetail nicely with Walgreens provider collaboration initiatives.  The program brings together physicians, pharmacists and special care coaches to provide care and support to individuals with chronic and poly-chronic health conditions, helping them achieve health improvement goals established by their physicians.

Eight provider organizations currently are participating in Health Alliance, which leverages Rite Aid’s population health subsidiary, HealthDialog.  Another 11 reportedly are be interested.  On average, patients participating in the Rite Aid Health Alliance are 36% more adherent to their medications; they have lost an average of 7.7 pounds; they have a 39% reduction in blood pressure; and they have lowered their blood sugar by 36%, reports Drug Store News.

Big Bet on Consumer Technology

Rite Aid is also bringing Cleveland Clinic physicians into some of its Ohio stores via telehealth start up HealthSpot.  Installed in the stores is a kiosk, enclosed for privacy, which includes a video connection with a physician and the capability to take and transmit vital signs to the physician.

Opting for mobile, Walgreens is using the Pager platform, designed by an early Uber architect, to connect customers with physicians.  It also is relying on the MDLive platform for telemedicine, and working with WebMD on a wellness app, and with PatientsLikeMe enabling people to share medication experiences with each other.

Walgreens has been a leader in using technology to engage its customers.  Its app is the third most downloaded retail app in the U.S. and the number one brick and mortar pharmacy app, reports mobihealthnews.  Fourteen million people visit a Walgreens app or website each week and Walgreens fills more than one mobile prescription every second.

Walgreens’ Epic Catch-Up

However, until the EpicCare announcement today, Walgreens lagged in using technology to engage providers.  Its electronic record system could not easily communicate with other systems, forcing stores to use secure fax and email to communicate with physicians and other providers.   That raised serious questions about the future of its provider collaborations and role as a provider.

Now, EpicCare means Walgreens can be more than a purveyor.  It can also be a provider, fully integrated into the new health care.

Scaling the Limits of Scale: The PBM Path to Value-Based Health Care

Scaling the Limits of Scale: The PBM Path to Value-Based Health Care
Scale has its limits, as the nation’s two largest pharmacy benefit managers (PBM) are discovering.  Express Scripts and CVS Caremark each process more than a billion prescriptions a year.   That is not enough for big customers Anthem and Aetna.  Both are likely to alter dramatically or not renew long-term contracts set to end in 2019 with the PBM behemoths.

PBM Optionality for Anthem, Aetna

Anthem and Aetna say they now have “optionality” because Cigna and Humana, which they are respectively acquiring, both have PBMs.  That optionality goes well beyond the scale Aetna would enjoy as the fourth largest PBM.  It can put the pharmacy benefit, integrated within each organization, on the path to value-based health care.

Both the Humana and Cigna PBMs align well with the quality and outcomes focus of value-based health care.  Humana’s PBM primarily supports the company’s Medicare Advantage (MA) and Part D programs, with MA accountable care arrangements delivering better outcomes than traditional Medicare.

Meanwhile, Cigna has pioneered outcomes-based reimbursement arrangements with pharmaceutical manufacturers.  Previously overseeing Cigna’s PBM was none other than Aetna CEO Mark Bertolini; Cigna CEO David Cordani will serve as chief operating officer of the new Anthem.

In their sights is UnitedHealth Group (UHG), which brought its PBM business inside from Medco at the start of 2013, trigging Express Scripts’ anticipatory acquisition of Medco in 2012.    UHG says its OptumRx PBM focuses “on connecting total condition spend and pharmacy’s impact across benefits,” a process it calls “synchronization.”

More explicitly than Anthem, Aetna has said it will integrate Humana’s PBM, along with its “growing health care services business,” even characterizing it as an “Optum-like business.”

Value beyond Scale

UHG’s Catamaran acquisition earlier this year, while adding scale, also significantly included Catamaran’s RxClaim processing platform.  OptumRx plans to integrate the adjudication platform with its medical and pharmacy claims synchronization.  UHG promises to create value “beyond the scale … resulting from integration,” by linking “demographic, lab, pharmaceutical, behavioral and medical treatment data” to encourage healthy decisions and improve compliance with pharmaceutical use and care protocols.”

In fact, the very tools used to leverage scale to get lower prices, such as formulary exclusions, can potentially work against reducing total costs.  In securing a substantial discount from AbbVie for Viekira Pak, Express Scripts excluded Gilead’s Harvoni from its 2015 formulary.  Viekira Pak is a four pill a day regimen to Harvoni’s adherence-friendly one pill for curing hepatitis C.

Not surprisingly, given their focus on overall costs, Aetna, Anthem, UHG and Cigna all included Harvoni on their formularies and do not publish exclusion lists like Express Scripts and CVS Caremark.  Instead, they typically establish clinically based prior authorization criteria.

For the latest high-cost drugs to hit the market, Express Scripts is following the health plans on their value path.  Instead of excluding one of two new anti-cholesterol drugs, known as PCSK9 inhibitors and list priced at $14,000 per year, it announced coverage for both this week.

As the health plans did with Harvoni, Express Scripts will implement rigorous prior authorization procedures.  The company says it negotiated good pricing with Amgen for Repatha and with Sanofi and Regeneron Pharmaceuticals for Praluent, enabling it to cover both drugs.  Perhaps it also heard from customers unhappy with price-driven drug exclusions.

Wanting More, Customers Become Competitors

Clearly, some very big customers – Aetna, Anthem and UHG – want something more than scale from traditional PBMs like Express Scripts and CVS Caremark.  Beyond scale, they want a pharmacy benefit that contributes to reducing total costs through better outcomes, consistent with achieving overall value-based payment goals.

Building PBM paths to value-based health care for themselves, Anthem, Aetna and UHG will also sell against volume-based models like those of Express Scripts and CVS Caremark, and against health plans that fail to integrate pharmacy and medical claims for actionable intelligence.

Employers and the Limits of Scale

Their strategy blueprint could easily have come from the Harvard Business Review article “The Limits of Scale.”  Hanna Halaburda and Felix Oberholzer-Gee argue that, when rapidly scaling companies neglect to take into account differences among their customers, performance declines.  On that premise, they suggest how challengers and incumbents can take advantage of customer differences.

Among PBM customers with differences are employers, which provide health coverage for 147 million Americans.   The National Business Coalition on Health is uneasy with the growing use of exclusionary formularies.  It advises members to “base selection criteria for formularies on clinical outcomes to ensure that pharmaceutical costs do not decrease at the expense of rising medical costs.”

Employers are becoming more actively engaged in managing the pharmacy benefit, even developing their own formularies and negotiating directly with pharmacy retailers.  Caterpillar’s Daren Hinderman told an NBCH panel last year, “I don’t want to have a conversation [with PBMs] on rebates; I want to have a conversation on how I can keep my employees more compliant with medications they need to stay healthy. We decide what’s best for our employees. It’s a transparent process.”

NBCH also urges members to “verify that pharmacy and medical benefits are aligned, and link data between the two in order to evaluate cost and outcomes across both types of benefits and the entire health-care spectrum, not just through the lens of pharmacy.”  As Dr. Mark Fendrick of the University of Michigan Center for Value-Based Insurance Design told the NBCH panel, “I’d prefer to spend more on statins than on stents.”

Obstacles on PBM Value Path

Mapping the PBM path to value-based health care is one thing, building it is another.  Aetna and Anthem still must face a gauntlet of government and legal reviews before they can complete their acquisitions and commence integrating the Humana and Cigna PBMs.

OptumRx must complete its integration of Catamaran, which in turn is still integrating the data platforms of its acquisitions.  Furthermore, OptumRx and Catamaran both use different versions of the RxClaim platform and, for Catamaran, medical claims synchronization remains down the road (or path).

Meanwhile, the Catamaran acquisition has roiled a PBM industry where many participants use Catamaran’s RxClaim platform – including Cigna!  They were content to compete with Catamaran, despite using its technology.  However, will they be similarly comfortable with OptumRx and UHG in the technology driver’s seat?

Much like UHG’s acquisition of Catamaran and its technology, Rite-Aid did the same when it acquired EnvisionRx.  The PBM had previously acquired Laker Software, also a claims platform supplier for many PBMs.  Again, the comfort question arises, in this case over Envision and Rite Aid as the drug retailer pursues its path to value-based health care via innovative alliances with health care providers.

Making the Laker and RxClaim platforms particularly valuable has been the PBM industry’s reliance on a hodge podge of decades-old, antiquated platform technologies.  With each acquisition, scaling PBMs have patched together instead of invested in their platforms to maximize short-term synergies, at the cost of limited flexibility and lower efficiency.

PBMs Miss Technology Revolutions

Meanwhile, multiple revolutions have coursed through the systems development world since the PBM industry acquired its mainframes and data centers in the late 1980’ – early 1990’s.   When relational databases followed soon thereafter, PBMs adopted them for after-the-fact data analysis, but not broadly for real time use with claims processing platforms, which now are antiquated and fragmented.

More recently, graphical user interfaces have greatly streamlined the programming of business intelligence applications.  It is now easier for more people, more efficiently to translate their expertise into innovative systems.  No longer must visionaries exclusively funnel their solutions through highly specialized programmers and coders.  Now, the visionaries’ can become coders, their hands on the programming controls, unleashing new applications across the entire economy, including the PBM industry.

PBM Platform for Value-Based Health Care

One such visionary has developed a PBM solution for value-based health care.  His name is Ravi Ika.  “The solution is holistic, unlike that of any other existing PBM.  It reduces overall pharmacy cost, converts specialty from ‘buy & bill’ to ‘authorize and manage,’ and lowers avoidable drug-impacted medical costs,” explains Ika.

Before turning his attention to the PBM industry, he created a comprehensive, integrated payer platform now provided by ikaSystems, which he founded to transform the payer operating model.  Spanning all payer departments and business lines, it decreased administrative costs for health insurers by as much as 50% and reduced avoidable medical costs.

In 2013, Ika launched RxAdvance, a full service PBM, which similarly operates on an integrated, end-to-end platform – one designed specifically for value-based health care.   Combining pharmacy, medical, and lab data, the platform – called PBM Collaborative Cloud– enables real-time engagement.  This engagement occurs with physicians at the point of care, pharmacists at the point of sale, and patients via mobile cloud.  It also engages payers clinical and pharmacy staff through their workflows.

Better decisions by these stakeholders – driven by platform-generated, actionable intelligence – can reduce avoidable drug-impacted medical costs, optimize utilization, facilitate better specialty drug management, and decrease overall pharmacy costs.

PBM Processes Reimagined

“We started with a clean slate,” observes Ika, who says he and his team reimagined PBM processes to streamline workflow before building the platform.  Redefining the human role, they automated as much as possible while, on the other hand, increasing opportunities for engagement, what-if modeling, and informed decision-making.  The platform also enables market and regulatory changes configurable by the business user, as well as system-driven compliance management.

Ika built the platform from the ground up using a unified data model.  In information technology parlance, that means the platform’s standards are universal enough to encompass a large scope of data and types of data with high scalability.

In PBM language, the platform includes everything from pharmacy claim adjudication, formulary management, benefit design, enterprise reporting and analytics, to pharmacy network and rebate contracting, medication adherence and therapy management, specialty management, transparency, compliance, and adverse drug event management.

From Existing to Ideal Formularies

For example, the platform includes algorithm-driven artificial intelligence to manipulate, with plan sponsor engagement, the complex and interdependent variables associated with formulary management.  Incorporating habitual member and prescriber utilization patterns, in addition to other data, it derives an ideal formulary with optimal financial and clinical outcomes.  The system then maps a transition plan from an existing formulary.  The platform also accommodates an unlimited number of formularies and supports real time dynamic modeling and changes coupled with full transparency.

Better Medication Therapy, Adherence Outcomes

For medication therapy management (MTM), the platform taps patient medical claims and disease conditions, against which the system overlays a prescription listing for easy use by prescribers.  In addition, each new prescription triggers a dynamic analysis to determine patient eligibility for a comprehensive medication review (CMR), which the system prepopulates for efficient prescriber use.

After the CMR, RxAdvance advisors rely on system alerts to intervene with patients to ensure medication adherence.  For high-risk patients, RxAdvance will install an electronic, patent-pending pill station at their residences and resupply it with disposable pre-filled pill trays.

Integrated with and wirelessly connected to the company’s platform, the device assists with monitoring adherence and vital signs.   The company says the device has improved adherence to more than 93%, including patients with multiple chronic conditions who are taking an average of 15 medications a day.

The Centers for Medicaid and Medicare Services (CMS) recently underscored the PBM need for physician-led, point-of-care MTM capability when it announced a new Medicare Part D MTM model.  Currently, highly fragmented PBM MTM relies on pharmacists “chasing” patients without closing the loop with prescribers, thus failing to secure meaningful health outcomes, according to Ika.

Ika points to the RxAdvance specialty management program as another example of his platform’s capabilities.  As it does for MTM, the platform integrates prescriptions, medical claims and disease conditions to create an action plan for all stakeholders.  Case managers use a dashboard to prioritize their outreach to patients, prescribers and pharmacists.  Because the platform integrates medical, pharmacy and lab information, it helps facilitate appropriate utilization.

Risk Sharing

One of the hallmarks of an organization configured for value-based health care is its ability to share risk.  The RxAdvance unified data model platform enables it to share risk for both pharmacy and avoidable drug-impacted medical costs.  For pharmacy, it is prepared to assume both up and down side risk based on its cost management performance against a risk cap set below a national benchmark projected increase.

The company can also compute a baseline trend for avoidable drug-impacted medical costs using prior years’ medical claims data.  RxAdvance and its client then set a target and, if the PBM lowers actual avoidable drug-impacted medical costs, it will share in the savings.  According to Ika, this sort of risk sharing is unique in the PBM market.

Ika reports that RxAdvance is currently implementing full PBM services for three clients, replacing national PBMs.  “The Collaborative PBM Cloud platform is making for a very smooth launch,” he notes.

RxAdvance has gotten a head start along the PBM path to value-based health care, scaling the limits of scale.