Ziegler warns third-party middlemen about cost issue

Drug Store News, Sept 27, 1993 by Ken Rankin

SAN DIEGO -- Chain drug industry frustration over tightening third-party prescription reimbursement practices boiled over at this year's NACDS Pharmacy Conference, as association president Ron Ziegler attacked pharmacy insurance "middlemen" for "milking the last available dollar out of community pharmacy."

In a strongly worded opening address to the San Diego meeting, Ziegler warned third-party administrators that drug chains may circumvent them altogether and deal directly with third-party payors in the future.

"I believe...community pharmacy will assume the primary role of contact with third-party payors," he told chain pharmacy chiefs at the conference.

As for current pharmacy "middlemen" such as PCS and PAID, Ziegler said "it is unlikely that third-party administrators will prevail as the dominant negotiator with payors for the provision and delivery of community pharmacy services in the future health care marketplace."

Managed care concerns

Ziegler's warning was delivered on the heels of growing chain drug industry concerns over a new "managed care" pharmacy program under development by PCS.

That plan, which PCS calls "MCP (Managed Care Pharmacy) II," seeks to establish a nationwide closed panel of pharmacy providers selected on the basis of competitive bidding.

According to NACDS officials, 290 drug chains will be invited to submit bids to provide prescription services to patients covered by the new PCS drug program in 300 metropolitan areas across the country.

Only about one-third of the chain drug stores will be allowed to participate in the program, however. Independents, meanwhile, will be offered a one-time "now or never opportunity to elect to participate in the new network" by agreeing to accept reimbursement equal to the weighted average of the lowest bidding chains, NACDS said.

Only about 2 percent of the nation's independents are expected to accept that offer, the association said. In addition to severely limiting the right of most community pharmacies to participate, the new PCS network "apparently fails to recognize or provide incentives for the provision of pharmacy services," NACDS said.

Bid-seeking criticized

Although he did not mention PCS or the MCP II program by name during his speech, Ziegler openly criticized "recent efforts by third-party administrators to come to community pharmacy seeking bids without even having a specific new patient base to present to the bidders."

By using such closed networks, he said, third-party middlemen are attempting to shift "the nation's 2 billion outpatient prescriptions...from one pharmacy or one chain to another, on a low-bid price criterion, milking the last available dollar out of community pharmacy under the guise of legitimate cost containment."

On the defensive

Steven I. Geringer, PCS president, addressed the meeting immediately after Ziegler's attack, and appeared to be clearly on the defensive.

"Nobody at PCS is out to destroy organized pharmacy," he told chain execs at the conference. Although he acknowledged that many pharmacists are "disgruntled" over efforts to use managed care techniques to reduce third-party drug program costs, Geringer attributed much of pharmacy's concerns to "misconceptions" about PCS' plans.

In his address, Ziegler cited a series of other third-party developments that are causing concerns among drug chains. In a thinly veiled reference to the proposed Merck-Medco merger, the NACDS president said the leaders of retail pharmacy "look unfavorably" toward "members of the drug manufacturing community entering into, or contemplating entering into, agreements with third parties that put them in direct competition with community pharmacy."

Ziegler also chastised "current efforts by third-party administrators to enhance their direct negotiations with large clusters of payors by putting forth the assets and resources of community pharmacy as a key component of their negotiations, and then coming to community pharmacy to seek participation on strictly low-price criteria."

Warning that "this simply cannot be the future marketplace for prescription drugs or pharmacy services and care," Ziegler suggested that third-party middlemen are "severely miscalculating the resilience and business acumen" of drug chains and independent pharmacists.

"Manufacturers, third party administrators, and wholesale drug companies planning for the future prescription drug marketplace should keep in mind that no third-party middleman can offer full pharmacy services and care to payors without utilizing the community pharmacy infastructure," he said.

"Community pharmacy, chains and independents simply are not going to turn over their technology, licensed pharmacy base, convenient location assets and good will to third-party middlemen to sell at their own whim," Ziegler maintained.