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PBMs/HEALTH PLANS: Medco makes out; Kaiser not so pretty

So Medco is making even more money by switching to generics.

Medco Health Solutions Inc. reported a 24 percent jump in second-quarter earnings and raised its profit forecast, citing speculation that a generic version of the top-selling blood thinner Plavix may soon be available. Net income rose to $170.9 million, or 56 cents a share, driven by an increased number of customers and higher sales of generic drugs.

You wonder how long their customers will take to figure out that what they’re giving back in rebates they’re taking in spreads that they charge on generics. Apparently the answer is, a long time!

Meanwhile, Kaiser had not such a good quarter, in that their revenues and membership went up but their profits went down to $272m for the quarter.

Kaiser Permanente’s hospital and health plan units saw membership and revenue climb in the second quarter, but quarterly profits plummeted by $91 million or 25 percent from a year earlier, the giant health-care system reported Friday. Officials at Oakland-based Kaiser attributed the steep net income decline to increased operating expenses, "including those associated with the continued investment in facilities expansion, seismic retrofitting and care delivery programs." George Halvorson, chairman and CEO of Kaiser’s health plan and hospital operations, said in an Aug. 4 statement that the giant system is using its earnings "to make important investments" in programs, services, facilities and technology. No further details were immediately available. Systemwide revenue for the quarter jumped from $7.7 billion last year to $8.5 billion this year, a nearly 10.4 percent increase. Enrollment jumped by nearly 44,000 members to about 8.59 million nationwide, more than 75 percent of them in California.

Of course that’s not necessarily a bad thing — it may mean relatively more money was spent on patient care — and at least they avoided the real bloodbath that seemed to be developing at the end of last year when it lost $211 million in Q4. But there remains a whopping big fine to come for the kidney transplant fiasco, so they’re not out of the woods yet.

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Barry CarolTom Leith Recent comment authors
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Barry Carol
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Barry Carol

It shouldn’t take long at all to figure out, since Medco said flat out on its most recent quarterly earnings conference call that customers that receive larger rebates also receive smaller discounts (presumably from the AWP) and are charged higher administrative fees. If employers really want to push PBM’s for more complete transparency in drug pricing but also want to capture the cost savings from maximizing generic substitution, which takes some work on the part of the PBM, they might want to consider moving their employees from flat dollar co-pays (tiered or otherwise) to paying a percentage of the retail… Read more »

Tom Leith
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Tom Leith

You wonder how long their customers will take to figure out that what they’re giving back in rebates they’re taking in spreads that they charge on generics.

I wonder whether spreads are considered more acceptable than rebates. There’s got to be some kind of reason purchasers were upset over rebates but are apparently not so upset over spreads. Is this just a more “normal” style of doing business? Or maybe the spread on generics is such a small PMPM they don’t want to fight over it the way they fought over the rebates on branded drugs?
There’s got to be something…
t