Friday, October 16, 2009

Plant closures

A thought crossed my mind as I read in the local paper about yet another company closing a number of plants. What impact do these job losses have on other industries? I'm not thinking about suppliers to these businesses as we can all imagine the direct impact there. But what about its impact on industries not related in any way.
Well, there is something in the insurance industry called coordination of benefits or COB. If for example an employee or plan member has access to a spousal plan for drugs, often there is a sharing of the costs. Each plan will cover a portion of the cost of prescription drugs , or dental services etc. It is a way in which a plan actually can save money while providing employees and plan members a higher level of service.
So in the case of a business closing and perhaps hundreds or even thousands of employees effected by this, the net result will be to increase costs on a spousal plan. Even though the two industries may not be related , the job loss is felt by the other industry. If two plans were each covering $50 of a monthly drug spend , one will now have to cover the full $100 thus premiums will rise faster than anticipated.
Another area impacted by this is at the physician level. Some of these folks are not going to have a drug plan and they may end up at the physicians office looking to change medications or help with samples (Only the new products are found there and usually at a higher price) . Some, patients may stop taking their medications all together thereby increasing their risk of more serious events. Both of these add to the cost of our public plans.

Tuesday, October 13, 2009

Off Patent wars

The National Post reports today about a recent deal in Saskatchewan between Gen Med (a Pfizer Generic Company) and the provincial government for the supply of generic Norvasc. It appears that a tendering process was followed and that the bid was won by GenMed . Now , there are several things that are quite new here. One is that the government will restrict the choice of Pharmacy on which generic they will dispense for the public plan. This restriction is sure to raise a reaction of pharmacy as they typically had the choice of which company they would stock. Another is , what will happen to the private payers? In Ontario and across the country , typically the private payers saw increases in their rates after Ontario did a similar thing with a limited number of drugs. With a large number of blockbuster drugs due to come off patent in the next several years ,will we see more of this perhaps even on the private side?

Saturday, October 10, 2009

It's a matter of choice

No matter what way you slice it , consumers want choice. It doesn't matter if the products are cell phones, automobiles, gas, electronics, internet, TV, radio , food , and I think you get the picture. So too do industries want choice. For example and I'll build on my earlier post. Retailers want choices. They want to decide which products they carry and which they don't. The manufacturer can create awareness of a product prompting the end consumer to ask for specific products, but it is the retailer that decides if they will indeed carry the product.
The end consumer can decide to shop at a store which carries a particular brand or they can choose to go elsewhere. That is the power of choice.

Now what if your choice was restricted in some way? Here is a far fetched example of this . Let's say a Municipality creates a bylaw that restricts your choice of automobile to only North American company manufacturers. What would be your reaction be to this? I believe the outcry would be huge. That was a far fetched example but let's look at a more realistic model of restriction in choice. What if you were restricted on choice of prescription pharmaceutical? This is a very interesting case , as you probably know that this , does exist. The crisis in healthcare spending being the key reason . The issue with such restrictions are varied as the impact on choice is felt in several silos in Health care. The obvious one is the end consumer's choice is restricted, but lets examine the implications of this further.
If we start with the Physician as writing a prescription , most often they have been detailed on newer products and will write a brand product. (Only Brand Name Pharmaceutical companies call on Physicians) The prescription goes off to pharmacy where the formulary is enforced. So, if a product is not covered the pharmacist and patient have to go through a number of issues ,which can include ,the patient footing the bill, a call back to the physician, increased paperwork for the physician, perhaps even another visit to the physician. In essence the restriction has added cost to the health care field . So who in this scenario feels the most restricted. I suggest it is the physician and the Patient. They want choice.

Monday, October 5, 2009

World of retail

In that world, shelf space is key. Eye level is where everyone wants to be and manufacturers actually count facings (number of units displayed) as they pay for such space. If a large manufacturer comes out with a new line of product or even a line extension of one product, they must pay the retailer to carry it (a listing allowance) then they must pay them for the amount of space they want, and at what level (eye level being the most expensive). Then they have to work out a deal for a promotion or end isle display etc all with volume expectations and more cost.

Now consider the retailers and drugs. The front of the store runs like above, but behind the counter, the brand manufacturer does not pay a listing allowance or anything like the above scenario. At least not to my knowledge. The store is obligated to carry the new product if a physician writes it. These products are the most expensive so they drive up the retailers inventory level and cost of goods sold. If the new product is accepted by the physician community, and takes off in sales, a larger space is required to store the product but still no manufacturer financial support for this. Unlike the front of the store, there are some extra fees the retailer charges the customer for; i.e. dispensing fees. Really the retailer is dictated to by the manufacturer of the patent protected products.

Once the product is off patent however, there is competition and the retailer gets rebates by the generics. It becomes much like the front store scenario with listing allowances, incentives or rebates. The cost of goods goes down as these products are less expensive but so too does retail sales. If they lower the price of these products they have to make up the sales dollars elsewhere as investors would hammer them if retail sales decline year over year. (a catch 22). So unlike the front store, where manufacturers pay for shelf space etc in the hope to increase sales and market share of their product, these manufacturers know that the overall market is going to decline or not grow as physicians switch to other promoted agents. And the cycle continues.