Prescription Drugs for Half the Price: Wellpartner Smooths Way for Clinics to Buy Them

Xconomy Seattle — 

There’s a way to buy prescription drugs for 50 percent off that’s perfectly legal, but requires so much red tape that few people know how to take advantage of it, or even know about it. Except for Wellpartner.

This company is a Portland, OR-based mail-order pharmacy that I learned about several weeks ago during a meeting with a couple of its investors, Joe Piper and Hans Lundin of Seattle-based Integra Ventures. I had never heard of the federal program known as 340B, in which clinics that care for poor people can buy top-selling medicines like Pfizer’s atorvastatin (Lipitor) at half of the average wholesale price that private insurers get charged. Wellpartner’s ability to help clinics get access to these cheap drugs was part of the reason it raised $16 million in August from Burrill & Co., Credit Suisse, Seattle-based Buerk Dale Victor, and Integra. I followed up with Wellpartner CEO Mike Wright and marketing head Robert Judge to learn more about how this works.

One of the key strategies at Wellpartner is to help clinics that serve the poor quit paying full price. With hardly any notice, it has become the nation’s leading provider of prescription medicines through the 340B program. This program started in the early 1990s, through an administrative rule passed by the Centers for Medicare and Medicaid Services, Judge says. It’s meant to provide a supply of meds to federally qualified health centers that now serve as a safety net for more than 17 million people in more than 6,000 facilities around the country. The problem is that many pharmacies that serve the clinics don’t participate in 340B, because red tape dictates that inventory and accounting of these supplies be kept completely separate, to prevent anybody with a solid income from pulling shenanigans to get their drugs for half-off, Wright says.

“Not everybody is scrupulous about these things,” Wright says.

Wellpartner has developed a way around this. Since 2005, it has managed the inventory for community pharmacies who want to place orders for qualified patients, and the pharmacy doesn’t have to keep its inventory separated, Wright says. What this means is that poor patients who need, say, an AIDS medicine like Gilead Sciences’ emtricitabine and tenofovir (Truvada) will have to make much lower co-payments on a cheaper drug, and therefore, they are more likely to follow doctors’ orders to take it consistently, Wright says.

“If you stop taking your meds, your next step can be the mortuary,” Wright says.

Oregon Health & Science University in Portland has a federally qualified health clinic that can buy these cheap drugs, and other clinics tend to be in highly urban or rural areas, or serve Indian tribes, Wright says. Wellpartner makes its money on the prescription orders through transaction fees, Judge says.

The pharmaceutical companies don’t exactly advertise this on TV or anywhere else I’ve seen. Still, those companies haven’t tried to squash this program with their lobbyists, Wright says. That’s because even though it whittles down their profit margins, selling these drugs at half-off still provides them with a profit, and they’re able to create more demand from patients who otherwise might not get their drugs at all. (I suspect if this program ever really became too popular, pharma’s lobbyists would find a way to kill it.)

For now, Wellpartner sees this as a boon to its business, and a way to distinguish itself from the bigger mail-order pharmacy players like St. Louis-based Express Scripts (NASDAQ: ESRX) or Woonsocket, RI-based CVS Caremark (NYSE: CVS). Wellpartner has tripled its payroll from 35 to about 100 in the past year, not only because of the 340B program, but mostly because it won an exclusive contract to fill mail-order prescriptions for Washington State public employees.

Wellpartner, a private company, didn’t disclose its finances to me, but it does have a reputation for unusual transparency. Piper and Lundin marveled about how the company sends a report on its performance to its investors every day—which struck them as amazing, given how opaquely many private companies try to operate. In a Powerpoint slide the company sent me, a chart says it takes them an average of 23 seconds to answer the phone compared to the industry standard of 40 seconds, and that they fulfill orders on average in 32 hours compared to the standard 48. If they can really keep up that nimble pace, then I suspect the guys at Integra Ventures will see more black ink piling up on those daily reports.