Prescription Calls for Consolidation
Pharmacy benefit managers navigate the confusing world
of pharmaceuticals on behalf of employers, but even though theyfre getting
bigger through acquisitions, the focus is still employee health — and
potentially lower costs.
June 24, 2015 - Workforce.com
Provided that federal regulators bless UnitedHealth Group Inc.fs $12.8
billion acquisition of Catamaran Corp. later this year, it appears to be a
relatively small price to pay for a deal that some experts contend will boost
competition rather than shrink it among pharmacy benefit manager
companies.
The deal announced this spring would create the nationfs
third-largest PBM company by combining UnitedHealth Groupfs pharmacy-benefits
business, OptumRx, with Schaumburg, Illinois-based Catamaran, which manages more
than 400 million prescriptions annually on behalf of 35 million people — about 1
in every 5 prescription claims in the United States.
But when companies grow bigger, some argue that a more
powerful industry player could justify raising prices and limiting access to
vital prescription drugs. With the skyrocketing costs of these drugs, along with
the perception of a dwindling marketplace in the post-acquisition landscape,
caution is understandable.
gThere was concern in the marketplace that this would lead to
some of these PBMs being able to charge what they want, which would lead to a
lack of price competitiveness,h said Ritu Malhotra, vice president and national
pharmacy benefits practice leader at consultancy Segal Co. The UnitedHealth
deal, however, could foster fresh competition among industry heavyweights
Express Scripts Holding Co. and CVS Health Corp. gThe industry had gotten a
little lopsided, and the third and fourth players were distant from the top
two.h
Adam Fein, president of Pembroke Consulitng Inc., echoed those
sentiments in an email, stating: gBy acquiring Catamaran, OptumRx is signaling
that it wants to compete more seriously as a stand-alone PBM. Large employers
will now have a third large, viable competitor when bidding their PBM
business.h
PBMs are the intermediaries between the employer and other
players in the health care system, Malhotra said. They can save companies
significant dollars by using the buying power of enrollees to bargain for lower
prices from drugmakers and contract with pharmacies. They can also help patients
adhere to their medications through specialty pharmacies and disease management
experts and act as the employerfs guide through the increasingly complex world
of prescription drugs.
And the role is in high demand. Managing pharmacy benefits is
expected to quadruple to a $400 billion market in 2020, up from $100 billion in
2014.
It may come as a surprise to some that a union of this size
only moves UnitedHealth into the No. 3 slot among the nationfs largest PBMs, but
Express Scripts holds the top spot by volume, with 90 million lives covered
while CVS is No. 2 at 85.1 million lives, according to a study from publishing
and information company Atlantic Information Services Inc. UnitedHealth will
reach about 65 million covered lives when the deal is completed.
The pervading fear around any large-scale consolidation,
whether itfs UnitedHealthfs acquisition of Catamaran or RiteAidfs proposed
purchase of EnvisionRx for $2 billion in combined cash and stock, which is also
expected to close later this year, is that the deals will decrease competition
and ultimately hurt the employers who, in theory, would be at the mercy of their
PBMs.
This yearfs activity comes four years after Express Scriptsf
blockbuster $29.1 billion acquisition of Medco, and SXC Health Solutions Corp.fs
$4.4 billion deal to acquire Catalyst Health Solution Inc.
The Express Scripts deal ignited lawsuits charging antitrust
violations by shrinking competition and raising consumer prices, shining a
spotlight on an industry that few tracked and even fewer understood.
Yet UnitedHealth Groupfs acquisition of Catamaran differs in
that the combined strengths of the two companies creates a competitive third PBM
at the top of the industry to negotiate prices and drive down costs for both
employers and employees.
gThe combined entity has a unique value proposition,h Malhotra
said. gCatamaran comes in with really strong technological sophistication. With
UnitedHealth Groupfs clinical analysis, the pairing makes them a really unique
PBM.h
Traditionally, competition, not industry domination, has been
the driving force behind corporate consolidations, explained Jonathan Roberts,
an executive vice president at CVS Health.
gThe industry has been consolidating for quite some time, and
I think it will continue to consolidate,h said Roberts, who is also the
president of CVS/caremark, the pharmacy benefit management and mail service
pharmacy division of CVS Health. gSize and scale are important in this business.
You need to be able to invest back in the company with technology enhancements,
whether that is a move to digital or to keep up with regulatory changes. We view
what continues to happen as a natural evolution of the industry.h
Companies, like living organisms, evolve to compete against
their peers and defend against predators. The predator in this instance is the
rising cost of prescription drugs. With the help of mergers and acquisitions,
PBMs are able to bargain for lower prescription drug costs more effectively and
work to ensure that the health of the employees taking these drugs is
protected.
Feat of Strength
The role of a PBM is not new. Express Scripts has been in
existence for 28 years. The historical lack of interest in PBMs has a lot to do
with the fact that, for the past 15 years, the pharmacy industry has been
relatively steady because of a rich pipeline of generic drugs. Easy access to
generics kept the price of branded drugs low, a fact that gave many employers
the courage to navigate the prescription drug market on their own.
gHistorically, because pharmacy costs were relatively flat,
the benefit didnft have to be aggressively managed,h Roberts said.
Until 2014, the year-to-year inflation rate for generic drugs
held below 1 percent, according to the 2015 gWorkersf Compensation Drug Reporth
conducted by Helios, a workersf compensation PBM headquartered in Memphis,
Tennessee. Then in 2014, the average wholesale price of generic drugs rose
nearly 10 percent.
Without generics to act as a deflationary agent in the
market, the cost of specialty drugs skyrocketed. According to an Express Scripts
study, gSuper Spending: Trends in High-Cost Medication Use,h 575,000 Americans
had medication costs in excess of $50,000 in 2014 — almost $29 billion and an
increase of 63 percent from 2013. Cancer and hepatitis C drugs lead the way as
the most expensive, according to the report (See gSpecialty Drug Costs: Hard
Pills to Swallow,h June 2015, p. 34).
Hepatitis C drugs, in particular, were costing patients
$1,000 a day and in excess of $150,000 to cure, said Brian Henry, vice president
of corporate communications at Express Scripts. Many employersf response to the
high cost put their employees at risk.
gIn a marketplace where there was really only one drug
available, what a lot of companies did was ration the care for only the sickest
patients,h Henry said. gAs you can imagine, if you had hepatitis C you would
want to get the treatment, but that wasnft an option for the majority of
patients.h
Suddenly, PBMs were a hot topic among employers.
Using its size and consequent buying power, Express Scripts
was able to intervene on the part of employers and employee patients when a
competitor drug entered the market last December. Express Scripts brokered a
deal to provide exclusive access to the new drug, which had similar adherence
and clinical data at a much more accessible price point. As a result, the PBM
was able to drive down the cost of care by 67 percent.
But all large PBMs are not created equal, which keeps the
market competitive.
More than One Way to Get the Job Done
Express Scriptsf strength lies in its size, brokering
expensive deals as in the case of the hepatitis C medication. According to
Henry, it operates on a gpure-play PBM model,h meaning that it focuses on mail
order and specialty drugs and primarily deals with its members over the
phone.
gOur size gives us the ability to act as an independent
counterweight for clients in the marketplace,h Henry said.
CVS/caremark runs on an integrated model that includes the
PBM, retail pharmacies, specialty pharmacies, immediate care clinics and
pharmacy advisers, Roberts said. CVSfs approach addresses another leading reason
prescription drugs are so expensive: nonadherence. In order to be considered
adherent to a prescription drug regimen, a patient must take their medication 80
percent of the time.
gIf you take 100,000 retirees, for example, their medical
costs are around $1.2 billion,h Roberts said. gIf we could keep all of those
retirees on their medications, we could actually reduce the overall health care
cost by $230 million. When people historically think of a PBM, they think about
managing drug costs, but I think people often miss the value we can deliver to
their members around keeping them on their medication.h
The strength of UnitedHealthfs new OptumRx is its ability to
collect and analyze user data. Tracking patient usage data as soon as possible
in the claim means that employers are less likely to spend
wastefully.
gYou want to capture a companyfs pharmacy expenses as soon as
possible so that you can start looking at that data and then manage it
clinically to ensure that they are related to the claim and that it is the right
medication for the disease and stage of the disease as well,h said Sarah Berger,
vice president of marketing at Helios.
Even though Helios is a smaller PBM, it provides a platform
that manages patient data similar to Catamaranfs. The process begins with the
first prescription, or gfirst fill,h that an employee receives after a company
partners with a PBM. From there, all data regarding patient usage, response to
the medication and market cost are tracked to ensure that the employee is
healthy and the employer is not overspending.
PBMs that effectively deliver utilization management services
to company clients are expected to be in high demand, especially with the
anticipated release of a new specialty drug developed to treat high cholesterol
later this year.
The injectable drug, known formally as PCSK9 inhibitors, for
instance, is a more expensive treatment than the generic statins such as Lipitor
to treat and manage high cholesterol, Roberts said. The generic equivalent of
Lipitor costs between $200 and $300 a year. This new drug will likely cost
between $6,000 and $10,000.
Utilization management technology will allow employers to
effectively discern which employees should be on which drugs based on their past
response to statins.
gIt should be used by people whose condition is not controlled
by statins,h Roberts said. gTheyfve been on a statin, and their cholesterol is
still higher than it should be. Or they canft tolerate statins. If we use the
new drug to treat those people, then the cost is more justified than if you just
opened it up and let anyone who wanted to be on the new drug be on it.h
Small Package, Big Results
Access to upward of 68,000 pharmacies across the United
States has historically given large PBMs like Express Scripts and CVS the
advantage over their smaller competitors. However, Roberts and Malhotra both
anticipate a move to formulary solutions that will make smaller players more
competitive in the pharmacy benefits market.
The PBMs will create a preferred list of products that will
be vetted by pharmacy therapeutic committees made up of leading physicians,
pharmacists and experts across the country, Malhotra said. They will analyze the
formulary design strictly from a clinical lens and not a cost lens. Narrowing
the selection of prescription drugs in this way will increase competition among
drug providers and drive down costs for employers.
gIn the end the manufacturers give the PBMs a rebate for any
of their products the benefits manager chooses to dispense,h Malhotra
said.
A narrower market helps smaller providers that typically have
access to only 20,000 pharmacies, Roberts said.
Bells and whistles aside, choosing the correct PBM comes down
to knowing an organizationfs workforce and its needs.
gAt the end of the day itfs collaboration and communication,h
Berger said. gAnd we find the most success when we can have frank, open
communication with our clients where we can work together toward a goal of right
medication, right time to get the right results.h
Provided that federal regulators bless UnitedHealth Group Inc.fs $12.8
billion acquisition of Catamaran Corp. later this year, it appears to be a
relatively small price to pay for a deal that some experts contend will boost
competition rather than shrink it among pharmacy benefit manager companies.
The deal announced this spring would create the nationfs third-largest PBM
company by combining UnitedHealth Groupfs pharmacy-benefits business, OptumRx,
with Schaumburg, Illinois-based Catamaran, which manages more than 400 million
prescriptions annually on behalf of 35 million people — about 1 in every 5
prescription claims in the United States.
But when companies grow bigger, some argue that a more powerful industry
player could justify raising prices and limiting access to vital prescription
drugs. With the skyrocketing costs of these drugs, along with the perception of
a dwindling marketplace in the post-acquisition landscape, caution is
understandable.
gThere was concern in the marketplace that this would lead to some of these
PBMs being able to charge what they want, which would lead to a lack of price
competitiveness,h said Ritu Malhotra, vice president and national pharmacy
benefits practice leader at consultancy Segal Co. The UnitedHealth deal,
however, could foster fresh competition among industry heavyweights Express
Scripts Holding Co. and CVS Health Corp. gThe industry had gotten a little
lopsided, and the third and fourth players were distant from the top two.h
Adam Fein, president of Pembroke Consulitng Inc., echoed those sentiments
in an email, stating: gBy acquiring Catamaran, OptumRx is signaling that it
wants to compete more seriously as a stand-alone PBM. Large employers will now
have a third large, viable competitor when bidding their PBM
business.h
PBMs are the intermediaries between the employer and other players in the
health care system, Malhotra said. They can save companies significant dollars
by using the buying power of enrollees to bargain for lower prices from
drugmakers and contract with pharmacies. They can also help patients adhere to
their medications through specialty pharmacies and disease management experts
and act as the employerfs guide through the increasingly complex world of
prescription drugs.
And the role is in high demand. Managing pharmacy benefits is expected to
quadruple to a $400 billion market in 2020, up from $100 billion in 2014.
It may come as a surprise to some that a union of this size only moves
UnitedHealth into the No. 3 slot among the nationfs largest PBMs, but Express
Scripts holds the top spot by volume, with 90 million lives covered while CVS is
No. 2 at 85.1 million lives, according to a study from publishing and
information company Atlantic Information Services Inc. UnitedHealth will reach
about 65 million covered lives when the deal is completed.
The pervading fear around any large-scale consolidation, whether itfs
UnitedHealthfs acquisition of Catamaran or RiteAidfs proposed purchase of
EnvisionRx for $2 billion in combined cash and stock, which is also expected to
close later this year, is that the deals will decrease competition and
ultimately hurt the employers who, in theory, would be at the mercy of their
PBMs.
This yearfs activity comes four years after Express Scriptsf blockbuster
$29.1 billion acquisition of Medco, and SXC Health Solutions Corp.fs $4.4
billion deal to acquire Catalyst Health Solution Inc.
The Express Scripts deal ignited lawsuits charging antitrust violations by
shrinking competition and raising consumer prices, shining a spotlight on an
industry that few tracked and even fewer understood.
Yet UnitedHealth Groupfs acquisition of Catamaran differs in that the
combined strengths of the two companies creates a competitive third PBM at the
top of the industry to negotiate prices and drive down costs for both employers
and employees.
gThe combined entity has a unique value proposition,h Malhotra said.
gCatamaran comes in with really strong technological sophistication. With
UnitedHealth Groupfs clinical analysis, the pairing makes them a really unique
PBM.h
Traditionally, competition, not industry domination, has been the driving
force behind corporate consolidations, explained Jonathan Roberts, an executive
vice president at CVS Health.
gThe industry has been consolidating for quite some time, and I think it
will continue to consolidate,h said Roberts, who is also the president of
CVS/caremark, the pharmacy benefit management and mail service pharmacy division
of CVS Health. gSize and scale are important in this business. You need to be
able to invest back in the company with technology enhancements, whether that is
a move to digital or to keep up with regulatory changes. We view what continues
to happen as a natural evolution of the industry.h
Companies, like living organisms, evolve to compete against their peers and
defend against predators. The predator in this instance is the rising cost of
prescription drugs. With the help of mergers and acquisitions, PBMs are able to
bargain for lower prescription drug costs more effectively and work to ensure
that the health of the employees taking these drugs is protected.
Feat of Strength
The role of a PBM is not new. Express Scripts has been in existence for 28
years. The historical lack of interest in PBMs has a lot to do with the fact
that, for the past 15 years, the pharmacy industry has been relatively steady
because of a rich pipeline of generic drugs. Easy access to generics kept the
price of branded drugs low, a fact that gave many employers the courage to
navigate the prescription drug market on their own.
gHistorically, because pharmacy costs were relatively flat, the benefit
didnft have to be aggressively managed,h Roberts said.
Until 2014, the year-to-year inflation rate for generic drugs held below 1
percent, according to the 2015 gWorkersf Compensation Drug Reporth conducted by
Helios, a workersf compensation PBM headquartered in Memphis, Tennessee. Then in
2014, the average wholesale price of generic drugs rose nearly 10
percent.
Without generics to act as a deflationary agent in the market, the cost of
specialty drugs skyrocketed. According to an Express Scripts study, gSuper
Spending: Trends in High-Cost Medication Use,h 575,000 Americans had medication
costs in excess of $50,000 in 2014 — almost $29 billion and an increase of 63
percent from 2013. Cancer and hepatitis C drugs lead the way as the most
expensive, according to the report (See gSpecialty Drug Costs: Hard Pills to
Swallow,h June 2015, p. 34).
Hepatitis C drugs, in particular, were costing patients $1,000 a day and
in excess of $150,000 to cure, said Brian Henry, vice president of corporate
communications at Express Scripts. Many employersf response to the high cost put
their employees at risk.
gIn a marketplace where there was really only one drug available, what a
lot of companies did was ration the care for only the sickest patients,h Henry
said. gAs you can imagine, if you had hepatitis C you would want to get the
treatment, but that wasnft an option for the majority of patients.h
Suddenly, PBMs were a hot topic among employers.
Using its size and consequent buying power, Express Scripts was able to
intervene on the part of employers and employee patients when a competitor drug
entered the market last December. Express Scripts brokered a deal to provide
exclusive access to the new drug, which had similar adherence and clinical data
at a much more accessible price point. As a result, the PBM was able to drive
down the cost of care by 67 percent.
But all large PBMs are not created equal, which keeps the market
competitive.
More than One Way to Get the Job Done
Express Scriptsf strength lies in its size, brokering expensive deals as
in the case of the hepatitis C medication. According to Henry, it operates on a
gpure-play PBM model,h meaning that it focuses on mail order and specialty drugs
and primarily deals with its members over the phone.
gOur size gives us the ability to act as an independent counterweight for
clients in the marketplace,h Henry said.
CVS/caremark runs on an integrated model that includes the PBM, retail
pharmacies, specialty pharmacies, immediate care clinics and pharmacy advisers,
Roberts said. CVSfs approach addresses another leading reason prescription drugs
are so expensive: nonadherence. In order to be considered adherent to a
prescription drug regimen, a patient must take their medication 80 percent of
the time.
gIf you take 100,000 retirees, for example, their medical costs are around
$1.2 billion,h Roberts said. gIf we could keep all of those retirees on their
medications, we could actually reduce the overall health care cost by $230
million. When people historically think of a PBM, they think about managing drug
costs, but I think people often miss the value we can deliver to their members
around keeping them on their medication.h
The strength of UnitedHealthfs new OptumRx is its ability to collect and
analyze user data. Tracking patient usage data as soon as possible in the claim
means that employers are less likely to spend wastefully.
gYou want to capture a companyfs pharmacy expenses as soon as possible so
that you can start looking at that data and then manage it clinically to ensure
that they are related to the claim and that it is the right medication for the
disease and stage of the disease as well,h said Sarah Berger, vice president of
marketing at Helios.
Even though Helios is a smaller PBM, it provides a platform that manages
patient data similar to Catamaranfs. The process begins with the first
prescription, or gfirst fill,h that an employee receives after a company
partners with a PBM. From there, all data regarding patient usage, response to
the medication and market cost are tracked to ensure that the employee is
healthy and the employer is not overspending.
PBMs that effectively deliver utilization management services to company
clients are expected to be in high demand, especially with the anticipated
release of a new specialty drug developed to treat high cholesterol later this
year.
The injectable drug, known formally as PCSK9 inhibitors, for instance, is
a more expensive treatment than the generic statins such as Lipitor to treat and
manage high cholesterol, Roberts said. The generic equivalent of Lipitor costs
between $200 and $300 a year. This new drug will likely cost between $6,000 and
$10,000.
Utilization management technology will allow employers to effectively
discern which employees should be on which drugs based on their past response to
statins.
gIt should be used by people whose condition is not controlled by statins,h
Roberts said. gTheyfve been on a statin, and their cholesterol is still higher
than it should be. Or they canft tolerate statins. If we use the new drug to
treat those people, then the cost is more justified than if you just opened it
up and let anyone who wanted to be on the new drug be on it.h
Small Package, Big Results
Access to upward of 68,000 pharmacies across the United States has
historically given large PBMs like Express Scripts and CVS the advantage over
their smaller competitors. However, Roberts and Malhotra both anticipate a move
to formulary solutions that will make smaller players more competitive in the
pharmacy benefits market.
The PBMs will create a preferred list of products that will be vetted by
pharmacy therapeutic committees made up of leading physicians, pharmacists and
experts across the country, Malhotra said. They will analyze the formulary
design strictly from a clinical lens and not a cost lens. Narrowing the
selection of prescription drugs in this way will increase competition among drug
providers and drive down costs for employers.
gIn the end the manufacturers give the PBMs a rebate for any of their
products the benefits manager chooses to dispense,h Malhotra said.
A narrower market helps smaller providers that typically have access to
only 20,000 pharmacies, Roberts said.
Bells and whistles aside, choosing the correct PBM comes down to knowing
an organizationfs workforce and its needs.
gAt the end of the day itfs collaboration and communication,h Berger said.
gAnd we find the most success when we can have frank, open communication with
our clients where we can work together toward a goal of right medication, right
time to get the right results.h