How the national drug debate is changing the pharmacy benefit business
By Bob Herman
September 23, 2015 - Modern Healthcare
The pharmacy benefit
management industry is experiencing subtle changes, and a leadership shuffle at
the country's largest PBM has experts speculating about whether PBMs will remain
stand-alone companies.
More healthcare organizations view prescription
drug use as a critical element of keeping patients healthy and reducing costs,
and controlling a PBM could help with a population health strategy. gYou could
see a pathway forward where the PBMs become more integrated with the payers,h
said Jon Kaplan, managing director at Boston Consulting Group.
PBMs
handle prescription drug benefits for employers and health insurers, a role that
includes negotiating drug discounts with pharmaceutical companies, building
pharmacy networks and creating their own drug benefit plans. They usually play
second fiddle to the insurance companies that handle medical benefits, but PBMs
have become more relevant in recent years due to the rising prices of brand-name
and generic drugs.
Skyrocketing prescription drug spending was a major
reason the growth
rate of the nation's healthcare tab increased from historical lows in 2014.
Consequently, drugs have become a bigger political issue. Presidential hopeful
and Sen. Bernie Sanders (I-Vt.) has proposed
numerous bills over the past few years to control drug prices. Democratic
presidential candidate Hillary Clinton outlined her own prescription
drug reforms this week. Her plan came out right after the CEO of Turing
Pharmaceuticals, a startup drug company, inflated the price of one of its drugs
by more than 5,400%—a move that drew widespread ire from the
public.
Express Scripts Holding Co. is the largest PBM in the country
with about $100 billion in annual revenue. The St. Louis-based company has been
notably
outspoken about the high sticker prices of new specialty drugs that have hit
the market recently, such as the hepatitis C drugs Sovaldi and Harvoni that are
manufactured by Gilead Sciences. High-cost drugs have been eating into the
profits of PBMs.
Earlier this month, Express Scripts announced CEO
George Paz will retire from his position next spring. President Tim
Wentworth will take over. Although it was a somewhat routine executive move,
many analysts covering the industry viewed the switch at Express Scripts as a
possible step toward a sale or merger.
gWe are positive it was announced
sooner rather than later as it allows new management to better address
challenges that lie ahead,h Charles Rhyee, a managing director at Wall Street
firm Cowen & Co., said about Express Scripts in a research note this month.
One of those challenges involves Express Scripts' contract with health
insurer Anthem. Anthem has publicly said it is looking to renegotiate the
contract, which expires in 2019, and expects to save between $500 million and
$700 million with new terms. Anthem has some leverage because it is buying Cigna
Corp. in a deal valued at more than $54 billion. Cigna uses Catamaran Corp. as
its PBM, and Anthem could switch to that vendor.
Anthem could also bring
drug benefit management functions in-house. gAll options are open,h Anthem CEO
Joseph Swedish said at a Morgan Stanley conference this month about the
company's PBM situation.
Paz and Wentworth were not available for an
interview. But an Express Scripts spokesperson released a broad statement
saying, gWe're focused on practicing pharmacy smarter—putting medicine within
reach by being uniquely aligned with clients, and taking bold actions to make
prescription drugs more affordable and accessible. Our business model of
alignment resonates with our clients more than ever, our specialized care model
delivers better patient outcomes, and our size and scale position us well for
success in any environment.h
But industry observers say stand-alone PBMs
like Express Scripts face an uphill financial battle. Aside from dealing with
high drug prices, many companies have used most of the weapons in their arsenal
to keep drug costs down. For instance, the national generic
drug usage rate is around 78% and rising. gMost levers that the PBMs could
press have been pressed,h Kaplan said.
Sundar Subramanian, a healthcare
partner at Strategy&, the consulting arm of PricewaterhouseCoopers, said
PBMs fall into two groups. The first is the traditional scale model, where a PBM
focuses on filling as many prescriptions as possible and driving down drug costs
through use of generics, tiered formularies and mail orders. Express Scripts
invested heavily in this model in 2012, when it bought competitor Medco Health
Solutions for $29 billion. The more popular model is a strategic one, he said.
It involves companies that aren't traditional PBMs that want to better integrate
medical and drug benefits.
Insurers and pharmacies see PBMs as a way to
advance more quickly to value-based payments, and they can use their claims and
data analytics to find out, for example, which patients need more help in
adhering to their drug regimens. gYou can understand specific ways to engage
with those members and keep them out of hospitals,h Subramanian said. gThose
kinds of opportunities never come about just from the PBM side.h
Some
integration has already taken shape. CVS Health Corp. made one of the first big
moves almost a decade ago when it bought Caremark Rx. UnitedHealth Group bought
Catamaran for $12.8 billion this year and is fusing the company into its
OptumRx subsidiary. Pharmacy chain Rite Aid acquired
EnvisionRx for $2 billion in February. Aetna, which is in the process of
acquiring Humana, has expressed interest in creating
its own Optum-like health services unit. Humana's internal PBM would be a
major part of it.
The dealmaking has isolated Express Scripts, analysts
say. gExpress Scripts does not have the retail pharmacy nor the captive growth
engine,h said Ana Gupte, managing director at investment bank Leerink Partners.
gIt's very possible they could merge with a retail pharmacy, or they get bought
by a managed-care organization.h
Rhyee speculated that Express Scripts
could be a prime target for Walgreens Boots Alliance, the parent company of the
national chain of Walgreens retail pharmacies. Walgreens lacks a drug benefit
component after it sold its PBM a few years ago, and adding Express Scripts
would immediately rival CVS, gwhich has been gaining shareh over Walgreens,
Rhyee said. Walgreens did not respond to a request for comment.
Not all
healthcare groups are fans of PBM consolidation, or even PBMs in general. The National Community
Pharmacists Association says PBMs often squeeze local community pharmacies
with gtake-it-or-leave-ith contracts even though independent pharmacists play
critical roles in advancing population health in communities.
Bob Herman
Bob Herman covers the health insurance industry
and other healthcare news. Before joining Modern Healthcare in 2014, he covered
hospital finance as a reporter and editor at Beckerfs Hospital Review. He has a
bachelor's degree from Butler University in Indianapolis