How drug prices and pay­ment re­form are chang­ing the phar­macy ben­e­fit busi­ness

Modern Healthcare - - NEWS - By Bob Her­man

The phar­macy ben­e­fit man­age­ment in­dus­try has been qui­etly chang­ing amid healthcare pay­ment re­forms and an in­creas­ingly fierce de­bate over drug prices. Now a lead­er­ship shuf­fle at the coun­try’s largest phar­macy ben­e­fit com­pany has ex­perts spec­u­lat­ing that the days of PBMs as stand-alone com­pa­nies may be num­bered.

The sec­tor is dom­i­nated by a hand­ful of large play­ers that han­dle the bulk of pre­scrip­tion drug ben­e­fits for em­ploy­ers and health in­sur­ers. Their role in­cludes ne­go­ti­at­ing drug dis­counts with phar­ma­ceu­ti­cal com­pa­nies, build­ing phar­macy net­works and cre­at­ing their own drug ben­e­fit plans.

Although PBMs usu­ally play sec­ond fid­dle to the in­sur­ance com­pa­nies that han­dle med­i­cal ben­e­fits, in­ter­est in ac­quir­ing PBMs has been ris­ing along with the prices of brand-name and generic drugs. Choices about pre­scrip­tion drugs are crit­i­cal to keep­ing pa­tients healthy and re­duc­ing costs, so con­trol­ling a PBM could be­come an im­por­tant com­po­nent of a pop­u­la­tion-health strat­egy.

“You could see a path­way for­ward where the PBMs be­come more in­te­grated with the pay­ers,” said Jon Ka­plan, man­ag­ing di­rec­tor at Bos­ton Con­sult­ing Group.

Sky­rock­et­ing spend­ing on pre­scrip­tion drugs was a ma­jor rea­son the growth rate of the na­tion’s healthcare tab in­creased in 2014 from pre­vi­ous his­toric lows.

Con­se­quently, drugs have be­come a hot po­lit­i­cal is­sue. Pres­i­den­tial hope­ful 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 last week. Her plan came out right af­ter the CEO of Tur­ing Phar­ma­ceu­ti­cals, a startup drug com­pany, in­flated the price of a decades-old generic drug by more than 5,400%. Public ire prompted the com­pany to re­voke the price hike.

PBMs, mean­while, are bat­tling prob­lem­atic drug

costs in their rou­tine oper­a­tions. Ex­press Scripts Hold­ing Co., the largest PBM in the coun­try with about $100 bil­lion in an­nual rev­enue, has been no­tably out­spo­ken about the high sticker prices of new spe­cialty drugs, such as the hep­ati­tis C drugs So­valdi and Har­voni, 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 next spring. Pres­i­dent Tim Went­worth will take over. Although it was a some­what rou­tine

“We are pos­i­tive it was an­nounced sooner rather than later, as it al­lows new man­age­ment to bet­ter ad­dress chal­lenges that lie ahead,”

Charles Rhyee, man­ag­ing di­rec­tor at Cowen & Co., com­ment­ing on Ex­press Scripts’ Paz’s re­tire­ment in a re­search note.

ex­ec­u­tive move, many an­a­lysts viewed the change as a pos­si­ble step to­ward a sale or merger.

“We are pos­i­tive it was an­nounced sooner rather than later, as it al­lows new man­age­ment to bet­ter ad­dress chal­lenges that lie ahead,” Charles Rhyee, a man­ag­ing di­rec­tor at Wall Street firm Cowen & Co., com­mented about Ex­press Scripts in a re­search note. 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. It said it ex­pects to save be­tween $500 mil­lion and $700 mil­lion un­der the 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. “All op­tions are open,” An­them CEO Joseph Swedish said at a Mor­gan Stan­ley con­fer­ence this month in dis­cussing the com­pany’s PBM sit­u­a­tion.

Paz and Went­worth were not avail­able for an in­ter­view. An Ex­press Scripts spokesman pro­vided a gen­eral state­ment in re­sponse to queries about com­pany changes: “We’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,” he said.

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 same weapons in the PBM ar­se­nal to keep drug costs down. For in­stance, the na­tional generic drug us­age rate is around 78% and ris­ing. “Most levers that the PBMs could press have been pressed,” 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. But the more pop­u­lar model is a strate­gic one, Subra­ma­nian 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 ne­go­ti­ate harder on drug dis­counts. They also can use their claims and data an­a­lyt­ics to find out, for ex­am­ple, which pa­tients need more help ad­her­ing to their drug reg­i­mens. “You can un­der­stand spe­cific ways to en­gage with those mem­bers and keep them out of hos­pi­tals,” Subra­ma­nian said. “Those kinds of op­por­tu­ni­ties never come about just from the PBM side.”

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. “Ex­press Scripts does not have the re­tail phar­macy nor the cap­tive growth en­gine,” said Ana Gupte, man­ag­ing di­rec­tor at in­vest­ment bank Leerink Part­ners. “It’s very pos­si­ble they could merge with a re­tail phar­macy, or get bought by a man­aged-care or­ga­ni­za­tion.”

Rhyee spec­u­lated that Ex­press Scripts could be a prime tar­get for Wal­greens Boots Al­liance, the par­ent com­pany of the na­tional Wal­greens re­tail phar­macy chain. Wal­greens lacks a drug ben­e­fit com­po­nent af­ter it sold its PBM a few years ago, and by adding Ex­press Scripts, it would im­me­di­ately ri­val CVS, “which has been gain­ing share” 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 “take-it-or-leave-it” con­tracts, even though in­de­pen­dent phar­ma­cists play crit­i­cal roles in ad­vanc­ing pop­u­la­tion health in their com­mu­ni­ties.

Ex­press Scripts CEO Ge­orge Paz is re­tir­ing next spring.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.