What does the new era of insurer-owned PBMs mean for the benefits industry?
Very soon, all of the major insurance carriers will have an in-house pharmacy benefit manager, a trend that could reshape consumer access to prescription drugs and impact the negotiations between insurers, drug manufacturers and pharmacies.
Carriers may be following in UnitedHealthcare’s footsteps, which has operated its OptumRx PBM since 1990. Last year, CVS acquired Aetna, giving the carrier access to CVS Caremark, Cigna merged with Express Scripts, and Anthem announced it will speed up the launch of its in-house PBM, IngenioRx, to the second quarter of 2019.
But what’s driving all this PBM activity, and what does it mean for the future of the benefits industry?
How employers might be affected
In the immediate future, there will be a large impact from the rise of the insurer-owned PBM on employers and employees.
One possible outcome is the narrowing of prescription networks. This was illustrated in the recent pricing dispute between CVS Caremark and Walmart, which announced in January that the retail pharmacy would no longer be included in CVS’ drug plan networks.
The parties came to a deal a few days later, but the temporary stalemate showed what consumers might increasingly face as PBMs leverage their negotiating power — fewer choices in both pharmacy and prescription options.
Because drug prices play such a significant role in employers’ healthcare costs, this is a segment of the industry brokers will be paying close attention to this year and beyond.
The rise of Amazon
Much speculation has been made about Amazon’s effect on the healthcare industry and, particularly, the drug business. The retail giant’s 2018 acquisition of PillPack officially marked the company’s entrance into the healthcare supply chain, a move that’s left every corner of the industry scrambling to react.
Many expect that Amazon will leverage its scale and distribution expertise to streamline the delivery of drugs, increasing consumerism efforts in this segment of the industry. This dynamic likely played a role in accelerating the pace of deals between insurers and pharmacy benefit managers.
Beyond responding to Amazon, carriers may also see business opportunities and cost-savings by streamlining the supply chain. The companies themselves describe the mission of these mergers as developing integrated delivery systems, reducing administrative costs, and improving access for consumers.
Those goals have been driving a years-long consolidation wave across the industry, but it isn’t clear that any of the mergers have resulted in a more accessible or affordable healthcare system for consumers.
In fact, a consolidated industry may instead represent the opposite — healthcare has arguably become more expensive and less consumer-friendly as hospital chains and insurance carriers have acquired or merged with physician groups, managed care operations, PBMs and more.
This process has been lucrative for some, but the end result of all these deals might turn out to be a bigger, slower industry even more likely to be disrupted.
When Aetna tried to buy Humana and Anthem attempted to acquire Cigna in 2015, the then-CEO of electronic medical record company athenahealth, Jonathan Bush, said this to CNBC:
“These [mergers] are what happen when industries essentially die. Hopefully what will happen is there will be disruptive innovation and the role of the traditional health insurance company will be obsolete.”
Those particular deals fell through under antitrust scrutiny, but clearly insurers’ push for inorganic growth hasn’t slowed. The race to pick up PBMs might be a final wave of deals before the traditional insurance company model is disrupted.