In early 2009, I published an initial whitepaper on the PBM industry. With all the changes going on in the industry, it seemed relevant to put out a new whitepaper although the total impact of reform and the definition of MLR is still TBD. As I did before, I’m putting a summary here, and I welcome your comments.
You can download the whitepaper by registering on the adherence site at Silverlink Communications. Thanks. [If you're a regular reader but not a logical client, you can request the whitepaper by contacting me.]
I think a quote from Larry Marsh (Managing Director, Equity Research) at Barclay’s Capital does a good job of summarizing it:
“Innovation will be increasingly important in the PBM world, as these companies seek to solve a greater set of pharmaceutical cost issues for their customers over the next 10 years.”
[BTW - If you want to get updates e-mailed to you as I post them, you can sign up here.]
Innovate Or Be Commoditized: The PBM and Pharmacy Challenge for 2011
Doing more with less; dealing with constant change; and having technology be a part of everything… Those are things that the next generation will take for granted. For the rest of us, those are dynamics that are changing our personal and professional lives. We’re constantly bombarded with information and decisions to make.
While the pharmacy industry has generally avoided the collapse of the automotive industry and the radical change of the health insurance industry, we’ve seen unprecedented change in the past few years.
- We’ve seen more than 100,000 people lose their jobs in the pharmaceutical manufacturing industry[i].
- We’ve seen CVS and Walgreens make numerous acquisitions – Caremark, Longs, Duane Reade, Universal American.
- We’ve seen Wellpoint and Aetna along with others enter into long-term deals with standalone Pharmacy Benefit Managers (PBMs).
- We’ve seen Prescription Solutions grow from a niche captive PBM to the 4th largest PBM and one that might allow UnitedHealth Group to insource their PBM business from Medco Health Solutions.
- We’ve seen retail pharmacies beginning to be centers of care with clinics and administration of vaccines.
- We’ve seen PBMs buying genomic companies such as DNA Direct and Generation Health.
- We’ve seen the PBMs distancing themselves from the manufacturers only to potentially come full circle with specialty pharmacy and REMS.
- We’ve seen Wal-Mart try several new models – $4 generics and direct-to-employer at Caterpillar.
- We’ve seen Humana’s captive PBM grow significantly and begin partnering with Wal-Mart on Medicare Part D.
It’s almost impossible to go a few days now without seeing information about prescription drugs in the mainstream news. You might hear a financial analyst talking about the lack of blockbuster drugs in the pipeline. You might read about a drug recall in USA Today. You might see a new report talking about the $290B cost of non-adherence[ii] to the country. Or, it might simply be water cooler discussions around how more than 25% of kids[iii] now take a prescription medication or how non-adherence can lead to hospital readmissions[iv].
This has raised the average consumer’s awareness of the industry and continues to push the trend of consumerism with which the entire healthcare industry is dealing. Most of us in the industry already knew that pharmacy was the most used benefit (12 Rxs PMPY for PPO members[v]) and believed that pharmacists were a critical part of the care continuum.
The challenge now is for the industry to demonstrate their value beyond simple trend management. The growth in generics will slow down while specialty spending grows. Pharmacy and pharmacists have to become critical path in the care continuum and demonstrate how they engage consumers to improve outcomes. It will become increasingly important to link outcomes and reimbursement as CIGNA Pharmacy did in their diabetes deal with Merck[vi].
[i] “Still More Pharma Jobs Go By The Wayside”, Pharmalot blog, posted on Nov. 3, 2010, http://www.pharmalot.com/2010/11/still-more-pharma-jobs-go-by-the-wayside/
[ii] “Thinking Outside The Pillbox”, New England Healthcare Institute, published Aug. 12, 2009, http://www.nehi.net/publications/44/thinking_outside_the_pillbox_a_systemwide_approach_to_improving_patient_medication_adherence_for_chronic_disease
[iii] Berkrot, Bill, “Prescription Drug Use By Children On The Rise”, Reuters, accessed on 1/4/11, http://www.reuters.com/article/idUSN1924289520100519?type=marketsNews
[iv] Leventhal MJ, Riegel B, Carlson B, De GS., Negotiating compliance in heart failure: remaining issues and questions, Eur J Cardiovasc Nurs., 2005;4:298–307 (abstract online at http://www.escardiocontent.org/periodicals/ejcn/article/S1474-5151(05)00038-1/abstract)
[v] Managed Care Digest Series: Key Findings, last updated Nov. 2010, http://www.managedcaredigest.com/KeyFindings.aspx?Digest=HMO
[vi] “CIGNA and Merck Sign Performance-Based Agreement”, CIGNA Press Release from April 23, 2009, http://newsroom.CIGNA.com/article_display.cfm?article_id=1043