A lot has changed to the PBM industry in the past year:
- The Express Scripts acquisition of Medco
- The proposed SXC acquisition of Catalyst (on top of prior acquisitions)
- UHG insourcing their PBM as part of their overall Optum strategy
- The contract dispute between Walgreens and Express Scripts
And, there will certainly be more (e.g., the rumor about Cigna’s pharmacy business). I also think that we’ve seen Walgreens become a lot closer to the independent pharmacies and would expect more changes from them.
So, while I still get people that call me and ask me whether they should start a PBM, I think it’s more interesting to think about this using the GE framework of destroymybusiness.com. To do that, we have to think about where are the profit drivers for the PBM and how can those be impacted:
- Mail order has certainly been a driver, but as I’ve discussed and Adam Fein has discussed, this is a challenge to grow these days due to pricing, generics, and 90-day retail.
- There’s been lots of generics coming to market, but many others have written about the patent cliff and it’s potential impact.
- There’s been plenty of discussion about generic spread and some of the transparency efforts have impacted this.
- While many still think rebates are a profit driver, my perception is that most of that is already shared with clients.
So, if you wanted to destroy the PBM model, how would you replace it:
- You would eliminate spread which has been tried by numerous companies under the “transparency” framework.
- You would eliminate rebates and move to an outcomes-based contracting approach.
- You would create a competitive market for mail order which is 90-day retail.
- I might even look at how the Prime Therapeutics ownership model could be applied at a broader level to unions, employers, and small payers.
So, the new model in my mind would look very different:
- A big focus on specialty with oral solids being basically just coordinated for DUR purposes around claims processing.
- A shift over the next decade to be very genomics oriented.
- A shift in customer service from general call center to a broader self-service option.
- Much greater involvement in condition management possibly even with a shift to work with the providers.
- A role in coordinating Rx, Dx, and lab data to drive outcomes.
- Being known more for clinical care then cost management.
I personally also think you’ll see the pendulum swing back to a closer relationship between the PBMs and pharma which I think is important as you focus on more and more orphan drugs and specialty conditions with genomics and high costs.
I think the key question is whether one of the traditional PBMs evolve and own this space or whether a new challenger comes in and shakes up the industry. Traditionally, the industry has been basically driven by consolidation with limited success by new entrants.