April 21, 2009 
As we have been working with a lot of PBMs over the past year, the question has come up many times – “where do you see the industry going?” After bouncing some ideas off a few of you, we have pulled together a whitepaper with the Silverlink Communications perspective. Certainly, each area of the whitepaper could have been its own chapter, but rather than turn this into a thesis, we are publishing it.
As I have said in a few recent articles including the one in HCPro, I think the Express Scripts acquisition of NextRx will likely accelerate a few of our predictions here.
The executive summary of the whitepaper is below. The final whitepaper is available here.
I would welcome any comments you have…
Executive Summary
In the next several years, we believe that three changes will drive the pharmacy marketplace and ultimately change the business model for PBMs. These changes will be accelerated by the current financial crisis which may drive further consolidation in the short-term. Consolidation which we believe will accelerate the “race to the bottom” where the traditional model of scale has been maxed out with parity achieved among the large PBMs.
1. The need to better engage the consumer in understanding their benefits and ultimately responsibility for their care;
2. The effort to automate and integrate data across a fragmented system and across siloed organizations; and
3. The shift from trend management to being responsible for outcomes.
Consumer Engagement
The industry-wide movement to consumerism will continue to affect plan design, but it will also thrust PBMs and pharmacies into the critical path of member engagement. With pharmacy being the most used benefit as well as the volume and accessibility of retail pharmacies, they will play a critical role in driving adherence and helping consumers understand healthcare. This will renew the focus on cognitive skills, medication therapy management and ultimately drive the desire for a more traditional “corner store” approach that can be scaled using technology.
Combining this with the macro-economic forces that are driving ubiquity of technology through mobile media and the evolution of the Internet from a pull media to a push media will also challenge the PBMs and pharmacies to innovate. They will be required to look outside of healthcare models to identify the right communications to drive behavior. PBM’s and pharmacies will have to leverage behavioral economics and personalization technology to get the right message to the right consumer at the right time through the right medium.
Automation and Integration
The consumer engagement challenges will only exasperate some ongoing challenges within the PBM and pharmacy community. This will include the lack of staff to provide more cognitive services and the general fragmentation of data across organizations and functional silos. Figuring out an overall “single view of the patient” which shows all the touch points and offers a coordinated multi-channel strategy for inbound and outbound communications will become a major focus.
In addition, in order to make these solutions efficient, the development of predictive models, much like the clinical and underwriting solutions being used today, will become the norm across the industry. As these models are fine tuned and the promise of e-prescribing becomes more of a reality, the channel for engaging physicians in the member’s care will finally exist. PBMs and pharmacies will be able to use data to allow physicians to understand when patients aren’t being compliant and when there is an opportunity to drive change.
From Trend Management to Outcomes
The traditional business model for the PBMs has been based on large scale negotiations to drive rebates and efficiencies within mail service – cost to fill and acquisition costs. At the same time as those efficiencies reach a maximum discount, the traditional tools for managing trend will have run their course. Although plan design won’t “die”, comparative effectiveness may reduce (or eliminate) the need for formularies, and in general, the ability to shift cost to the consumer above the 25-30% level will be difficult.
Both of these challenges will push the PBMs and pharmacies into a role where they are focused on driving health outcomes and being part of the bigger solution across the industry. They have a strong footprint to drive this change and as theranostics (or personalized medicine) evolves there will be an opportunity to find cost effective solutions to change the prescription landscape.
Enabling Healthy Decisions 
PBM’s are middlemen that live and scavange off of the work of everyone else. They take from pharmacies, from drug companies, from insurance companies and from employer payors. The 3 primary PBM’s…. EACH…. have incomes exceeding 15 Billion dollars. Where do you think that money comes from? They aren’t in the business for the benefit of the patient.
More recent (2011) articles on PBM’s are pointing out now how patients are lost in all of this and more personal attention to patients and more responsibility by patients is a necessary missing element. They are now considering the possibility that pharmacists are in a key position to provide this intervention but they don’t want to pay pharmacist for this professional service.
Community pharmacist are the only professional in the medical team that patients have immediate and open access to without and appointment and without paying for the professional advise. Pharmacist have been providing this service for over 100 years and even today most community pharmacist are involved in 30 to 40 consultations with patients each day. Because of PBM’s over the past 10 years most chain pharmacist are being relegated too far behind the filling counter where it is more difficult to get this professional service.
PBM’s have exacerbated the loss of the community pharmacies from 50,000 20 years ago to only 20,000 today. Originally, mostly urban community pharmacies were affected by the growth of chain stores but in the past 10 years rural pharmacies are in decline because of the poor reimbursements paid to pharmacists for dispensing medications. Example: PBM’s expect a Community Pharmacy to carry medications for immediate dispensing. A $400 drug sits on the shelf and when dispensed the pharmacy will often only be paid a $1.25 dispensing fee and be reimbursed for the drug cost but then be required to wait 3 to 5 weeks to get paid. Towns that used to have 2 or 3 pharmacies are lucky if they have one today. It won’t be long before these are gone and these patients will no longer be able to talk with a pharmacist or get any of their medications locally. They will have to wait for the PBM’s mail order pharmacy to get it to them in 2-3 weeks. Community pharmacists deal with PBM mail order patients every day, where they have not recieved their medications. These patients then expect the Community Pharmacist to resolve their problem with their PBM.
PBM’s continue to grow while not providing any additional service, advise, intervention or benefit to the patient. The immediate argument will be PBM’s provide lower costs and oversight of dispensing practices. Community pharmacists would disagree totally with this position and point out that physicians know their patients better than anyone and they are and should be in total control of medications dispensed to their patients. All pharmacists have patient profiles on their computers and working with local physicians and are able to easily watch for interactions. In the many, many years of my practice I have never seen an intervention by a PBM that was for the benefit of the patient or in any way disclosed a potential interaction that was not known by the physician or the pharmacist.
It should also be pointed out that the these three PBM’s have consolidated some PBM business over the past few years and now control 80% of all dispensing business. These three PBM’s also have their own mail order pharmacies. There is certainly a conflict of interest in dispensing formularies for what is best for the patient or for what is best for the bottom line of the PBM and community pharmacist see this everyday.
The PBM companies have been though a great amount of change in the last few years – As noted in the white paper what has been done has been done by others.
The new paradigm that is needed is engagement of the member to use healthcare resources frugally, use them as if they owned them. Only then will the next level of healthcare distribution move forward.
There is little room left for increase efficiency, little headroom left for generic use rates to increase and the continuous march on prices increasing for all medical supplies and services.
We have seen the advent of “smarter than smart” PA systems, intelligent billing programs, robo coders and other technology innovations; but we continue lack member touch points that do make a difference in health outcomes. Though-out this journey with PBM’s the member has little if any responsibility for the affected care. This has to change. With a crush of patients on the horizon and fewer skill sets being able to provide services, the PBM may die from an exorcism of no cash in the system for payment. We may return to the days of personal payment for medications