Health Reform And The PBMs

I’ve been getting a lot of questions about how health reform will affect the PBMs. While I will admit that I haven’t had the time to read all the tweaks and nuances of what was passed and realize it may change, my take is as follows:

1. Assuming the PBMs stay part of any government type of solution, this will provide new covered lives for them to manage thereby growing business.
2. Retail profits for combined entities like CVS Caremark may be negatively affected as cash patients are processed under negotiated contracts, but in so much as they can increase share at their stores, the ability to manage the distribution location (i.e., Maintenance Choice) may negate this.
3. Generic biologics will be accelerated which will be a very positive play for the specialty business as generics have been for the PBMs. This will also allow the PBMs to use utilization management tools (e.g., step therapy) and formulary management tools which will drive savings and keep them as an essential entity.
4. Financial disclosure may have a slightly negative effect by creating new reporting and auditing burdens and may ultimately affect client savings as deal parity becomes more normal versus allowing firms with better leverage and negotiating power to drive deeper deals. But, most PBMs are providing transparency today at a client level so this isn’t anything dramatically different.
5. The focus on preventative services and wellness programs may actually create an expanded role for PBMs to step into the disease management void (which favors CVS Caremark’s model with clinics, retail, and PBM and Medco with their Therapeutic Resource Centers) and provide more services around critical conditions like diabetes and increase the focus on consumer engagement and adherence.
6. The reduction in the donut hole and funding by pharma will negatively impact PBMs as it will encourage seniors to stay on brand drugs which are less profitable than generic drugs but it will increase adherence during the donut hole which will alleviate some of this downside.
7. Overall, health reform should be a net positive for the PBMs allowing them to continue to be part of the strategy in reducing health care costs.

More thoughts from Adam Fein on his blog.