Analysts On The PBM Marketplace (ESRX, MHS, CVS)

I continue to get the chance to talk with more and more analysts about the PBM marketplace (see list of PBMs by claims processed).  It teaches me a lot from how they think about and analyze events versus how I see things.  I heard several of them speak the other day.  Here’s my spin on what they collectively said.

1. The general dynamics are good.  Prescription utilization has continued to go up slightly even with the bad economy.  Mail use has stagnated but still offers value to the market.  The PBM model has continued to be validated and shown proven savings.  There is less client churn.  There is potential growth in covered lives around Medicaid.  There are more generics coming to market.  Specialty continues to grow and with biosimilars will offer opportunities for the PBM.  (see prior post on health reform and the PBMs)
2. There is a short-term market (pre-2014) and a long-term market (post-2014) positioning for PBMs.  In the short-term, the flow of new generics into the market will drive the bottom line so mail order penetration and ability to convert members to generics thru plan design and education will be important. 
3. The long-term is a little unknown pending how health reform plays out.  It’s possible (probable) that exchanges do happen.  It’s possible that employers push employees into the exchanges (although the recent waivers impact this).  Then, a government focus and a managed care focus becomes much more important that PBM success in the self-funded market.
4. The PBMs are making different moves today but the value of those will be obfuscated until post-2014.  Express Scripts is staying very focused on the core PBM business with some moves in China.  CVS Caremark is pursuing an integrated retail-PBM model which leverages the pharmacist and focusing on pharmacogenomics and MinuteClinic.  Medco is leveraging their Therapeutic Resource Centers (TRCs) as a phone-based care model and focusing on pharmacogenomics, several international investments, and several new service companies. 
5. The managed care companies have looked to outsource PBM (e.g., Wellpoint and Aetna), but if health reform were to drive consolidation in the managed care industry (such that there were 3 large players like in the PBM marketplace), it’s possible that the managed care companies would carve pharmacy back in.  It was interesting that they saw the 10-12 year deals as enough time for the reform and the exchanges to play out giving the managed care companies time to see whether they want to carve these assets back in at that time. 
6. The PBM tools have been effective but pharmacy is still only 15-20% of healthcare spend.  They saw an opportunity to pull more things under the PBM (e.g., specialty spend in medical, devices) and the opportunity to leverage experience in pharmacy in other areas of healthcare. 
7. They also talked about the potential Accountable Care Organization (ACO) impact.  Will they become insurers?  How will they be structured?  The final models that prove themselves legally, financially, and clinically will impact the industry.

Some quick thoughts for you.