April 24, 2012 
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.
Enabling Healthy Decisions 
I’ve a better novel/old idea: PBMs function only the technical function of claims processing and leave the rest of it, i.e., medical and drug therapy, to physicians and pharmacists. That would be a huge cost savings and better patient care!
George Van Antwerp states that he has “seen Walgreens become a lot closer to the independent pharmacies”; my question to Mr. Van Antwerp is why has Walgreens become closer to Independent Pharmacist? Possible answers are 1) To help Walgreens to the vast extent 2) to help the Independents to the vast extent or3) to help both equally.
This move to middle ground (independent pharmacist) by Walgreens was brought on by their battle with Express*Scripts.
My thought process tells me that all business moves being made by Walgreen’s top executives today and in the not so near future are solely to position their company in such a manner that never again can a PBM exclude them from a contract without doing substantial harm to the PBM involved.
Walgreens as a stand-alone chain is not big enough to inflict such harm, the other major chains refused to collaborate with Walgreen against Express, most likely in hopes of gaining some WAG market share for themselves.
This leaves only the Independents as possible WAG ally to create this network monster that a PBM could not kick out without harming the PBM itself.
HOW does a mortal enemy of Independent Pharmacist create a non-threatening image to try and induce enough independent pharmacists to join a Walgreen’s network to prevent an Express Script lock out of WAG in the future?
RxAlly and Bruce Roberts are their attempt, using Disease management and MTM as bait where effective and Rx distribution when that is an effective bait.
No terms, no dollars, no business structure, no hierarchy delineated, no spatial relationship defined between WAG and the independents, no business model of any ilk, only a vague promise to sign with Rxally and Walgreens and these principles will take care of us, the independents later.
Walgreen and RxAlly are being a bit hypocritical. F. Scott Fitzgerald famously said that “the true test of a first-rate mind is the ability to hold two contradictory ideas at the same time.” By this standard, the folks at Walgreen must be geniuses. Walgreen complains that MC “limits patient choice.” Hmmm, doesn’t Walgreen’s arrangement with Caterpillar also use a preferred pharmacy network model? And what about the rumored direct-to-payer deal with Delta?
Do you anticipate that WAG and Rxally will open these accounts to independents if we join their network and if we are allowed to join what will be we paid for Rx distribution and MTM services and who decides these rates WAG, RxAlly, or the independents?
As far as Walgreens and RxAlly Choices of PBMs I think the following excerpt from a recent walgreen interview sums that up.
“Has this experience with Express Scripts changed the way you interact and contract with PBMs and have any PBMs stepped up to work more strategically with you to create a differentiated offering to take advantage of this disruption during the 2012 selling season”?
Walgreens states “I think it has helped us tremendously in terms of building closer relationships with other PBMs and payers and we’re moving forward with partners such as Catalyst Rx, Prime Therapeutics and SXC Health Solutions, and health plans such as Coventry and Humana.” Do independent pharmacist see this list as pharmcy friendly, I think not.
Jim Fields CFO ApproRx