2020 in Review: PBMs Continue Integration, Face More Regulatory Challenges

In 2020, the PBM industry continued to deepen its integration with other industry players, a trend that experts say is likely to continue in coming years. The PBM space has consolidated to the point that five firms — UnitedHealth Group’s OptumRx, CVS Health Corp.’s Caremark, Cigna Corp.’s Express Scripts, Anthem Inc.’s IngenioRx, Humana Inc.’s Humana Pharmacy Solutions, and the Blue Cross and Blue Shield affiliate-owned Prime Therapeutics LLC — manage the lion’s share of the pharmacy benefits offered to U.S. health plan members.

Beyond their deepening integration with the payers that own them, these firms are working to expand their data and direct-to-consumer operations.

While acknowledging the value of that trend, one expert says that PBMs still need to emphasize their primary lines of business.

Ashraf Shehata, national sector leader for health care and life sciences at KPMG, says that a “back to basics” approach for 2021 will be essential for PBMs, especially as their health plan owners navigate the uncertainty generated by the COVID-19 pandemic. However, he notes that the space is still managing the aftereffects of transactions and is looking for more deal-making opportunities.

In that realm, the long-term integration of Express Scripts into Cigna has generated the most noise. Under Cigna, Express Scripts has deepened a horizontal relationship with Prime Therapeutics. In October, the smaller PBM entered an agreement to offer Blues plans a choice between Prime’s specialty and mail order pharmacy offerings and Express Scripts’ specialty branch, Accredo. The move builds upon an existing relationship between the two PBMs: In late 2019, Prime and Express Scripts unveiled a three-year agreement that allows the larger PBM to negotiate rebates on behalf of Prime’s members and help with its retail network contracting.

Meanwhile, in November, Amazon.com Inc. made a big splash by unveiling new pharmacy services, including a prescription-discount service for uninsured individuals that taps into Express Scripts’ price-negotiation powers with manufacturers. The new offerings build on Amazon’s acquisition of mail-order pharmacy startup PillPack. Jefferies analyst David Windley observed in an investor note that the Amazon deal was an “encouraging sign” for Cigna, “as it extends its reach into other relationships that bring perceived enemies closer, including Prime Therapeutics.”

Amazon was not the only retailer to make a play in the PBM space. Midwestern supermarket chain Hy-Vee, Inc. launched a PBM in December, while in March, Costco Wholesale Corp. purchased a minority stake in Navitus Health Solutions, a subsidiary of integrated health system SSM Health.

Shehata says that PBMs’ data expertise will be a key line of business going forward, especially as regulators and the new Democratic administration increase scrutiny on the industry.

He suggests that PBMs could expand beyond the traditional role into something more like a data and analytics clearinghouse for the entire health care industry and PBMs need to be aggressive in delivering value directly to consumers as regulatory scrutiny on the industry increases.

“Big data and [artificial intelligence is] going to sit in kind of the combination of the traditional PBM, …the more traditional health claim, and… detailed EHR data,” Shehata explains. “You’ll start to see a whole generation of organizations also bring in EHR data, because it’s much more accessible now.”

Trump Admin Tried to Lower Costs

Also in 2020, the Trump administration introduced several new rules and executive orders intended to reduce the cost of prescription drugs. Perhaps the most important for PBMs was the Medicare Part D rebate rule. The goal, HHS Secretary Alex Azar said at the time, was to prevent situations in which patients “pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen.” The original rebate rule was pulled in July 2019 amid concerns that it would increase federal spending and Medicare beneficiary premiums, but President Donald Trump this summer ordered HHS to revive it. HHS complied by issuing a final rebate rule November 2020 — this time sparing Medicaid MCOs and coming with assurances from Azar that it wouldn’t raise costs.

Shehata says PBMs need to be aggressive in delivering value directly to consumers as regulatory scrutiny on the industry increases.

“I think we have to start to rationalize how these consumer desires are going to be part of the PBM [consumer] benefit in the future,” Shehata explains. “For example, as my retail pharmacy becomes integrated with my PBM, what’s to say that it has to just be mail order? Maybe it’s going to be other forms of delivery with the consumer that drives value.”

PBMs have long offered direct-to-consumer drug delivery from their mail-order pharmacy operations. Those divisions temporarily ramped up in the secondquarter, as PBMs encouraged members to order their medicines online without a pharmacy trip in order to help members shelter in place during the COVID-19 pandemic. Shehata suggests that more PBMs could benefit by offering consumers same-day home delivery — CVS, for example, has partnered with longtime retail partner Target Corp.’s Shipt subsidiary to offer free home delivery within 24 to 48 hours of ordering since the start of the pandemic. Shehata suggests that same-day, on-demand delivery along the lines of Instacart Inc.’s grocery delivery business could be a PBM line of business going forward.

“It’s just interesting to see that, because we’ve talked about other parts of the economy expanding post-COVID. This is probably one area where the genie is out of the bottle,” Shehata says. “Home delivery services, home transportation [and] home services are going to be a big part of the future.”

Peter Johnson

Peter has been a reporter for nearly a decade. Before joining AIS Health, Peter covered a wide variety of topics in his hometown of Seattle, where he continues to live. Peter’s work has appeared in publications including The Atlantic and The Stranger. Peter attended Colby College.

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