Expect Industry Impact From Vertical Integration, Provider M&A Activity, Humira Biosimilars

Multiple trends within the pharmaceutical industry and the broader health care services market currently are underway and likely to persist into 2023, said Adam J. Fein, Ph.D., CEO of Drug Channels Institute, during a Dec. 16 webinar titled Drug Channels Outlook 2023. Others, such as the launch of the first biosimilar versions of Humira (adalimumab) are set to take place in the upcoming year. In this first of a two-part series, AIS Health highlights the first half of the trends projected by the longtime industry expert.

Vertical Integration Is ‘Biggest Thing’

Within the U.S. drug channels, “the biggest thing that’s going on” is vertical integration, he maintained. There are seven insurer-based entities “through which about 50% of all U.S. health care spending flows, both commercial and government”: CVS Health Corp.’s Aetna, Elevance Health, BlueCross Blue Shield, Centene Corp., Cigna Corp., Humana Inc. and UnitedHealthcare. However, he asserted, “not everyone is good at this, and not everyone is going to succeed.”

Fein pointed to United as the company executing this strategy the best, noting that it is a “$360 billion business that has been aggressively moving into the provider space” via its Optum businesses. For example, in 2022, it “bought a 500-physician practice business in Texas; they bought the largest independent physician practice in Massachusetts; they bought a home care business. They are increasingly moving into fully capitated risk-bearing coverage.”

Other companies are “picking and choosing what they want to do,” such as Humana, whose model is focused on Medicare Advantage. The company, he noted, has “been exiting a number of businesses,” including its SeniorBridge home care unit, and recently divested its majority interest in the hospice and personal care divisions of its Kindred at Home subsidiary.

Elevance is “now pushing into building out their vertically integrated strategy,” while other companies such as Centene are “step[ping] back from what they were doing.” According to Fein, “the thing to keep in mind is these companies, like it or not, are driving the drug channel, so I think that understanding their strategies is crucial. And I think in the next year, we’re going to see more of this vertical strategy shake out. If you can do it in a targeted part of the market, you will; if you can’t, you’re going to be outsourcing or shedding assets.”

Provider M&A Activity Has Seen Huge Rise

Another trend can be seen in the “explosion” of merger and acquisition (M&A) activity among providers and physician groups, he stated. Before the pandemic, approximately 200 transactions were happening per year, but 2021 saw 456 deals, and according to Levin Associates, 2022 is projected to have almost 600.

“There are a couple of different flavors of this,” explained Fein. One is the vertically integrated insurers such as United, as well as Humana and Cigna. Similarly, Walgreens “made a very big acquisition in this space with VillageMD.”

Separate is horizontal consolidation: “I’m going to build the largest women’s health business; I’m going to build a podiatry business, a gastroenterology business. I’m going to start acquiring physician practices in different regions and building up a large business. Private equity is pouring a lot of money into doing this. This is kind of the next frontier of our health care system. And to some extent, they’re both competing with and bundling these practices up for the other players who are all competing in what I would say is the battle for clinical talent.”

In addition, hospitals are continuing to acquire physician practices. And public companies such as ApolloMD, Privia Health and Agilon Health are among those “trying to roll up and build up in technology-enabled physician platforms.”

But with a limited number of physicians “up for grabs,” the market is “pretty competitive.” And according to Fein, some large practices are “prime acquisition targets, but a lot of them aren’t scaled enough to fit into some of these bigger vertically integrated businesses.” This means, he said, that “part of the story is going to be the increasing attempt to bundle up these practices and build stronger players in the health care system, not only [through] horizontal consolidation but also bundling up practices to sell them off to the vertically integrated players. And that’s kind of got to be the story that’s been building, and I think it’s going to accelerate coming out of the pandemic.”

Large PBMs Have ‘Opaque’ Profit Sources

Shifting to how companies within the drug channel make money, Fein maintained that the “large PBMs are becoming ever more inscrutable. They are relying on more complex and opaque business models.” These entities’ “profit sources have migrated away from retaining rebates toward other sources that are harder to really figure out what’s going on. And, of course, having them be part of large, multibillion dollar, vertically integrated companies makes it even more impossible.”

However, change is unlikely unless their clients are unhappy with the PBMs. And a recent report from Pharmaceutical Strategies Group (PSG), an EPIC company, found relatively high satisfaction rates with PBMs’ transparency among surveyed plan sponsors, “so they’re not feeling this burning need for change,” stated Fein.

However, some states have passed laws attempting to shed light on PBM practices such as rebates and fees. In addition, this sector of the industry is getting unwanted attention from members of Congress, as well as the Federal Trade Commission (FTC). That agency stated last summer that it will investigate PBM business practices and consolidation within the industry. “I’ll make a prediction right now,” said Fein. “They’re going to find less than many people expect. Now, that’s not to say if you subpoena a jillion documents, you’re not going to turn up something — of course you will.”

But the FTC is “not hearing the plan sponsors, the customers of the PBM banging the table, saying, ‘Please protect us’” as part of its investigation. “They’re hearing the people that PBMs negotiate with, the entities that PBMs negotiate with, complain about the PBMs.”

Use of Copay Accumulators, Maximizers Continues to Grow

Plans’ use of copayment accumulators and maximizers shows no signs of slowing, he asserted. Traditionally, when a manufacturer provides copay assistance for one of its drugs, that dollar amount would count toward the patient’s deductible and out-of-pocket maximum. But copay maximizer programs will distribute 100% of available manufacturer copay offset funds over 12 months, as opposed to copay accumulators, which apply the maximum manufacturer assistance up front and deplete that contribution before the end of the year. Payments in both approaches do not count toward members’ deductibles and out-of-pocket maximums.

The practices have “totally changed how plan sponsors think about specialty drugs and how they think about manufacturers’ copay support,” said Fein, citing another PSG survey. And, he pointed out, data from MMIT — of which AIS Health is a division — shows tremendous uptake of these practices. particularly maximizers, from 2018 to 2022.

This will continue to be a big trend in 2023, he contended. However, a lot of plan sponsors will be surprised to find that there will be “fewer dollars available because the manufacturers have started to change their policies. They’ve started to limit the size of some of these copay assistance funds. They started to make additional requirements. In some cases, they’re actually providing ways to pay the money directly to the patient or limit the value when a copay maximizer or accumulator is used. So…just like in our whole crazy system, when one company does something, another entity battles back, and that has happened.”

As a result, “you’re going to see some of the savings slow down and kind of rebound in specialty drug trend,” said Fein. “And that’s going to put a lot more pressure on the manufacturers. It’s also leading plans to do what I consider to be dubious strategies” in the form of alternate funding programs. Vendors get payers to exclude specialty drugs and then get those drugs covered via patient assistance programs at manufacturers or charitable foundations. If patients are denied patient assistance, coverage reverts to the company’s payer/PBM/specialty pharmacy. The practice, he said, also has extended to hospital procedures.

“I think these alternate programs are very problematic,” he stated. “It’s very hard, because essentially, you’re taking a program that is intended for needy patients and redirecting it to commercially insured patients.”

Humira Biosimilars May Have Huge Impact

AbbVie Inc.’s Humira (adalimumab) — the No. 1 best-selling drug in the world — will face no fewer than eight biosimilar competitors starting this month. “This is going to be the most disruptive event to the specialty pharmacy ecosystem, in the sense not of disruption, like industry disruption, but a disruption in the sense that the normal way we’ve done business is going to change,” he asserted.

The market will be complicated by the fact that some of the drugs are high-concentration, while others are low-concentration; some are citrate-free, and one is interchangeable at this point, “so it’s going to be a crazy, crazy system.” And while a couple of PBMs have said they will put some biosimilars on their formularies, much still is unknown about the details.

But the savings produced by the presence of biosimilars, not simply their adoption, will be the focus next year, Fein said. “We’re probably going to save quite a bit. Because the competition in this category…is going to be intense.” And while the biosimilar market so far has mainly been within the medical benefit, where manufacturers have taken two different strategies relative to market share and price, the launch of Humira biosimilars “is an opportunity for some novel pricing strategies.”

Those companies may follow Viatris Inc. and Biocon Biologics Ltd.’s lead with Semglee (insulin glargine-yfgn), the first pharmacy benefit biosimilar, with reference drug Lantus (insulin glargine) from Sanofi. Viatris launched two versions of the drug in late 2021: branded interchangeable Semglee and insulin glargine, an authorized interchangeable biosimilar. Semglee is a high-price, high-rebate product, but the authorized biosimilar is a lower-priced product with fewer rebates.

IQVIA data as of October 2022 show that “new prescriptions are almost exclusively Lantus” within Medicare Part D, with that drug garnering more than two-thirds of new Medicaid prescriptions and more than half of commercial ones. Within that latter market, “where rebates are much more important,” almost 30% of the remaining share went to the high-list-price, high-rebate Semglee, not the less expensive authorized biosimilar with fewer rebates. When combining both established patient prescriptions and new ones, Lantus remains the clear leader in all three markets.

Adding to the Humira complexity is that the biosimilars will be entering at different times during the year. “You’re going to see some potentially differentiated pricing strategies, either companies launching multiple prices, companies just saying we’re going to go for it and launch on the list price, companies saying we’re going to go for the high list price, and I think that is going to kind of shine a light on some of the warped incentives baked into our channel because…many people will still have in their benefit a coinsurance based on the list price. So some of the savings are not going to go to the patient,” he said.

Another interesting dynamic to watch for is spurred by the fact that “biosimilars have been very good for the wholesalers in the buy-and-bill market” for drugs under the medical benefit, but this is not likely to be the case for pharmacy benefit drugs such as Humira. At least for the first couple of years, payers and PBMs will determine product selection. “So the wholesalers and pharmacies will function kind of in their traditional role as a fulfillment channel for those products. They won’t be able to move share around. Maybe a few years down the road when we get more interchangeables, [and] people are more comfortable with the products that may change, but in the short term, probably not.”

And the topic of interchangeability, in particular what it means, should be a “big topic” going forward, he asserted. Fein pointed to Europe, “where they’ve had very high biosimilar adoption; there’s no discussion of interchangeability. Biosimilars are biosimilar; there’s not a good biosimilar and a less good biosimilar.” But having two levels of biosimilars in the U.S. “is going to create even more marketplace confusion for patients and physicians. In the buy-and-bill market, after a few years of experience, many clinicians treat the products as if they’re interchangeable. It’s not clear that will happen with just the nature of immunology products, but also because we’re going to have a lot of random conversations, and it’s such a confusing market.”

The FDA, he said, “is going to feel enormous pressure to revisit interchangeability.” He noted that recently, Sen. Mike Lee (R-Utah) unveiled the Biosimilar Red Tape Elimination Act (S.6), which would do away with the FDA requirement for switching studies for biosimilars seeking the interchangeability designation.

“So look for that [scrutiny of interchangeability] to ramp up,” said Fein. “It’s not going to be resolved next year, but this is going to be a big storyline for the future of the biosimilar market.”

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