Changes in the pharmacy landscape have been interesting in 2018. However, none of the developments this year happened in a vacuum. Many of these changes have been merely building for much of the previous decade. It doesn’t look like that trend will change any time soon.
The Big Get Bigger
The old baseball saying, “You can’t tell the players without a program” was indeed evident. Major pharmacy chains have been buying and selling all or parts of each other all year. Again, this has all been building over the past 10 years, so those inside the industry have likely seen this coming for much longer. However, it does seem to have taken the general public somewhat by surprise.
Indeed, two of the biggest stories have involved combinations of pharmacy operations and insurers. Cigna was approved to purchase Express Scripts in September while CVS received approval to merge with Aetna in October. Both alliances have indicated their position is that this will be positive for consumers as each will be better able to coordinate care while tightening cost controls. Of course, it will undoubtedly impact other pharmacy operations, as both Express Scripts and CVS operate huge and influential pharmacy benefit manager programs.
Additionally, the seventh largest retailer in the world, Amazon, has quietly acquired wholesale pharmacy licenses in at least 12 states with assuredly more pending. This could mean that Amazon may be looking at the pharmaceutical business but could also just mean that certain licenses are needed in specific states to sell durable medical goods. However, according to Brittain Ladd, a supply chain consultant who worked with Amazon recently, “There was a sincere desire on the part of Amazon to create a better customer experience across pharmacy and health care as a whole.”
Another acquisition involves something of a three-way deal with Walgreens, Fred’s, and Albertsons all purchasing parts of Rite Aid. This has been in the regulatory cycle since at least 2014 when Walgreens attempted an outright buy of Rite Aid that was rejected. Instead, Fred’s stepped in, purchased some of the Rite Aid locations while Walgreens purchased others (plus Duane Reade and Boots in the UK) with Albertsons actually buying the majority of Rite Aid locations. Walgreens is also boosting their online sales through its purchase of Drugstore.com and Beauty.com as both sites now redirect to Walgreens.com.
Whew! Out of breath yet? That’s just looking at the some of the largest pharmacy segment happenings. There isn’t space to go into detail on some of the other changes involving the emergence of new startups like PillPack (recently purchased by Amazon) and Capsule.
PBMs are sneaky
Pharmacy Benefits Managers (PBM) are the intermediaries between pharmaceutical manufacturers, wholesale drug companies, pharmacy chains, and insurance carriers. They exist to negotiate prices, discounts, and reimbursement rates across all phases of the market spectrum. As such, they have enormous influence that reaches even beyond the sector.
In the wake of the Medicare Modernization Act of 2003, PBMs have quietly become an integral part of the pharmaceutical supply chain, almost without notice (and undoubtedly unnoticed by the general public). PBMs increasingly influence what drugs a physician may prescribe, and the access patients have to medications through their roles in developing formularies (those prescription medications preferred by specific health insurance plans).
Now for the sneaky part: while PBMs are supposed to be reasonably independent (or at least were initially conceived as such), today only three PBMs control approximately 80 to 85 percent of the prescription drug market. Those three PBMs are CVS Caremark, Express Scripts, and OptumRx (owned by United Healthcare, Inc.). Notice a trend? All three PBMs are held by health insurance providers. This is expected to have some wide-ranging impacts on the pharmaceutical industry, to say the least. Especially since CVS Caremark has already been accused of reducing Medicare payments to small pharmacies while CVS corporate is attempting to buy those same pharmacies.
STAR ratings by CMS
STAR ratings were developed by the Centers for Medicare and Medicaid Services (CMS) in 2008 to help educate consumers on the overall quality of their health insurance plan. There are some points that CMS uses to evaluate a plan’s overall quality. A significant subset of those points is directly related to medication use and so are directly influenced by what pharmacists do on a daily basis. While STAR ratings are not applied directly to pharmacies, a growing number of plans are paying attention to how physicians and pharmacies perform on those measures.
Twice in the last 12 months, CMS has announced delays in the preparations of STAR rating reports amid concerns that the rating factors and the ratings, in general, were confusing to providers and consumers alike. While the reports were eventually released in October 2018, the delays may indicate some possible changes to the program in the future.
Additionally, the STAR ratings can be affected by the work of PBMs, in areas like compliance programs, using appropriate technology to provide detailed plan performance data and reporting, and providing a comprehensive drug formulary. Perhaps all of these close connections between insurance carriers, huge pharmacy chains, PBMs, and STAR ratings are a little too close?
Conclusion
The ultimate question that needs to be answered in the future is whether or not these developments will be positive for both the industry and the consumer. Previous mergers, particularly vertical integration (mergers between companies in the same industry whose businesses don’t directly compete) have not always resulted in either lower prices for the patient or increased profitability across the industry.
Concern that consolidation may decrease competition within health care and may result in higher costs to the patient is valid. Another consequence could be higher consumer premiums and lower provider reimbursements. There have been occasions where the economies of scale and overall better patient management lead to a higher quality of care. However, without a crystal ball, it will be difficult to accurately predict the future other than to say that the pharmaceutical industry appears poised to continue changing and consolidating over the next few years.