With the Department of Justice giving its official sign-off, Cigna’s $52 billion purchase of Express Scripts, which is the last remaining large stand-alone PBM in the country, is on its way to completion by the end of the year. Likewise, CVS’ acquisition of Cigna’s rival, Aetna, is considered to be on a path to approval as well.

These are two giant developments in the ongoing trend toward healthcare business integration and insurer consolidation: The potential advantages of financial alignment and benefit integration are too great for it not to happen. One could argue that as UnitedHealth Group and Optum have developed their massively profitable enterprise, their major national competitors ultimately would have to follow in some manner.

This may be bad news for America’s major employers who believe, with ample justification, that they’ve been fleeced by the many-layered pharmacy pricing system that has enriched pharma manufacturers, PBMs, distributors, and insurers for years. The triumvirate of Berkshire Hathaway-Amazon-JP Morgan is just the sharp tip of this spear, being big enough to go out on their own to make their own deals and possibly invite others along.

Most large employers have educated themselves about pharmacy pricing well enough that they’ve been carving out their pharmacy benefits to PBMs that provide more transparency about branded drug rebates. But that’s no longer enough. Many have caught on to the use of “spread pricing” that inflates the cost of generics and other means of taking margin. Now the insurers will own the PBMs and will try to sell the value of pharmacy-medical benefit integration as a compelling feature of their all-in-one plans.

But on the flipside, Cigna will no longer be able to argue that there’s a “black box” between it and the generics “spread pricing” deals and the 30 percent (average) rebates/payments on brands. I expect that their largest and most savvy clients will demand real transparency with questions such as “Does your pharmacy benefit structure rely on spread pricing? Please provide a sample sheet of your current spread pricing for the following generics…” “How are you prepared to demonstrate that we are paying a reasonable markup and no more for generic drugs?” “How are you prepared to demonstrate that we’re receiving the value of all rebates and discounts on brands?”

They will be able to challenge Aetna/CVS and UnitedHealth/Optum for the same. Each of these competitors will likely have a different approach to answering/delivering on these demands.  They won’t part with the billions delivered through these mechanisms easily; they want these megadeals to pay off for their shareholders after all. But a cartel-style stonewall will only work until someone like Berkshire Hathaway-Amazon-JP Morgan comes along and knocks it down, and they’re already gearing up to do just that. Remember that the triumvirate has said it’s not after a profit, only lowering cost.

It's an intriguing setup for a rethinking of the pharmacy supply chain. It’s also fertile territory for these large players to innovate as they integrate their medical and pharmacy benefits and operations. CVS and Aetna have the company’s retail presence as an integrated partner in delivery of care, management of chronic disease, and patient education.

And what about Blue plans? Many use Prime Therapeutics, the PBM owned by a consortium of Blue plans. Will they be in a position to demand pricing that will allow them to compete effectively against the national giants? Will they be able to afford the systems that would support better integration of benefits, or will this further push independent Blue plans toward consolidation with each other? And what about smaller employer accounts that don’t have the leverage to demand transparency?

The current political interest in pharmacy pricing has put the spotlight on the PBMs and manufacturers. Now that the largest PBMs are tied to insurers, the pressure will be on those insurers to deliver real value in two ways: credible transparency and real integration.  Before Berkshire-Amazon-Morgan (aka BAM) beats them to it.

Paula Wade tracks and analyzes the national trends in the U.S. health insurance industry, and her work can be found in DRG’s National Managed Care Organization Analyzer series. Follow her @PaulaWadeDRG.

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