While 2018 was a busy year for pharmacy benefit managers making waves, 2019 looks no different. Vertical integration will undoubtedly remain the key driver for transformation as both the mega-mergers of CVS/Aetna and Cigna/Express Scripts are now completed. These combined healthcare powerhouses are poised to bring some major changes in the outlook of pharmacy benefit management. We also saw some new entrants from retail and tech companies such as Amazon, Walmart, Google, Berkshire, Apple etc. trying their hands in healthcare market which gave them a lot of spotlight. Amazon made its bold entry in prescription drug market by acquiring Pillpack and its venture with Berkshire Hathaway and JPMorgan Chase to create a nonprofit healthcare company shook the entire healthcare industry in 2018. Meanwhile, drug prices debates, policy changes and other notable acquisitions also created some shift across the industry. Based on these market dynamics, 2019 is likely to be an eventful year and below are some top trends to watch which could reshape the pharmacy benefit market this year.
Increasing PBM-Payer integration or vertical alignment to transform pharmacy benefit market
With the successful closure of CVS-Aetna and Cigna-Express Scripts mergers in 2018, the combined healthcare dynamos are all set to disrupt the pharmacy benefit landscape. Aligning with the national payers, CVS and ESI will further bolster their positions in the PBM market with increased ability to influence pricing and access to higher-cost drugs. With access to both pharmacy and medical claims data, there could be an evolution of payer-aligned medical-pharmacy. This also means higher competition in getting PBM contracts or national accounts for smaller or independent PBMs. In this scenario, will the stand-alone PBM business model sustain or will there be more consolidation in PBM space, it would be an interesting space to watch.
PBM contracting model continues to evolve, moving away from rebate system
Both Express Scripts and CVS/Caremark have launched new pharmacy benefit contracting models in 2018 which are not based on conventional PBM spread model or rebate system. While ESI’s total performance management is based on pay-for-performance, CVS’ Guaranteed Net Cost contracting is a 100 percent pass through PBM pricing model. Rebate system is generally considered to be flawed and nationwide PBMs were criticized for making drugs more expensive or pocketing money through rebates. The Blueprint on drug pricing released by Trump Administration also hints towards removal of rebate system. In the wake of the rising scrutiny and continued inflation of drug prices by manufacturers, these largest PBMs have taken these bold moves to evolve the traditional financial arrangements. Expect next generation pharmacy benefit contracts to move away from rebate system and to gain real momentum in 2019.
Rise in Value-based contracts with Pharma manufacturers
Although not many value-based contracts of PBM and Pharma companies were announced in 2018, we still expect that PBMs will continue to engage in outcome-based contracts with pharma, as the entire healthcare industry is getting vertically aligned. While Express Scripts continues to expand its SafeGuardRx program, CVS has launched Transform Value Program and Prime therapeutics has inked new deals with some specialty drugs such as Cosentyx last year. The trend will continue to rise and new combined entities, CVS-Aetna and Cigna-ESI will be seen more actively adopting outcome-based contracts shifting from fee-for service to value-based care. There will be a greater effort on managing the total health care cost across industry.
Copay Accumulator programs gaining traction
During 2018, PBMs and Payers began ramping up efforts to address drug spending by implementing copay accumulator programs. Until recently, insurers and PBMs have usually counted copay assistance or coupon payments toward a patient’s deductible and maximum out-of-pocket limit, however in a co-pay accumulator program “copay assistance” toward enrollee deductibles will not be counted. This policy change most affects patients with high deductibles or out-of-pocket maximums who are on costly regimens or taking multiple drugs. While this cost-shifting program, threatens patient compliance and increases pressure on pharma, does this mean the end for drug discount coupons or copay cards? Look out for adoption of copay accumulator programs by PBMs and how Pharma is opposing in 2019.
Growing innovation in PBM strategies and utilization management tools
In order to manage pharmacy spend, Express Scripts, CVS, and OptumRx continue to take aggressive approach in excluding branded and specialty drugs from their largest formularies. For 2019, PBMs have done some major alterations in specialty category which could directly challenge the drug sales. In addition, CVS introduced cost-effective formulary exclusion based on ICER review for its commercial clients and Express Scripts rolled out its new preferred flex formulary focusing on lower cost authorized alternatives for its clients. Pipelines of Biosimilars are also growing and it holds great potential in cost savings for PBMs. Will these innovative utilization tools help the PBMs to manage the high cost therapies or will ICER become the new formal regulatory body? Stay tuned to see what is in store and aggressive formulary exclusions in 2019.
Amazon, will it be the next healthcare-behemoth disrupting pharmacy benefits?
Growing interest in healthcare, has led new players to look for opportunities to enter the prescription drug market which could disrupt traditional healthcare ecosystem. Amazon’s Pillpack acquisition and collaboration with Berkshire Hathaway, and JPMorgan to lower healthcare costs signals towards dramatic shift in pharmacy distribution and reimbursement market. Amazon’s popularity in efficient supply chain and broad consumer reach could create more competition in the market. The retail giant could also venture into retail pharmacy business or create its own PBM soon, totally transforming the space, nothing is certain.
States will continue to take firm actions against PBMs, seeking more transparency
Drug pricing transparency laws that aim to pressure PBMs by making the public aware of drug-related profit margins are being implemented at state level. For 2018, more than 80 PBM bills have been introduced in state legislatures across the country and 26 went into law. Several state Medicaid programs have taken strict actions against PBM spread pricing models, seeking more transparency about the opaque PBM system. We expect to see this trend rising for the next year.
Sonali Prusty is a pharmacy benefit market expert, and her work can be found in DRG’s PBM Profile series. Follow her @SPrustydrg.