Senate hearing puts spotlight on debate over consolidation in PBM market

Washington DC National Capitol Building
A Senate hearing with pharmacy benefit managers this week spotlighted the back-and-forth over competition in that market. (Getty/lucky-photographer)

As officials from the big three pharmacy benefit manager giants testified on Capitol Hill on Tuesday, it was their sheer size that seemed to stick out most for senators.

The three PBMs—Express Scripts, CVS Caremark and Optum—control the majority of the market, together totaling 71% of Medicaid membership and 86% of the private market, a sign of the ongoing consolidation in the industry.

However, executives insisted at the hearing, the PBM space is a competitive one.

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“The consolidation in the industry is actually in an effort to, really, take better care of patients,” said Steve Miller, M.D., executive vice president and chief clinical officer for Cigna, the parent company of Express Scripts. He noted there are 60 PBMs operating nationally that offer varied regional options for private insurers, Medicaid and Medicare Part D to contract with. “We believe we can do an even better job of controlling cost.” 

RELATED: Healthcare’s vertical mergers kick-started a massive industry shift in 2018. Will it pay off? 

However, industry experts warn that there are significant consequences to the high level of consolidation in the PBM market. In addition to these three companies controlling a large PBM market share, all three are also integrated with a health plan, another concern. 

“It’s really difficult to engage in any type of fair negotiation when one of the parties has that kind of monopoly power,” Lindsay Bealor Greenleaf, director at ADVI, told FierceHealthcare. “I think that is something that is going to continue getting attention, especially as we see more of these payers and PBMs continue to try to further consolidate.”

The impact

Others have warned that although a consolidated supply chain is more economical, it can leave patients in the lurch.  

Ted Okon, executive director of the Community Oncology Alliance, said increased integration can prevent providers from pushing back against the insurers, threatening access to certain drugs such as specialty drugs. 

“There isn’t competition in the market,” he said. “That’s a farce.” 

Dea Belazi, CEO of Pennsylvania-based Ascella Health, told FierceHealthcare that regional and smaller PBMs sit somewhere in the middle, where they’re instead focusing on carving out a niche the larger benefit managers don’t serve as effectively. 

RELATED: Lawmakers ask for retrospective review of PBM mergers 

He said in his experience this level of consolidation is cyclical. Twenty years ago, when he got into the business, health plans were building internal PBMs or scooping up those in the market. That perspective changed about a decade later, when many sold off or closed them. 

And now, the industry is hungry for vertical integration once again, he said, and it’s his gut feeling that interest could swap again down the line if this trend holds. 

“Where are we going to be in 10 years?” Belazi said. “I would bet on Cigna selling or spitting out Express Scripts 10 years from now.” 

Smaller players like Ascella can mitigate these industry fluctuations by defining a clear market, he said. His company, for instance, doesn’t operate a large Part D business and is focused significantly on specialty pharmacy. 

The value of volume?

While large PBMs do offer such services as well, Ascella can really drill down into the needs of 100 or 200 specialty pharmacy members instead of needing to push large national volumes. 

A PBM the size of Optum or Express Scripts, however, needs to manage millions, if not billions, of prescriptions each year, he said.

“They’re just not set up to work at that type of roll-up-your-sleeves, individual level,” Belazi said. “They’re trying to burn and churn thousands, if not millions, of people.”

RELATED: CVS-Aetna got the green light. Brace yourselves, stakeholders say 

Where does this debate leave mergers and acquisitions in the PBM space? Mega deals like CVS-Aetna and Cigna-Express Scripts were given the OK by regulators, but there are signs the tides are changing. 

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, has raised the alarm about the increasingly consolidated market, urging regulators to closely scrutinize the deals between CVS and Aetna and Cigna and Express Scripts. 

Grassley, who posed questions about consolidation at the hearing, has warned that while integration can lead to greater efficiencies, it can also block new entrants to the market. 

A federal judge is taking a much closer look at the CVS and Aetna merger now that it’s been approved and is allowing the deal's opponents—such as the American Medical Association—to weigh in about the potential downsides of that integration. 

"I think when it comes to the PBMs integrating with health plans, we’re going to watch the effect of that play out in real time,” Greenleaf said. “I do think that is something to worry about and watch going forward here.” 

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