The pharmacy industry in the United States continued to evolve in 2018, fueled by ongoing and significant changes in healthcare. The shift from volume-based to value-based care and reimbursement, the rising cost of prescription drugs, a rapid spike in the incidence of chronic diseases, and national health spending that is projected to rise 5.3% this year are all driving healthcare organizations to address costs through economies of scale and efficiencies.
Drug Topics has identified four sectors that we expect will continue to dominate and change pharmacy in 2019. They are mergers and acquisitions, automation, telepharmacy, and drug prices. We’ve spoken to experts in each area to get their opinions and prognostications as to what lies ahead.
Mergers and Acquisitions
Consolidation in retail pharmacy will continue in 2019, but don’t expect another banner year like 2018.
In September, the U.S. Department of Justice approved Cigna’s $52-billion acquisition of Express Scripts. A month later it greenlighted the $69-billion merger of CVS Health and Aetna—the largest health insurance deal in history. The companies completed the merger in November, but they are still working on final approvals from regulators and the courts, which at press time indicated that some antitrust concerns persist.
The New York Times described the CVS-Aetna merger as both capping “a wave of consolidation among giant health care players that could leave American consumers with less control over their medical care and prescription drugs” and marking “the close of an era, during which powerful pharmacy benefit managers brokered drug prices among pharmaceutical companies, insurers and employers.”
The accuracy of those predictions remains to be seen, but NCPA has expressed its own concerns to federal and state regulators about the negative impacts these mega deals are likely to have on competition, pharmacy patients, payers, and locally owned pharmacies. “When it comes to healthcare, we’re just not convinced that bigger is better,” says CEO B. Douglas Hoey, RPh, MBA.
NCPA’s position is that patients are likely to be channeled into one-size-fits-all solutions that might not be in their best interest and may actually put more distance between them and their healthcare provider. “Community pharmacies can compete on convenience, affordability, and customized care when the playing field is level,” Hoey says. “Our concern is that these megamergers will silo patients, not for the benefit of their health, but for the benefit of the corporations’ bottom lines.”
Reg Blackburn, managing director of The Braff Group, sees this year’s acquisitions from a business perspective as a continuation of the vertical integrations that have reshaped the industry in recent years.
“If you look at who they are competing with, you have other large players like UnitedHealthcare, which is a larger insurer that also owns OptumRx, which is a PBM that also has a large, specialty pharmacy mail-order business,” he notes. “It’s driven by rising healthcare costs and the desire for the payer—be it CMS, Medicaid, or ultimately the company that’s processing their claims through one of the large insurance companies—to try to get control of their costs. There’s an evolving belief, even within CMS, that paying per-line-item versus paying in a more holistic way is where the future is headed.”
There are two more strategies at play in these mergers as well, according to Blackburn. “One is to theoretically control the dollars, a lot of which is in extremely expensive chronic disease patients,” he says. “Secondarily, the players involved have less room to maneuver. You can’t move the needle if you’re buying a bunch of $5-million retail pharmacies. What does that do for you if you’re in the billions? It doesn’t mean you don’t do it, but it’s a small strategy compared to merging with Aetna.”
Also in the news last year was Amazon’s acquisition of PillPack. Both companies were tight-lipped on the details of the deal, which some published accounts pegged at $1 billion.
Blackburn was not surprised by the acquisition, which he characterized as a “supply chain play.” While Amazon-PillPack is totally different from the CVS-Aetna and Cigna-Express Scripts deals, there is a connection.
“There’s a lot of talk that the reason CVS and Aetna are teaming up and the reason Cigna and Express Scripts are teaming up is because Amazon is coming into the supply chain,” he explains.
Blackburn concludes that while it’s possible that 2019 will bring more super mergers and acquisitions, he doesn’t think we’ll come close to the kinds of numbers seen this year. Much more likely are smaller acquisitions like UnitedHealthcare’s purchase of Avella to build up its OptumRx pharmacy segment, which received little coverage in the business media.
“There are only a few mega deals to be done,” Blackburn predicts. “There are mid-tier PBMs out there, not a lot of them, but they’re out there. We saw Diplomat Pharmacy buy a PBM last year, and that put them in the PBM space. There’s certainly room for larger transactions, but not at this scale.”
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