Four trends that will shape business and the profession
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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Pharmacy automation will continue to expand in 2019, encompassing the mechanical processes of handling and dispensing medications-from counting pills and capsules and measuring and mixing liquids and powders for compounding to tracking and updating customer databases, packaging, labeling, storage, and inventory management.
Since the production of the first portable digital tablet counters in 1971, automation has evolved exponentially with the introduction of robotics, workflow management software, and interactive voice-recognition systems that have transformed the pharmacy industry at all levels.
The Forecast of Global Pharmacy Automation Market 2023 report projects that pharmacy automation revenue will grow an average 10.9% each year, reaching $17 billion by 2023, up from $9.14 billion in 2017. The United States is the largest consumer of pharmacy automation, accounting for 46% of global consumption in 2015.
For Omnicell, a leading provider of medication and supply management solutions to healthcare systems, 2018 was an excellent year. It reported record revenues of $575.6 million for the first nine months, up 11.5% over the same period in 2017. It expects product bookings of between $645 and $670 million for this year.
“The major factor driving pharmacy automation is that the number of scripts is growing, and growing dramatically across all places of service. For our hospital and health system customers, pharmacy is 40% to 50% of their bottom line profit,” says Omnicell’s executive vice president and chief commercial officer Scott Seidelmann.
He adds that as health systems get bigger and their needs broaden, pharmacy is elevated in importance. “The impact that pharmacy has on the overall patient episode and its ability to influence not only patient care but economics across the continuum is driving the need for more automation,” he says.
Privately-held Innovation also reports considerable growth in 2018 for its PharmASSIST family of automation and process optimization solutions. It has hired 65 new employees and expects to add another dozen by the end of the year as it prepares to move into a new 91,000-square-foot office space in Johnson City, NY.
“We’ve seen a major move by the market for advancement in technology for centralized fulfillment of prescriptions. All pharmacy players that want to remain relevant are trying to provide an omnichannel experience for the pharmacy customer,” says Doyle Jensen, Innovation’s executive vice president of global business development.
While compressed margins and increased competition have resulted in less investment by independent pharmacists, Jensen identifies the addition of more specialized lines of services as an emerging trend. “Their investment in the last two or three years has been towards compliance-pack technology, like PillPack, where they can differentiate their service by doing something that the chains aren’t doing,” he notes. Independents with multiple retail locations are installing more advanced automated solutions that can leverage that scale, perhaps by creating a small central fill, he adds.
Pharmacy chains are beginning to move in the same direction as the agile independents, Jensen says, adding that a representative of a large chain in the Southeast recently told him that it’s only a matter of time before people get their prescriptions from Amazon, so the chain is investing in technology to keep those customers. “They know that once they’ve lost the customer, they’re probably not going to get them back. It’s a lot less expensive to retain customers than to attract them,” he points out.
As for the future challenges, Seidelmann cites the move toward more patients receiving treatment at home or lower-cost places of service instead of an acute care setting. “As that happens, we need to anticipate how we can deliver services and solutions to our customers to help them manage that trend,” he says. “We’ll certainly deliver solutions over the next few years that will help health systems manage this transition of care and maintain a continuity of care delivery with patients where they’re on the third floor of the ICU or at home and being treated by telemedicine.”
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Telepharmacy has been transformed drastically in the last decade, and the prospects for future growth are bright. The telepharmacy market in the United States is predicted to reach $3.2 billion by 2020, or about 13% of the $22-billion telemedicine market.
Advancements in integrated technology and specialized software have optimized telepharmacy to the point where pharmacists working remotely can now handle many of the tasks that in-house pharmacists perform, freeing them up to focus on important clinical initiatives like medication reconciliation and discharge management that help ensure better patient outcomes.
Used widely by major pharmacy chains, telepharmacy has also been a solution for some rural areas that have lost their independent pharmacies, and for small to medium-sized hospitals that have difficulty recruiting staff pharmacists.
Brian Roberts, CEO at PipelineRx, says telepharmacy combines two important assets-technology and great pharmacists-enabled by access to the internet and sophisticated integration.
“We’re now cloud-based so the facilities don’t actually have to put any physical equipment in their hospital or facility,” he explains. “[Protected health information] security has gotten better so hospitals and community pharmacies are more confident that data is being protected. Prescription errors are lower because you get a very high-quality pharmacist who’s making the decisions, and they’re focused just on the patient and what’s going to be safe for them.”
With 30% of prescription processing in hospitals being done through some sort of telepharmacy, Roberts says there’s plenty of room for growth. He predicts that telepharmacy will continue to grow in 2019 as it plays an integral role in two specific areas: transition of care and expanding access to pharmacists.
PipelineRx launched its Discharge Management Program this year to handle patient transitions from hospital to nursing home or to home. “Thirty percent of those patients either have an error on their walking papers or they never get their medications filled,” he explains. “A lot of dollars are lost and a lot of people get sicker when they end up back in the hospital 30 days later because they didn’t get their meds filled.
Roberts notes that the pharmacist is the most trusted individual in the healthcare chain. PipelineRx plans to leverage that by establishing drug information lines that provide patients with direct access to a pharmacist who can answer their medication questions.
“Our vision is that patients and clinicians should have connections and access to a pharmacist anytime, anywhere. It’s going to only enhance patient safety and their satisfaction with their medication program,” he predicts.
Forty-five states now allow telepharmacy, although rules and requirements for operation vary widely. ASHP continues to advocate for its expanded use while acknowledging the regulatory purview of state boards of pharmacy.
“The intent of such regulations should be to balance protection of the public health with the increased patient access to the patient care services of pharmacists provided by telepharmacy,” says Christopher J. Topoleski, ASHP’s director of federal legislative affairs. “Although such regulations should allow for various arrangements across state borders and within or between health systems, these regulations all need to address a number of common concerns such as standards for the use of technicians in telepharmacy and the harmonization of the practice of pharmacy across state lines.”
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No discussion of pharmacy trends would be complete without a review of drug prices, whose sustained and dramatic escalation is considered by many to be one of the biggest threats to quality healthcare in this country.
Net-price spending on pharmaceuticals in the United States hit $324 billion in 2017, according to IQVIA statistics released earlier this year. In July, the Vizient Drug Price Forecast projected a weighted average drug price inflation rate of 4.92% for 2019, more than double the U.S. inflation rate. It attributes up to 80% of the total increase to high-dollar branded products that have no competition.
NCPA continues to call for a greater focus on the largely unregulated role of pharmacy benefit managers, and specifically retroactive pharmacy DIR fees, which it says are a top concern for independent community pharmacists.
“These retroactive clawbacks make it extremely difficult for community pharmacists to operate their small businesses. They also lead to inflated drug costs, which punish beneficiaries who use their drug plan to fill prescriptions,” Hoey says. The organization continues to work with officials at CMS, HHS, the White House, and Congress on the issue.
Action on drug pricing is not limited to the federal level, and many states are working to lower drug prices. “What we’re seeing is what we’ve suspected for years, [that] PBMs are reimbursing pharmacies low, charging Medicaid programs high, and more often than not, pocketing the difference,” Hoey explains, adding that Medicaid prescription payment reform will be a top advocacy priority for NCPA and many state pharmacy associations in 2019.
Vizient Senior Vice President for Pharmacy Services Dan Kistner, PharmD, is both optimistic and cautious about what lies ahead for drug prices in 2019, saying it could be a “game-changing year.” Eight pharmaceutical companies said they would freeze prices during 2018, but one, Pfizer, already announced it is raising prices in 2019.
Analysis from Rx Savings Solutions showed more than three dozen manufacturers raised prices on more than 1,000 drugs in the first week of January that resulted in an average 6% rise in drug prices.
But biosimilars could swing the pendulum the other way. The biosimilars market is growing, and the potential competition could quell the expense of biologics-including Humira, Remicade, and Neupogen-which account for almost 40% of all prescription drug spending. McKinsey reports that biosimilar sales could triple in size to $15 billion by 2020.
In mid-2018, the FDA released its Biosimilar Action Plan (BAP) and reaffirmed its commitment to encouraging innovation and competition among biologics and the development of biosimilars. To date, the agency has approved 14 biosimilar products.
“As the U.S. market continues to expand and evolve, economies of scale should allow biosimilars to pass on more savings to payers and, in turn, patients,” states BAP. “Prices should continue to fall as markets become more competitive.”
Also on the horizon (as it has been for the last two years) is the CREATES Act, aimed at reducing prices and increasing the competitiveness of generic drugs, which comprise 90% of all prescriptions in the United States. The Congressional Budget Office estimates the proposed legislation would save $3.8 billion over a 10-year period. The bill was removed from the 2018 federal budget package after the pharmaceutical industry lobbied against it.
“ASHP supports the CREATES Act, which would promote competition by limiting manufacturers’ ability to prevent potential competitors from entering the generic market,” says Topoleski. “We are optimistic that the bill, if not acted upon this year, will be reintroduced in the 116th Congress.”
One new entrant in the drug price wars that will be tested next year is Civica Rx, a not-for-profit generic drug company with the goal of addressing the shortages and high prices of lifesaving medications. Launched a year ago by five healthcare systems, it will be an FDA-approved manufacturer that will directly manufacture the drugs or subcontract them to reputable manufacturing organizations. Civica Rx plans to deliver 14 hospital-administered generic drugs to market in 2019.
“Serving patients is a privilege, and that privilege comes with significant responsibilities,” explains President and CEO Martin Van Trieste. “Some of those responsibilities are to deliver quality medicines and a robust and reliable supply chain at a fair and sustainable price. That’s the core of what we’re trying to do.”
Van Trieste uses the phrase “disruptive to the marketplace” to describe the company’s operating model, its production and distribution plans, and the fact that it will not pay rebates. But he also promises that Civica Rx will offer price transparency that is fair and sustainable, and that it will rely on built-in redundancies in manufacturing and their supply chain, plus significant safety stock, to ensure that there will be no drug shortages.
“If people know that if they drop the ball Civica is there to stand up and take it away from them, that’s a policing function in the marketplace,” Van Trieste says.
He says initial response to Civica Rx has been overwhelming, with close to 150 hospital systems expressing very strong interest to date.
Finally, The Braff Group’s Blackburn says with gross margins at the pharmacy level squeezed to the max, it’s time for bigger players to exercise their power to control drug costs. “There is an opportunity for companies like Express Scripts and Cigna, Aetna/CVS, UnitedHealthcare and Optum, and Medicare and Medicaid to start more aggressively directing which drugs are going to be in their formularies and how the drugs are going to be paid for,” he concludes.
Beth Longware Duff is a contributing editor