What the CVS-Aetna deal means for the future of your prescriptions and health care
It’s ‘uncharted territory’
Adapted from a story by The Washington Post’s Carolyn Y. Johnson.
Consumers aren’t privy to the complex system of pharmacy benefit managers, retailers, wholesalers and insurers behind the cost of their health care and drugs. That supply chain is the center of attention in the corporate world after CVS Health announced a $69 billion deal to buy Aetna, the nation’s third-largest insurer.
CVS Health makes most of its money from one of the most lucrative points along the supply chain as a pharmacy benefit manager, negotiating drug prices for health insurers and employers.
The merger, which would be one of the biggest health-care deals of all time, signals the primacy of those negotiations in the health-care system.
“This is kind of uncharted territory — a pharmacy benefit manager [PBM] buying a major national health plan. I think it’s a sign of the times,” said Michael Rea, chief executive at Rx Savings Solutions, a company that provides transparency prescription drug tools. “PBMs represented a little-known entity no one knew about not that long ago, and now they’re the controlling piece of the deal to take over a national insurer.”
That evolution has cast a spotlight on the typically behind-the-scenes business of negotiating drug discounts — which have become a growing source of frustration to consumers and industry players because of spiraling costs.
CVS says it is buying Aetna to expand into managing the entire continuum of patients’ health, not just their drug costs. And more cross-industry deals like the CVS-Aetna merger are anticipated, partially because siloed industries, such as a stand-alone company that wrings rebates on drug prices, don’t make as much sense in a health-care system where companies are increasingly trying to put as many functions as possible under one roof — whether it’s seeing doctors, surgery or prescriptions.
That’s what the nation’s largest insurer, UnitedHealth Group, has done — running its own pharmacy benefit manager as well as acquiring a growing network of clinics and surgical care centers.
But many people see industry changes as realigning players in the opaque drug pricing system.
One sector at risk in this kind of reshuffling is companies whose core business is negotiating drug prices, where it may be unclear how much they contribute to the intended outcome: healthier patients.
“You go to the players kind of sitting in between — the PBMs and the pharmaceutical distributors. It really is a middleman — it’s not diagnostics and therapeutics, it’s not really wellness. They’re going to get the most squeezed,” said Gurpreet Singh, leader of health services at PwC, an accounting and consulting firm.
Earlier this year, health insurer Anthem broke up with its pharmacy benefit manager, Express Scripts Holding, and brought drug price negotiation in house, amid questions about whether the companywas charging too much for drugs.
UnitedHealth Group runs its own pharmacy benefit manager through its Optum business segment.
“After a great multidecade run, [drug] industry growth is slowing down, because the industry is so big that it’s drawing intense scrutiny, from consumers, payers and the government,” said George Hill, an equity research analyst at RBC Capital Markets. “When an industry’s growth slows down . . . dynamics become more competitive and more hostile.”
The powerful alliance is unsettling to some doctors, who worry their roles could be usurped by a company eager to manage care in a cheaper setting. Michael Munger, president of the American Academy of Family Physicians, said his organization isn’t opposed to the merger but has concerns — for example, that the merger could push Aetna patients into MinuteClinics instead of appointments with primary care doctors.
“I think there’s a very powerful omission of the word ‘physician.’ I think everything that is described is what we do,” said James Cunnar, a family physician from Naperville, Ill., who said he read about the deal with growing horror.
In the background to all this change — and partially spurring it — is the threat that online retailer Amazon.com could enter some part of the middleman business, further disrupting the drug supply chain with a new business model. (The Lily is part of The Washington Post which is owned by Amazon chief executive Jeffrey P. Bezos.)
Amazon’s possible entry into the drug business has become a sort of health-care Rorschach test, with analysts, consumers and others projecting onto it ways the company could make a byzantine drug-pricing system simple and cheaper.
As consumers are increasingly on the hook for their medical costs, however, and the workings of the drug supply chain are increasingly drawing public scrutiny, the idea of new competition from a company that has built an empire out of disrupting how people shop is, for some, appealing.
“We see this as a tipping point; we see Amazon as a catalyst or an enabler,” said Richard Evans, an analyst at SSR Health. “All these discordant notes that are echoing around, and people are starting to envision what the symphony is going to sound like once the warm-up period is over. Let’s put it this way: something very different.”
