Most who have been in the pharmacy benefits business for any length of time have learned that change, both real and perceived, is a constant. Perceived change is driven by marketing lingo and product positioning by organizations claiming new-to-market or revolutionary solutions, when in fact, the real measurable solution is still in the proof-of-concept phase.
Why does this matter? Right now, our industry is undergoing major restructuring that is purported to bring about great change, more control for plan sponsors, better control over the total health care spend, and increased visibility into medical and pharmacy costs. We will examine several market dynamics which are converging to mold the future of health care.
Moving forward, PBM’s historical value proposition will be overshadowed by the promise of managing total cost of care. Additionally, three of the top four specialty pharmacies that in total have roughly 75 percent market share will now be under common ownership with a health plan. It is expected that health plans will begin to more effectively leverage the specialty pharmacies distribution, aggressive management strategies, and rebating capabilities under the medical benefit as they seek to tackle total cost of care.
Along with vertical integration will be a transformation in the way PBMs and health plans work with prescribers. Currently, too much of the drug benefit management happens after a patient walks out of the physician’s office. Putting point-of-sales claim adjudication information at the fingertips of the physician at the point of prescribing will be a game changer, minimizing member disruption and creating an environment for more effective management of the drug benefit.
This consolidation opens the door to future development, such as providing integrated medical/pharmacy information or even outcomes data directly to the physician at the point of prescribing.
Specialty pharmacy growth and challenges
As we referenced in Part 1 of this series, it is likely that 50 percent of the total drug spend will be specialty pharmacy by 2020. Additionally, 30 million Americans have a rare disease for which there is no current cure. Drug manufacturers, however, are working to develop medications targeting these rare diseases, which in many cases costs hundreds of thousands of dollars annually.
As such, specialty management will be one of the most difficult challenges moving forward. This is due to the risk created by the exceptionally high costs of these drugs (especially for small- and mid-sized, self-funded employers), lack of credible data which integrates medical outcomes and pharmacy claims, lack of visibility and controls over specialty drugs adjudicated through the medical benefit, and limited clinical outcomes data which justify the price of these high-cost drugs.
Plan sponsors are skeptical
The pharmacy benefits landscape will continue to evolve and impact the future. We expect a few unique perspectives to emerge in the next 18-24 months:
- Total Cost of Care driven by vertical integration
Historically, PBMs focused on lowering outpatient prescription drug spend. More recently, PBMs realized they could also positively impact the medical specialty drug spend. This approach is still siloed, however, as it considers only a patient’s drug cost. PBMs have also started to demonstrate the value of their programs through the anticipated impact of reduced medical costs by working more closely with members to manage certain disease states.
Moving forward, total cost of care will be at the forefront of every health plan and PBM sales pitch. The combination of two separate specialist organizations, a health plan, and a PBM under one singular vision will create opportunities for data scientists to leverage not just big data, but medical/pharmacy integrated data. This integration will seek to understand not only which drug offers the best clinical results but also which drug offers the lowest total cost of care. We are likely to see arguments stating that higher cost drug therapies drive lower medical costs. In addition, we will see integrated clinical/patient management strategies in which both the health plan and the PBM, for the first time, use the exact same clinical protocols to manage a patient’s health.
- Transparency and consumerism
The rebating system will be meaningfully transformed. Eliminating rebates altogether will likely be too significant as it would send a shockwave through the entire supply chain. It would not be surprising, however, to see a world in which the government redefines the rules of the game relating to rebates, thus driving greater transparency into the true net cost of medications and, in the process, helping to eliminate misaligned interests within the PBM model.
With the continued rise of high-deductible health plans, this increased transparency will demand a new perspective of consumerism which will include providing consumers with integrated data focusing on total cost of care and clinical outcomes. Consumerism may also play a role in how rebates are reimagined by PBMs. Think a world where a manufacturer would reimburse a member or the plan sponsor if the medication does not work. While this may be an extreme example, PBMs will certainly be challenged to move away from what some call a pay-to-play atmosphere to value-based rebate contracting or even development of rebate strategies based on the integrated medical and pharmacy clinical management protocols mentioned earlier.
- Disrupters may gain attention
Disruptors are not just new market entrants, but also existing companies providing a disruptive solution, such as new pricing models. Amazon, JP Morgan, and Berkshire Hathaway are clearly looking to disrupt the market. Disruption, however, will also come in the form of continued disaggregation of the entire health benefits administration model. This might include an integrated health and hospital system or accountable care organizations (ACO) purchasing discrete services from PBMs and health plans/TPAs and supplementing them with in-house services or third-parties (i.e. development of clinical protocols, formulary management, drug purchasing, and member navigation/advocacy).
So, what does this all mean? While we may not know exactly what we are facing, we must be prepared to look at effectiveness, pricing, and outcomes through a different lens. The effects of vertical integration will force plans and their benefit advisors to re-examine how they contract and procure PBM services, weigh the risks vs benefits of maintaining carve-out contracts, and sift through what is real vs perceived changes in the way pharmacy and medical costs are tracked and managed.
Real change is coming, and while it may not be as soon as the market will try to convince us, now is the time to be thoughtful and start preparing.
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