UHC acquisition of Catamaran may lead to lower PBM costs

UnitedHealth Group’s $12.8 billion purchase of pharmacy benefit manager Catamaran Corp. continues a trend of PBM acquisitions, and there’s more to come, industry consultants say. In the long term, that may mean lower costs and more data availability for employers.

In February, Rite Aid Corp. acquired EnvisionRx for $2 billion. Some of the biggest moves in recent years include CVS’s purchase of Caremark in 2006 and ExpressScripts acquiring Medco Health Solutions in 2012. “We are going to continue with consolidation,” says Nicole Hengst, PBM research director at Health Strategies Group.

This high-profile acquisition means all health plans will now be looking at their PBMs and determining their next moves, including acquiring or merging. For example, Aetna might buy Caremark — which it has a long-term contractual relationship with — and “ExpressScripts and Coventry [Health Care] have become chummy,”  says Susan Hayes, principal at Lake Zurich, Ill.-based Pharmacy Outcomes Specialists.

It’s well known within the industry that Aetna and Cigna, which also has an inhouse PBM, are looking to change their PBM strategy, says Ritu Malhotra, national pharmacy benefits practice leader at Segal in Chicago, says. It will be interesting to see what they do now going forward, she adds.

However, it may not be economical for a health plan to buy a PBM outright, says Bryan Birch, CEO of New York City-based Truveris, but rather acquire certain items, such as proprietary technology.

Employer, broker impact

Since Catamaran was one of the stronger standalone PBMs in the market, the acquisition, announced Monday, is “not shocking,” Malhotra says. However, she adds, “It’s a brilliant move on United’s part. I don’t know anybody [who saw] it coming.”

With Catamaran’s focus on sophisticated technology and data, United will now have much more clinical focus and analysis, Malhorta explains. “They are purchasing an organization that is a leader in that industry,” she says.

In the PBM world, size and scale matter, says Scott Hengst, senior consultant at Lambertville, N.J.-based Health Strategies Group. After this acquisition, Mr. Hengst says the three main players are:

• Caremark: This PBM mostly focuses on retail and has the ability to control prescription flow.
• United:  Its new in-house PBM gives them unlimited access to medical, prescriptions, lab, diagnostics, etc.
• ExpressScripts: “The big third-party PBM,” Mr. Hengst says, and a leader in driving down overall costs.

Brokers need to understand these three models, he says, and be attuned to what the full suite of options will look like under United, as “it may become more complex with different types of plans.”
The move overall is an “exciting announcement” for employers, Malhotra says, as it allows clients to have another large competitive PBM in the market that will keep pricing and service levels competitive.

The deal is likely to drive down costs, agrees Bryan Birch, CEO of New York City-based Truveris, a technology company focused on the pharmaceutical industry. Since scale matters in this field, as organizations continue to grow they will garner additional value through the pharmacy supply chain and “hopefully some of that will be given back to consumers,” he says.

However, consultant Hayes sees it as a bad move that provides employers fewer choices. “It’s another PBM taking more spread and driving costs up,” she says.  “The more competition there is, you can drive down cost. Economic theory, that still works.”

Even so, in the very near term, there is likely to be little change. A merger of this size will impact both organizations’ ability to be successful with sales for the next year or so, Malhotra says. But if the new company is able to maintain service levels, “they could be a major competitor for the 2016 sales cycle.”