Consolidation in the PBM Industry
Executive Summary
Some industry executives are wondering whether customers on the outpatient side-most notably, pharmacy benefit management companies-are preparing their own consolidation.
For companies selling products into the inpatient setting, arguably the most important development over the past three or four years has been the dramatic consolidation among hospital systems and groups: witness the emergence of Columbia/HCA and the merger of Premier, American Health Care Systems, and SunHealth.
Now, some industry executives are wondering whether customers on the outpatient side—most notably, pharmacy benefit management companies—are preparing their own consolidation. While no large scale consolidation has taken place yet, the consolidation theories stem from a number of recent, unrelated developments: recent rumors that Medco was going to acquire Prescription Solutions, the PBM arm of Pacificare; the recent events at Caremark (a takeover by Mullikin) and ValueRx (spun-off by ValueHealth into an independent company); and, more generally, continued high consolidation at higher levels of the managed care industry.
Some industry executives point to the ValueHealth move as a clear indication that the company is positioning its PBM for a sale and they question whether Mullikin, a physician practice management firm, will find much value in Caremark’s PBM operation in the long term. Company officials reportedly want Caremark for its prescription data, which they see as necessary for disease management. But whether you have to own a PBM to get that remains to be seen. Says one PBM executive, “We debated that one internally for a while. I think they’re going to wait to see how much money you make off the rebates. You can make good arguments on both sides [i.e., that Mullikin will sell the PBM and that it won’t]. In the end, we split 50/50.”
Of course, since Merck, SB, and Lilly picked off three of the largest PBMs a couple of years ago, large scale consolidation—to rival the Premier/AmHS/SunHealth merger in the hospital industry—is impossible. Says one industry executive, “I don’t think consolidation will be dramatic because there’s nobody that big anymore. But we may see some of the smaller PBMs go.”