Last June, Rite Aid bought EnvisionRx. Now Walgreens is planning to buy Rite Aid. It raises the question … is Walgreens jumping back into the PBM market? A PBM (pharmacy benefits manager) is a third-party entity that processes and pays prescription drug claims. It also negotiates lower prices from drug manufacturers for the insurers it works with. EnvisionRx is a PBM, and if Walgreens acquires Rite Aid, it’ll end up with EnvisionRx too.
Such transactions are no novelty. The acquisition of EnvisionRx by Rite Aid was one more headline in an ongoing story of consolidation in the PBM space. “Bigger fish are buying smaller fish and then getting acquired by fish bigger than themselves,” said the magazine Managed Care.
- Catamaran bought Restat in 2013.
- UnitedHealth bought Catamaran last March.
- Rite Aid bought EnvisionRx last February.
- CVS bought Omnicare last May.
- Walgreens is planning to buy Rite Aid.
Lucrative business behind the counter
According to Business Insider, the over-the-counter side of a pharmacy may be the more visible, but it’s what happens behind the counter, through the PBM, that’s really lucrative. For example, when Rite Aid bought EnvisionRx, it got “a national pharmacy benefits manager with about $5 billion in projected annual revenue.”
PBMs aren’t just lucrative – they’re powerful. “Evidence of the power held by some PBMs was seen last year when Express Scripts stopped covering Gilead Sciences’ $84,000 Hepatitis C treatment Sovaldi in order to enter an exclusive agreement with AbbVie for its cheaper treatment Viekira Pak,” Modern Healthcare.
Walgreens makes its move
Walgreens left the PBM space in 2011 with the sale of Catamaran (which was called Catalyst Health Solutions at the time). Last April, Catamaran was bought by UnitedHealth Group to the tune of $12 billion. Catamaran is now the third-largest PBM in the U.S. and is being sued by Kmart. Kmart, which has more than 700 pharmacies, alleges that is has incurred $38 million in damages thanks to Catamaran’s allegedly illegal practices.
The Walgreens – Rite Aid – EnvisionRx deal, if approved, could unite two of the country’s biggest drugstore owners. The deal “would be likely to draw scrutiny from antitrust regulators, who could demand divestitures in exchange for their approval,” said the Wall Street Journal.
What are the implications for group benefits plans?
PBM acquisition benefits large retailers, which can control their costs by making backward integrations in the supply chain. It also raises their bargaining power, positioning them to secure lower drug prices, which could conceivably lower prices for consumers as well.
It makes life harder for drug manufacturers, of course. “I think  has been one of the most brutal years of price erosion, as channel consolidation has been heavy in the US,” said the COO of Dr. Reddy’s Laboratories last year.
It also slants the playing field against small, local pharmacies, who are likely to be gobbled up in turn. That may be bad news for consumers who prefer to fill prescriptions at local businesses, rather than large chains.
For employers interested in self funding, PBMs represent opportunity. When PBMs are used in a well-designed and properly-implemented self funded group benefits program, companies can achieve significant cost savings.
Contact BeaconPath if you would like to know more, and download our checklist “Self-Funding – The Data” to find out other savings opportunities made possible when you have access to the right group benefits data.