Making Sense of Benefit M&A
With recent mergers like the Cigna/Express Scripts (ESI) deal, stakeholders across the pharmaceutical industry are curious about the future of independent PBMs, the future of pharmacy carve-out, the opportunity for Truveris, and if/how Amazon can be a catalyst to a major change in the way that we experience, and pay for, healthcare.
I am certainly not an expert on all things healthcare, but I’m very interested in how this impacts our ability to drive change from Truveris.
First, let’s back up for a second. Vertical integration is nothing new – industries undergo vertical mergers and acquisitions all of the time. One decade they break up, then they consolidate. The latest cycle seems to have started with UnitedHealthcare (UHC) buying Catamaran, the proposed Aetna and CVS merger, and now Cigna and ESI.
The media stories coming out of this are incredibly compelling, but it takes time for these large partnerships to gain traction. So far, even the largest PBMs have proven that integrating medical and pharmacy benefits is no easy task. These two benefits have different ecosystems, suppliers, distributors, and technology protocols, not to mention economics.
I am a big believer that if anyone can pull this integration off, it is UHC and Optum. Why? They are the most tech-savvy player and they have a very established business. Over the last several years, they’ve been working to bring these worlds together to deliver on total cost of care-based delivery models. But, even at their scale and capability, a fully integrated product is still years away. That leads me to believe that each of the new vertical integrators will need to make significant investments to integrate systems, aggregate data, and create the type of data-driven insights needed to make a meaningful impact.
In the meantime, each player plans to sell their services separately. OptumRx is competing full force with and without UHC, so is CVS and ESI. I don’t see that changing any time soon.
My crystal ball suggests that we’ll see significant consolidation in small-sized employer businesses that may not have the bandwidth or leverage to shop for separate benefit providers, but are primarily looking for the lowest possible cost. That model exists today with Prime Therapeutics and the Blue Cross Blue Shield providers, but is still years away from delivering on the full potential of its value.
Over the next three to five years, vertical players may see success with mid-market plan sponsors by offering more bundled services and lower total cost. With consolidation comes lack of transparency, but transparency is what we need. If the vertically-integrated players can provide the expected level of service and transparency, they will achieve their goal much sooner. But, I highly doubt that. Big companies have big organizational problems, respective P&Ls, budgeting constraints, etc.
Regarding Truveris, I believe these moves do not challenge our value proposition. Our strategy of providing big data analytics to plan sponsors, pharmaceutical manufacturers, and pharmacies to help with overall pharma spend (PBM managed or medical plan), provides the type of insights, oversight, and interventions that are key to client needs and expectations.