Pharmacy benefit managers' business model is being threatened by federal regulatory and political efforts to cut healthcare costs; however, vertical mergers and acquisitions between PBMs and health insurers could deter some of these changes, according to Fitch Ratings.
Here are four things to know:
1. Fitch said more vertical M&A activity between PBMs and health insurers will result in a consolidation of negotiating power. The companies could use this increased leverage to make changes to pricing strategies and drug formularies before regulatory actions without materially affecting cash flow, according to Fitch.
2. The ratings agency pointed to how CVS Health's PBM, CVS Caremark, rolled out a new strategy for pricing PBM services. Under the company's new model, 100 percent of any rebates, discounts or other administration fees paid by drugmakers will be passed to health plan clients, who can then share them with plan members. By doing so, CVS Caremark "will take responsibility for drug price inflation and shifts in drug mix so clients have drug cost predictability," according to Fitch.
3. Changes by CVS Caremark and other PBMs follow the Trump administration's plan to lower drug prices and consumers' out-of-pocket costs. The administration's plan considers re-evaluating the fiduciary status of PBMs, overhauling the rebate system and reining in rebate use.
4. New pricing models from CVS and others like Cigna "might help alleviate criticism of their current practices, while underscoring the benefits provided by PBMs. However, we believe it is unlikely CVS and Cigna would forego drug manufacturer rebates without a corresponding offset of higher fees on other services," Fitch said.
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