Pharmacy Benefit Managers Face Double Threat

Do WellPoint and Aetna know something about healthcare reform that others don't? WellPoint sold its pharmacy benefit manager (PBM) division recently to Express Scripts, and Aetna has put its PBM on the block, with Medco reported to be the leading bidder. Meanwhile, one of the reform bills would require PBMs to reveal how much they're getting back from pharmaceutical companies on particular drugs. If they spill their competitive secrets, the Wall Street Journal speculates, they might not be able to continue raking in billions by obtaining drug rebates on behalf of their employer and health plan clients. In that case, it will be said that WellPoint and Aetna made some very prescient moves.

Another sign of the times: Caterpillar has struck direct deals with Walgreens and Wal Mart for prescription drugs. If other big employers followed suit, PBMs would become superfluous. On the other hand, the Journal points out, "the Caterpillar deal [with Walgreens] isn't as threatening [to PBMs] as it looks. Caterpillar will keep its benefit manager to handle rebate negotiations [with drug firms]." Sounds like Caterpillar is playing both ends against the middle.

CVS, meanwhile, is not sweating it. The big drug chain, which operates its own PBM, is not worried about competition between that division and other pharmacy chains. And it regards the outcome of healthcare reform as "a wash." CVS's share price has increased 50 percent since March, and its PBM business is also expected to improve.

Consolidation among the PBMs should give the survivors more clout to get better prices from the pharma companies. If so, the divestiture of WellPoint and Aetna's PBMs would be a good thing for employers and consumers.

But what gets lost in this discussion is the benefit to patients. If PBMs reduce drug prices, it's possible-depending on their health plan and the company they work for-that some patients might pay less for drugs. It's also possible that a particular medication that they need will cost them more because it's eliminated from their health plans' formulary in favor of another drug that the PBM is getting a rebate on.

From this perspective, one might argue that the government should bargain on drug prices for the entire population-and not just for Medicare, as has been proposed. Of course, the pharmaceutical industry would cry bloody murder; but this is the way they do business in nearly every other advanced country. Why should U.S. consumers and employers continue to contribute half of the drug industry's worldwide profits? And why should we pay billions of dollars to middlemen that do little more than negotiate discounts?