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What is the future of the PBM industry? Health care leaders predict disruption.

By Regina LohrChloe Bakst

July 20, 2022

    In the past few months, pharmacy benefit managers (PBMs) have come under new scrutiny. The Federal Trade Commission (FTC) launched a probe into the business practices of the largest six PBMs, Congress introduced legislation that would expand the FTC's authority to go after PBMs while also regulating some PBM practices, and as of June 2022, 37 states have introduced legislation related to PBMs that include licensing requirements, reporting mandates, and implementing copay caps or other cost-sharing regulation.

    During our recent Pharmacy Market Trends webinar, we posed two scenarios representing the future of the pharmacy benefit management industry, outlined below. We then invited audience members—including leaders from health systems, health plans, PBMs, and pharmaceutical companies—to share their thoughts on where they see the future of the PBM industry heading. The results were surprisingly mixed.

    Future scenario #1: The largest PBMs continue to dominate.

    Our first scenario is an extension of the current status quo. The largest PBMs further expand their offerings to address the full spectrum of health plans' and consumers' pharmacy needs. PBMs use strategies such as PBM-owned group purchasing organizations to grow in scale without formal consolidation and pressure smaller PBMs, including health system-owned PBMs, to participate. In an effort to generate better prices and larger rebates, PBMs continue to increase formulary exclusions.

    In order for this scenario to transpire, several factors need to occur. First, any FTC probe or government regulation of PBMs would have to result in no, or limited, changes to the industry. Secondly, the majority of health plans and plan sponsors must continue to value discounts and rebates as their main motivating factor for PBM contracting. PBMs would have to maintain strong relationships with health plans and employers while rebuilding their trust.

    In our polling, 44% (n=68) of respondents selected this option as the most likely scenario. Considering that 80% of prescriptions in the U.S. were managed by just three PBMs in 2021, it is not shocking that many believe that these organizations' hegemony will persist. Still, not everyone was convinced that the status quo will continue.

    Future scenario #2: New entrants reshape the market

    Our second scenario portends major changes in the pharmacy benefit management industry. In this potential future, the largest PBMs retain their core PBM transactional role, but emerging PBMs with niche offerings take control of benefit management functions. These new PBMs become the face of the industry, working with employers and plan sponsors to manage the pharmacy benefit itself. They may focus on their ability to lower drug costs through transparent pricing or total costs of care through improved medication access, or specific disease state management.

    This scenario requires seismic changes to the pharmacy benefit management environment. This could come via government regulations, such as increased reporting or negotiated pricing, that generate more transparency into drug costs.

    Alternatively, we could see health plans and employers driving the change if they start actively monitoring their benefits data to identify improvement opportunities and feel empowered to engage in the discussion around pharmacy benefits management, which has been an intimidating prospect in the past.

    Perhaps because of the more radical nature of this scenario, only 5% of respondents (n=8) selected this scenario as the most likely future of the PBM landscape.

    The winner: The future of the PBM landscape will see more moderated change.

    Ultimately, the most popular option was the option that combined elements of two scenarios. About half of respondents (n=78) chose this. In their comments, some respondents emphasized the FTC's potential role in shaping the future of the PBM industry, with governmental demands for transparency pushing PBMs towards scenario #2.

    Others pointed out that PBM lobbying efforts and, perhaps, lack of political will, will steer the future towards scenario #1. The mixture of these two scenarios sets out a future that looks in some ways similar to today's reality—the continued dominance of the largest PBMs whose market share is being targeted by smaller PBMs focused on transparency and niche service offerings.

    However, selecting this response indicates that industry leaders expect some change from today's status quo, they're just not sure how much.

    Parting thoughts

    Only one audience member selected the option, "I don't think either scenario will happen." While it's likely that parts of each of the scenarios will play out over the coming years, it's not set in stone.

    The reality is that many pharmacy stakeholders hold the power to shape how we manage pharmacy benefits. Pharmacy stakeholders such as health plans and employers have more agency of the future of the PBM landscape than they may think.

    If you have predictions on the future of the PBM industry, please feel free to reach out to bakstc@advisory.com and share your thoughts.  

    2022 Pharmacy market trends

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    We’ve created a ready-to-use slide presentation that equips leaders across the health care industry with strategic insights on major trends impacting the pharmacy market.

    Included are in-depth looks at the strategies pharmacy benefit managers and retail pharmacies are exploring in 2022 and beyond.

    Download now

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