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Is Walgreens circling the PBM market?

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When those in the know heard about Walgreens Boots Alliance's plan to acquire rival Rite Aid, many thought of three letters. And it wasn't CVS.

The $9 billion deal, if approved, would include EnvisionRx, a national pharmacy benefits manager that Rite Aid bought in June for $2 billion. PBMs are third parties that process and pay for prescription drug claims, often working for insurers to negotiate lower drug prices from pharmaceutical makers, basically setting the price paid by patients, health care providers and pharmacies.

In 2011, Walgreens left the PBM market, valued at $300 billion, when it sold Catalyst Health Solutions, which later became Catamaran after merging with SXC Health Solutions.

Since that time, Walgreens has stood by to see rival CVS Health take an increasing share of the PBM market after it purchased Caremark in 2006.

EnvisionRx could give Walgreens a step toward acquiring large PBM targets.

In an investment note written this week, analysts at Cowen and Co. said the acquisition would provide Walgreens with a PBM to “experiment with.” Though it would not be on the same scale as CVS or Express Scripts Holdings Co., they said the door could be open for Walgreens to eventually buy Express Scripts, which was also a takeover target.

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.

“You've got tremendous consolidation, and theoretically that would benefit employers in terms of lower prices,” said Dr. William Bithoney, chief physician executive at BDO Healthcare, a global consulting services firm.

Few companies are more in demand in the current climate than PBMs. The past year has seen a number of acquisitions take place by providers, insurers, as well as other PBMs and retail pharmacies — all trying to control drug costs.

In April, insurer UnitedHealth Group, bought pharmacy benefits management services provider Catamaran for an estimated $12 billion to make it a part of its existing OptumRx unit, making it the third largest PBM in the country behind Express Scripts Holdings and CVS Health. Together, the three companies own more than a 75% share of the PBM market.

UnitedHealth's move was the first large-scale move by an insurer to break from the traditional PBM contract and instead operate similar in-house services.

CVS broadened its footprint in the pharmacy services space when it acquired Omnicare in May, the country's largest provider of drugs to nursing homes.

But all of that consolidation means smaller, independent pharmacies could find it harder to compete, said Douglas Hoey, CEO for the National Community Pharmacists Association, the leading trade group representing 23,000 pharmacies.

He said the worry was that drugstore chains like CVS and now Walgreens could use their shares within the PBM market to leverage insurers into exclusive networks with their beneficiaries.

“If consumers are given a choice, then they'll choose an independent over a chain drug store,” Hoey said. He thinks all things being equal, that consumers prefer more personalized service than the homogeneity of large chains.

Steven Ross Johnson writes for Modern Healthcare, a sister publication of Business Insurance.