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Walgreens' return to pharmacy benefit management not a sure bet

Posted On: Nov. 4, 2015 12:00 AM CST

Walgreens Boots Alliance Inc.'s decision to acquire Rite Aid Corp. throws the retail chain back in the pharmacy benefit management ring, but experts say employers are unlikely to reap any major benefits from the deal.

Instead, industry experts are keeping an eye on other recent transactions between major PBM players with greater market share, like Optum Inc. and Catamaran Corp., and CVS Health Corp. and Omnicare Inc., for signs that employers could save costs or gain better service from PBM consolidation.

Deerfield, Illinois-based Walgreens last week announced it struck a deal to buy rival Rite Aid for $17.2 billion and picked up Rite Aid's recently acquired PBM Envision Pharmaceutical Services, doing business as EnvisionRx, in the process.

PBMs handle pharmacy benefits for self-insured employers, and they also negotiate drug prices or rebates with drug makers and retail pharmacies.

Mergers between large PBMs may have the potential benefit of gaining greater negotiating power through the sheer size of the combined company and volume of business, but for a small PBM like EnvisionRx, that's an unlikely outcome, sources say.

“Envision is not a large player in the marketplace, so what sort of short-term impact that's going to have would be very difficult to predict,” said Craig Oberg, managing consultant with pharmacy benefit management consultant The Burchfield Group Inc. in St. Paul, Minnesota.

Thinking long-term, Walgreens' plan for EnvisionRx is not clear. Walgreens executives said during a conference call with investment analysts last week that the PBM could provide a learning opportunity to understand how to access that market.

“Is that a resounding endorsement that they're going to be chasing this PBM actively? Is it going to be a key contributor to their business model or is it going to follow their previous decision where they did in fact divest themselves of a PBM?” Mr. Oberg said.

Walgreens in 2011 sold its PBM business to Catalyst Health Solutions Inc., which later became Catamaran.

If Walgreens decides to invest in EnvisionRx, the drugstore chain could “use their retail pharmacies as an outlet for some of their PBM services,” such as allowing PBM plan members to pick up 90-day supplies of their medications at a local retail store, but still get the mail order discount benefit that the PBM offers — a tactic employed by CVS, Mr. Oberg said.

Volume matters

But then again, Envision doesn't have the volume that CVS' PBM Caremark L.L.C. enjoys. Envision in February projected its 2015 revenues to total $5 billion. CVS/Caremark raked in about $88 billion in 2014.

“Walgreens buying Rite Aid is like a blip on the screen,” when compared with some of the other major merger and acquisition activity in health care, said Randy Vogenberg, Greenville, South Carolina-based principal at the Institute for Integrated Healthcare and partner with Access Market Intelligence.

“If they bought CVS, that would be a different story,” he said, adding that much of the M&A activity in health care is unlikely to significantly affect employers, as big market players “already have their own leverage points.” Getting any bigger is “not that much of a big deal,” he said.

Still, EnvisionRx could stir more competition among dominant PBMs like Express Scripts Holding Co., CVS/Caremark and Optum.

“You have a company with pretty big pockets that may want to see that EnvisionRx business grow, and create additional competition. … That ultimately is potentially good for our employer plan sponsors,” said Josh Golden, practice leader of the employer consulting segment with Pharmaceutical Strategies Group L.L.C. in Atlanta.

A larger PBM, he said, could drive incremental value for employers, but it's going to take some time for Walgreens and Rite Aid to consolidate.

There is also the potential that any value driven by consolidation is not passed on to employers.

“It's particularly crucial that employers maintain some pressure on their PBMs” in terms of benchmarking or procurements, to receive that value, Mr. Golden said.

Still, recent deals between CVS and Omnicare in August and Optum and Catamaran in July show greater promise for bringing cost savings and better service to employers and plan sponsors, sources said.

At the same time, experts said, consolidation means fewer options among PBMs in the marketplace for employers to choose from, and sometimes service disruption stemming from the process of merging.