PBM Mafia

Pharmacy Benefits Manager industry is expected to grow

Pharmacy Benefits Manager industry is expected to grow

Looking 5 years forward, the Pharmacy Benefits Manager (PBMs) industry is expected to grow. Why is this? The number of new generic medications entering into the market is expected to slow down, due to these blockbuster drugs loosening their patent exclusivity; diminishing industry revenue. Pharmacy Benefits Managers are known for negotiating lower prices for generic drugs, which helps increase profitability. Moreover, viewing this industry from an economical standpoint, we will see more growth in public and private healthcare insurances, decrease in unemployment rates, and more consumers covered under a prescription drug plan. The Patient Protection and Affordable Care Act (PPACA) is expected to keep expanding over the next five years. Penalties for uninsured consumers will force new consumers into the marketplace.

In 2015, the penalty for being uninsured increased by 1% and nearly doubled in 2016 and will be adjusted for inflation thereafter.

While the industry is consolidating, it enables Pharmacy Benefits Managers to have the leverage required to secure low-cost drugs from Pharmaceutical Manufacturing companies. Major players have aggressively started acquiring smaller companies in an attempt to increase their retail pharmacy network, bargaining power with drug manufacturers and customer base.

Pharmacy Benefits Managers that offer mail ordering services will begin to see the strongest growth. This is because of their lower cost on prescription medications they can offer, from selling direct to consumers at a lower operating cost. This is something we’re starting to see more often in the retail setting. More patients are being automatically switched over to mail order pharmacy.

Industry profitability is predicted to continue its upward trend over the next couple of years. We will begin to see more specialty medications and biologic therapy. The PPACA will expand consumer access to lower-cost generic drugs by preventing brand-name manufacturers from making label changes to the brand name or listed drugs; delaying generic products.

Patents for a remarkable number of blockbuster drugs started to expire in 2011 and continued this “patent-cliff” into 2016. The majority of these therapies are considered small molecule drugs and used to treat common conditions that affect a great size of the population. This “patent cliff” has started forcing more pharmaceutical companies to pivot their focus on developing large molecule biologic drugs, which are used to treat rare conditions (also called “orphan” medications) that affect a smaller size of the population. Biologics benefit from a 12-year patent period to justify its investment into innovative treatment. This becomes more advantageous, as you compare this to smaller molecule therapies like your blockbuster drugs, that have only a 5-year patent period. Thus, the PPACA will assist to accelerate generic approval for these generic alternatives, or biosimilars, to biologics--which are very costly drugs on the market.

Typically, Pharmacy Benefits Managers benefit from lower cost of generics because of their ability to negotiate stronger discounts. The steady drop in the number of new generics into the marketplace will impel growth in industry profitability. We will see Pharmacy Benefits Managers likely to witness stronger pressure to pass on cost savings to more consumers. Greater regulatory scrutiny is expected to expand compliance costs for PBM’s. New regulations will require PBM's to disclose more information on discounts and rebates from pharmaceutical manufacturers, forcing PBM's to become more transparent.


Major companies with most Market Share

  1. CVS Health Corporation
  2. Express Scripts Holding Company
  3. UnitedHealth Group, Inc.
  4. Aetna Inc.
  5. CIGNA Corporation


Author: Brandon K. Welch

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