Medicare Rx Will Lead To PBM Industry Consolidation, Former CMS Head Predicts
This article was originally published in The Pink Sheet Daily
Executive Summary
The pharmacy benefit management industry will consolidate into between seven and 10 large companies under the Medicare Rx drug benefit, former Centers for Medicare & Medicaid Services Administrator Tom Scully said
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The pharmacy benefit management industry will consolidate into between seven and 10 large companies under the Medicare Rx drug benefit, former Centers for Medicare & Medicaid Services Administrator Tom Scully said. "PBM business will...transform from a commercial business into a very large, very powerful, fairly regulated, very high volume, probably slim to lower margin business, but it's going to look a lot different in four or five years than it does today," Scully told the Washington Research Group's annual symposium in Washington, D.C. Nov. 5. Scully is now with the law firm Alston & Bird. "There's three dominant PBMs today: Medco, Caremark and Express Scripts. There are a bunch of other small ones," Scully said. "There are going to be probably seven to 10 very big, very dominant, massively empowered PBMs that are going to basically dominate the pharmaceutical market." Pharmaceutical companies will have to change their "entire mission" under the Medicare drug benefit, Scully said (see 1 (Also see "Rx Industry’s Mission Will Change Under Medicare, Scully Declares" - Pink Sheet, 5 Nov, 2004.)). Under the Medicare drug benefit slated to begin Jan. 1, 2006, PBMs will have a prominent role in negotiating drug prices on behalf of beneficiaries. "Medco and Caremark and Express Scripts and Prime Therapeutics are going to do a lot more to control drug costs than" the CMS administrator, Scully asserted. PBMs will be better able to negotiate drug prices for Medicare regions than the CMS administrator would across the entire program, Scully maintained. "The Medicare program takes 50% of the market," Scully said. "You can't negotiate with 50% of market share. You're fixing prices." "We very consciously took this bill, took 50% of the drug market and split it up by the regions I showed, took PBMs and made those guys our proxies to negotiate for the government," Scully stated. Scully showed two maps, segmenting the U.S. into 10 and 15 regions for the Medicare drug benefit. CMS has not yet finalized the number of regions for the Medicare drug benefit. The agency must establish between 10 and 50 geographic areas for drug plan competition. Scully has previously said PBMs should wait until after the Nov. 2 elections to decide whether to offer a stand-alone drug plan (2 (Also see "PBM Decisions On Medicare Rx Plan Should Wait For November Election – Scully" - Pink Sheet, 20 Jul, 2004.)). Express Scripts CEO Barrett Toan remained noncommittal about whether the PBM will participate in the full drug benefit during a Nov. 4 earnings call (3 (Also see "Express Scripts Is Optimistic About Medicare Rx Card Auto-Enrollment" - Pink Sheet, 4 Nov, 2004.)). - Adam Eckstein |