Tuesday, April 17, 2018

McKesson Leads Another Round of PSAO Consolidation

Last week, McKesson announced the formation of Health Mart Atlas (HMA), a joint venture between McKesson’s Access Health business and American Pharmacy Network Solutions (APNS). Click here to read the press release.

The combination extends McKesson’s position as the largest pharmacy services administrative organization (PSAO). PSAOs are the awkwardly named intermediaries that operate between smaller pharmacies and pharmacy benefit managers (PBMs), per our U.S. Distribution and Reimbursement System flowchart.

When the Arete Pharmacy Network was formed, in 2016, I predicted that the fragmented PSAO sector would begin a long-overdue consolidation. Given the PBM titans now sitting atop Mt. Olympus, the remaining PSAOs can’t shrug off Health Mart Atlas.

FLA

Nearly all smaller pharmacies participate in pharmacy services administrative organizations (PSAOs) to leverage their influence in contract negotiations with PBMs and other third-party payers. The PSAO relationship is crucial for independent pharmacies, because these pharmacies generate more than 90% of their total sales from prescription dispensing.

For details on PSAOs’ contracting and reimbursement services, see Section 5.4.3. of our 2018 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. We have also discussed PSAOs’ contracting for Medicare Part D in How Independent Pharmacies Will Participate (Or Not) in 2018's Part D Preferred Pharmacy Networks .

There’s another notable aspect of PSAOs. The drug channel system is rife with three letter acronyms (TLAs): GPO, PBM, WAC, CMS, IDN, MAC, DIR, and much more. It’s refreshing to encounter a genuine four letter acronym (FLA).

SKY BLUE SKY

The table below presents our updated list of the largest PSAOs. We estimate that nearly 19,000 independent pharmacies participate in the PSAOs offered by national and regional drug wholesalers.

[Click to Enlarge]

Pharmaceutical wholesalers own and operate the largest PSAOs as a service for their smaller pharmacy customers. Wholesalers’ corporate ownership provides a negotiating advantage for smaller drugstores.

McKesson’s AccessHealth is the largest PSAO. Its growth accompanied McKesson’s rapid expansion of its Health Mart franchise. Readers with long memories may recall that McKesson acquired the Health Mart franchise as part of its 1996 FoxMeyer acquisition, but McKesson did not focus on the program until about 2006. Since then, Health Mart has expanded from 260 pharmacies in 2006 to more than 4,800 pharmacies in 2017.

American Pharmacy Network Solutions (APNS) is part of American Pharmacy Cooperative, Inc. (APCI), a 1,600 member buying group of independent pharmacies. McKesson is the preferred wholesaler for APCI. For a list of pharmacy buying groups, see Exhibit 138 of our 2018 pharmacy/PBM report.)

Health Mart Atlas will combine Access Health with the PSAO services of APNS to create an even larger PSAO, with an epic 6,600 pharmacies. Some of APNS non-PSAO services have been rebranded as APCI Choice. The press release describes HMA as a “joint venture,” so I presume that the PSAO portion of APCI Choice will now be included within McKesson’s public reporting.

HMA's scale is an attempt to counterbalance the highly consolidated PBM market. Three PBMs—the Caremark business of CVS Health, Express Scripts, and the OptumRx business of UnitedHealth—process more than 70% of all equivalent U.S. prescription claims. See our market share chart in Cigna-Express Scripts: Vertical Integration and PBMs’ Medical-Pharmacy Future.

The alignment also ensures that McKesson will remain a necessary part of manufacturers' distribution strategies for widely dispensed products. Despite talk about Amazon and "selling direct," joint ventures such as HMA create a barrier for any manufacturer that wants to bypass the full-line wholesale channel.

In Greek mythology, Zeus condemned Atlas to hold the sky on his shoulders. Looks like McKesson has assigned itself the same weighty task for the struggling independent pharmacy sector.

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