Insurers + PBMs + Specialty Pharmacies + Providers: Will Vertical Consolidation Disrupt Drug Channels in 2020? (rerun)

This week, I’m rerunning some popular posts while I prepare for this Friday’s video webinar: Industry Update and COVID-19 Impact: PBMs & Payers.

Life was very different when I originally published today’s article. 2020 is not turning out to be quite what any of us expected. However, the pandemic has exposed some intriguing pros and cons of vertical consolidation. Click here to see the original post and comments from December 2019.

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The largest insurers, PBMs, and specialty pharmacies have now combined into vertically-integrated organizations. As I explain below, these companies have also been rapidly integrating with healthcare providers.

I also provide an updated look at these companies and highlight strategies that they are using—or could use—to control the channel. I believe that these insurer / PBM / specialty pharmacy / provider organizations are poised to restructure U.S. drug channels by exerting greater control over patient access, sites of care/dispensing, and pricing.

If they can effectively coordinate their sprawling business operations, they will pose a substantial threat of disruption to the existing commercial strategies of pharma companies.

Will they succeed by better managing care and costs, or merely by extracting higher profits from our convoluted system?

Coronavirus Industry Impact: Patients, Pharmacies, and Wholesalers (Part 1)

I hope you are staying healthy and are managing to navigate your work-at-home mandates.

Last week, I tapped the collective insights of the Drug Channels’ audience. Nearly 700 readers shared their perspectives and projections for how the coronavirus pandemic could ultimately affect behavior, policy, and industry structure. Thank you to everyone who took the time to respond.

I will share the results over three articles this week:

• Today, in Part 1, I will review the responses relating to patient behavior, pharmacies, and wholesalers. 
• In Part 2 (tomorrow), I’ll focus on expectations for pharmaceutical manufacturers and third-party payment. 
• In Part 3 (Thursday), I’ll examine how the coronavirus may affect the public perception of the industry’s participants.

P.S. A special shout out to the respondent who hoped that the coronavirus would not impact the quality of Drug Channels memes. Never fear, dear readers: Drug Channels will remain the internet’s top destination for pharmaceutical-related humor!

Drug Channels News Roundup, February 2020: Amazon Care, Generics in Part D, Rebates vs. List Prices, Walmart Health, and Cheetos

February is longer than usual this year, which means that you’re more than ready to leap into our monthly curated selection of noteworthy news. In this issue:

• Amazon Care ventures into prescription delivery

• More problems with Part D formularies

• Do list prices drive rebates, or vice versa?

Plus, Walmart promotes its new primary care services … with Cheetos!

P.S. Join the more than 8,900 followers of my daily musings and links to neat stuff at @DrugChannels on Twitter. My recent tweets have highlighted such topics as the chaos at retail pharmacies, vertical integration, importation, Amazon’s retail misadventures, hypocrisy at the AARP, the future of pharmacy reimbursement, a very naughty wholesaler, and more.

Insurers + PBMs + Specialty Pharmacies + Providers: Will Vertical Consolidation Disrupt Drug Channels in 2020?

The largest insurers, PBMs, and specialty pharmacies have now combined into vertically-integrated organizations. As I explain below, these companies have also been rapidly integrating with healthcare providers.

I also provide an updated look at these companies and highlight strategies that they are using—or could use—to control the channel. I believe that these insurer / PBM / specialty pharmacy / provider organizations are poised to restructure U.S. drug channels by exerting greater control over patient access, sites of care/dispensing, and pricing.

If they can effectively coordinate their sprawling business operations, they will pose a substantial threat of disruption to the existing commercial strategies of pharma companies.

Will they succeed by better managing care and costs, or merely by extracting higher profits from our convoluted system?

I’ll be discussing vertical consolidation and a range of other hot topics tomorrow in my exclusive live webinar: DRUG CHANNELS OUTLOOK: WHAT YOU NEED TO WATCH IN 2020. I hope you can join me. If you register but can't make it this Friday, you'll receive a link to watch a replay.

A Tale of Two Chains: Walgreens Exits Pharmacy Clinics While CVS Reinvents In-Store Care

For retail clinics, is it the best of times or the worst of times?

Walgreens  retail clinic business has been floundering. Last week, Walgreens announced that it would shut the last of its in-house retail clinics and in favor of outsourcing clinic operations to hospitals and health systems.

Other retailers are investing in more expansive healthcare services to realize the promise of store-based healthcare. That’s one reason why CVS Health is rolling out its HealthHUBs, while Walmart is phasing out its traditional retail clinics in favor of a more comprehensive Walmart Health offering.

Below, I review the retail clinic market in 2019. Many large retail chains operate clinics, but their strategies and growth rates differ. I expect the traditional retail clinic model to fade in favor of locations with broader healthcare services. This new direction will put pharmacies in more direct competition with urgent care clinics and primary care providers.

Pay close attention to how CVS Health leverages its Aetna business to manage site-of-care costs. Investors, payers, and patients will soon determine whether this has been the age of wisdom or the age of foolishness.

CVS Health: Will This Giant's Scale and Scope Confound Its Vision for Healthcare?

Last week, CVS Health held its annual investor day. (Links below.) In the aftermath of the Aetna transaction, CVS Health has become a uniquely diverse organization with revenues exceeding $250 billion.

As expected, CVS Health management explained the cost-cutting synergies that it expects from having united CVS Health and Aetna. It also laid out a long-range vision for generating value—and operating income—from making the disparate pieces of its empire work together in new ways. CVS Health called these new products and services “transformational initiatives.”

Below, I summarize investor day high points concerning CVS Health’s overall strategy, offer thoughts on the challenges facing the HealthHUB store concept, and highlight the headwinds and tailwinds affecting the company’s major business segments.

I commend CVS Health’s management for their willingness to take giant steps toward a bold vision. But I wonder if its transformation will scale with the speed and efficiency needed to generate superior returns for CVS Health and its investors. And along the way, how much margin will the company sacrifice to preserve its novel business combination?

As CVS-Aetna Looms, Retail Pharmacy Clinic Growth Stalls

Last week, the Senate Judiciary Committee held an uneventful hearing on the CVS-Aetna merger. The lack of fireworks suggests that the deal is on track for approval later this year. Click here to read the testimony.

Below, I review 2017 clinic developments for the largest retail chains: CVS, Walgreens, Kroger, Target, Walmart, and Rite Aid.

Despite the hype, there was little advancement in retail health at pharmacy locations. For the third consecutive year, the total number of retail clinics has remained essentially flat, at about 2,000 nationwide. CVS Health’s comments at last week’s hearing (highlighted below) would represent a major new direction.

P.S. Today’s post is adapted from Section 1.4.1. of our new 2018 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. Friendly reminder: Discounted pricing for the report ends on Friday!

The CVS-Aetna Deal: Five Industry and Drug Channel Implications

Surprise? CVS Health and Aetna announced their long-rumored merger. Relevant links below.

This transaction will create a healthcare organization with significant market share in the pharmacy, pharmacy benefit management (PBM), and health insurance businesses. There could be many potential opportunities for new consumer-oriented offerings. Finding the consumer value in this multi-headed $221 billion behemoth will be a major challenge.

Read on for my initial thoughts on the deal and what it means for PBMs, manufacturers, and pharmacies. I also highlight some of the implementation challenges.

Feel free to add your own thoughts on this mega-deal in the comments below. (Yes, you can comment anonymously.)

Retail Clinic Check Up: CVS Retrenches, Walgreens Outsources, Kroger Expands

Retail clinics focus on convenient care for simple acute conditions. They exemplify how drugstores and other retail outlets are broadening their services to emphasize non-dispensing revenues.

As I predicted last year, clinic growth stalled in 2016. From 2010 to 2015, the number of retail clinics grew by nearly 70%, to more than 2,000 locations. As of January 2017, the number of retail clinics was unchanged compared from the 2016 figure.

Below, I update our analysis of the chains with the biggest clinic market share: CVS Health, HEB, Kroger, Rite Aid, Walgreens, and Walmart. As you will see, strategies and growth rates differ.

FYI, this post is adapted from Section 1.4.1. of our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. Friendly reminder: Discounted pricing for the report ends tomorrow!

Retail Pharmacy Clinics: Top Players and the Coming 2016 Pause

As low-cost generics come to dominate retail dispensing activity, clinics have emerged as a way for drugstores and other retail pharmacy outlets to diversify into non-dispensing revenues.

There are now about 2,000 retail clinics. Below, I examine the chains with the biggest market share: CVS Health, HEB, Kroger, Rite Aid, Target, Walgreens, and Walmart.

In 2015, the number of clinics grew slowly. In 2016, I project another year of slow growth as the big players retrench. While clinics sound like an exciting strategy, revenues from in-store clinics are—and will likely remain—a very small share of pharmacy chains’ prescription revenues.