Consultants warn 'change or get out of the way' next year

By Alex Kacik  | December 12, 2017

Certain healthcare industry middlemen including pharmacy benefit managers, drug wholesalers and insurers will get squeezed out if they don't adapt and reaffirm their value, according to a new report from PricewaterhouseCoopers. 


Intermediaries like PBMs that work for payers to negotiate with pharmaceutical companies on the price of their products have been targeted for their role in huge price hikes that have plagued the industry. These middlemen should increase price transparency, deliver better pharmaceutical and clinical data to boost patient care, and diversify their business lines to secure their place in the industry, PwC's Health Research Institute said in its annual report issued Tuesday.

Providers must expand beyond their sector or get left behind. They will need to form cross-sector relationships to share data and deliver more integrated care models to survive, the report said.

Healthcare companies could get away with solely being a pharmacist, PBM or retail clinic, but now they must fulfill multiple roles in the industry, said Gurpreet Singh, a partner at PwC and its health services sector leader. 

"Most PBMs and distributors don't play a specific role in the healthcare ecosystem—some share infrastructure and have an interest in data they could use," he said. "Unless they use (their role) toward driving wellness through care delivery, finance care or provide new diagnostic tools, they will get squeezed out." 

Some PBMs have tried to flip the traditional model and diversify their businesses. Prime Therapeutics—a PBM owned by several Blue Cross and Blue Shield health plans—has created a combined specialty pharmacy and mail services company with Walgreens. EmpiRx Health has an evidence-based clinical care management program where pharmacists work with physicians to deliver the most appropriate treatments. Insurance giant Anthem partnered with CVS Health to form a PBM to better align patient care. Also, CVS is courting Aetna in a deal that could funnel more care through its retail clinics

Insurers should seek partnerships as more employers consider contracting directly with a provider or accountable care organization. Group purchasing organizations are less integral to cost-saving strategies as providers develop better aggregation and data technology through mergers and partnerships. 

Wholesalers will also need to adapt as their margins shrink due to generic-drug pricing deflation and manufacturers limit branded-drug price increases in response to heightened public scrutiny, the report said. 

"It's not that purchasers don't value their relationships with intermediaries," Mike Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said in the report. "In general, where companies have stepped up and taken innovative approaches to move to value, purchasers have had their back."

In 2017, the healthcare industry faced unprecedented tumult—sweeping policy changes and natural and manmade disasters. Next year could be just a rocky. Therefore, healthcare organizations should seek out greater cross-sector collaboration, new strategic investments and creative efficiencies to build resilience, according to the report.

The CVS-Aetna deal was an example of a cross-sector collaboration that takes the form of vertical integration, a trend that will continue through next year, industry experts said. These types of deals will allow more ambitious risk-taking and cost synergies that should further insulate healthcare companies from looming changes and perhaps even help solve some of the industry's most pressing matters, Singh said. 

"CVS-Aetna is creating a type of vertical integration centered around the consumer," he said. "It's tough to solve the opioid crisis if you're one player in pharma—you need to be part of the community."

Aetna's enterprise-wide opioid task force aims to increase communication between prescribing physicians and patients at risk for opioid misuse while CVS is tracking social factors that may influence consumer and prescriber behavior. Data sharing and tracking of health disparities are weapons in the fight against opioid abuse, the report said. They could also help insurers and providers reduce costs and boost Medicaid and Medicare reimbursement by taking on more risk in value-based payment schemes. 

Relying on an extended care team that includes nutritionists, social workers and community health workers could save providers $1.2 million a year per 10,000 patients in a value-based payment environment, PwC found. 

That model, including screenings and interventions for food insecurity, helped Toledo, Ohio-based health system ProMedica drop emergency visits 3%, reduce hospital readmissions 53%, and increase primary care visits by 4%.

These strategies will help the industry prepare for additional price transparency pressures and looming policy overhauls, the report said. 

More statewide healthcare pricing bills are passing—much to the chagrin of drug companies—many of which mandate that manufacturers report a drug's cost and explain price changes, as in California. Other approaches include allowing Massachusetts' Medicaid program to refuse to pay for certain high-cost drugs and Maryland's law that directs the state to monitor price increases and sue manufacturers if there was an "unconscionable increase." Manufacturers have filed lawsuits against the California and Maryland laws. 

Providers should budget for increasing compliance and security costs related to new payment methods and more potentially vulnerable devices. They must also find ways to improve the patient experience. And they should brace for uncertainty that will continue to trouble the industry as policy changes loom, the report said. 

Health organizations, particularly those doing business in multiple states, should beef up compliance and local advocacy efforts as states take more control over healthcare policy. Slimming costs will also help mitigate policy changes, according to the report. 

"Creating incentives around reducing costs and improving quality are catalysts for change," Singh said.