Big Health-Care Players Are Turning Their Partners Into Prey
Over 20 years, Brian Komoto built a thriving pharmacy in California’s Central Valley. Each day, his nurses would travel the vast agricultural region’s roads to help hepatitis C patients take a grueling regimen of shots.
Then, in 2016, 20 percent of Komoto’s business vanished, practically overnight. The insurer Centene Corp. purchased the health plan that covered his patients — many of them Hispanic farm workers who had developed a level of trust with Komoto’s traveling nurses. Centene had its own mail-order pharmacy, and it told the patients to go there instead, he said.
Using tactics that have drawn the attention of federal regulators and attracted lawsuits, drug plans and insurers have boxed out their smaller partners so they can take the business for themselves, independent pharmacies say.
“There was nothing we could do,” Komoto said of Centene steering his patients away. “It’s not like there were hoops we didn’t meet or criteria we didn’t meet. It appears they just wanted the business.” Other health plans put similar pressure on Komoto, and he froze hiring to cut down on headcount.
What happened to Komoto’s business shows the growing pressure on small operators in the health-care industry, who are seeing their profits squeezed by a tightly interwoven web of distributors, retailers and health-plan administrators. As patient demand lower costs, bigger players such as Centene can use their size and connections to box out independents.
The drug supply chain is being drawn even more taut, and the power of the big players even greater. Last week, insurer Cigna Corp. said it would buy Express Scripts Holding Co., the U.S.’s biggest stand-alone pharmacy benefit manager, or PBM. In December, drugstore chain and PBM giant CVS Health Corp. said it would buy insurer Aetna Inc.
Health plans and benefit managers say their centralized pharmacies save money and do a better job at keeping patients on complex drug regimens. For example, both CVS and Express Scripts have pharmacists that specialize in specific diseases.
Centene confirmed that it asked Komoto’s patients to switch, though said it was flexible with the transition so as not to impact their care.
The interest by insurers and PBMs in the pharmacy business has risen in parallel with the growth of high-cost “specialty’’ medicines that need delicate handling or careful counseling of patients. Handling those drugs can be a profitable sideline.
At CVS’s drug benefit unit, 60 percent of specialty prescriptions are filled through CVS’s own specialty pharmacy, CVS Chief Operating Officer Jonathan Roberts said in a Feb. 8 conference call. It’s “the highest and fastest growing part of the pharmacy benefit,” he said.
Komoto said that he also lost business to CVS. And a benefit manager now owned by UnitedHealth Group Inc. told him that to stay in its network, he would need a broad-reaching accreditation that would have cost hundreds of thousands of dollars.
“Gradually we have been excluded from more and more PBM networks for specialty–and for no reason other than they wanted that market share,” Komoto said.
It wasn’t always this way. The specialty pharmacy business began to take off in the 1990s. In 1996, a Pittsburgh-area pharmacy landed an exclusive contract with Merck & Co. to distribute a breakthrough HIV drug then in short supply.
The pharmacy took a 37 percent markup, according to news reports at the time. Soon, specialty pharmacies were popping up everywhere, and big drug benefit managers gobbled up some of the most successful ones.
The markups are in the single digits now, Komoto said, but specialty pharmacies still get a spread on costly drugs, and may also get fees for their services or for selling data.
The three largest pharmacy benefit managers — CVS, Express Scripts and UnitedHealth — control more than 70 percent of the PBM market, according to data from Drug Channels Institute, an industry research firm. They now also control more than half the $138 billion market for specialty drug prescriptions, according to the institute.
“It’s hard to imagine that the market could be less competitive than it is today,” said TJ Parker, founder of the online pharmacy startup PillPack, referring to the home delivery and mail-order services that are how most patients get specialty drugs.
Drug benefit managers also say that it’s their employer and insurance company clients that choose the exclusive arrangements, and they always have the option to include more pharmacies if they want.