Thursday, April 03, 2008

Pharmacy benefits industry consolidation pushes plan sponsors to seek more choices and flexibility in PBM contracts



As CVS Caremark celebrates the first anniversary of the merger that brought together retail pharmacy giant CVS Corp. and pharmacy benefit manager Caremark Rx, others in the pharmacy benefits industry are taking time to reflect on the significance of the trend toward consolidation.

Many employers and drug plan sponsors wonder if industry consolidations will result in a decrease in choices and competition in the marketplace – or whether it could have a positive impact on their bottom lines.

“These changes in the industry and the structures of the major service providers should make plan sponsors really sit up and pay attention to what impact consolidation could have on their benefit packages and their financial responsibilities,” said Brian Bullock, president and CEO of The Burchfield Group, a consulting firm that helps employers and other plan sponsors control the costs of providing prescription drug benefits. “The industry is never going to stop changing, so plan sponsors need to understand the big picture. Are you offering the most effective benefits package you can, and what language in your PBM contract might cause trouble down the road?”

Plan sponsors need to understand what their PBM contracts say in terms of pharmacy access and exclusivity, which are commonly affected by corporate consolidation, Bullock said. It’s also important to avoid particularly long-term agreements, especially considering potential changes in pricing benchmarks as well as structural changes resulting from consolidation.

“Consolidation is certainly not all bad for plan sponsors,” said Kent Wangsness, vice president at The Burchfield Group. “It can open doors to new services and cost savings that benefit the consumer and the payer. But as always, the devil is in the details. Not knowing the ins and outs of your PBM contract is the one sure way to run into trouble.”

Today's Pharmacy Benefits Podcast features a discussion between Bullock and Wangsness, both pharmacists who now consult for plan sponsors, on consolidation trends and the impact of reduced competition. Bullock also invites employers and other plan sponsors to contact The Burchfield Group by sending an e-mail to info@burchfieldgroup.com or by calling 1-800-778-1359.

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