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CVS-Aetna agreement highlights the drug supply chain

When the chief executive of the pharmaceutical company Heather Bresch was dragged in front of Congress last year to defend the high price of saving lives EpiPens, drew the attention of skeptical legislators to a large billboard that blamed the price quotation on an intermediary drug supply chain. From the $ 608 list price of EpiPen, his company, Mylan, received only $ 274, Bresch said.

"What the patient is paying is not … returning to Mylan," Bresch said. "And when we spoke before people, intermediaries in the system, or pharmacy benefit managers, retailers, wholesalers, insurers."

That supply chain, which is rarely seen by most consumers, is now the focus of attention in the corporate world after CVS Health announced a $ 69 billion deal to buy Aetna, the third largest insurer largest in the country.

Familiarly as a corner pharmacy, CVS Health really gets most of its money from one of the most lucrative points of that supply chain as pharmacy benefits manager, negotiating drug prices for health insurers and employers.

The merger, which would be one of the largest healthcare agreements of all time, points to the primacy of these negotiations in the health care system.

"This is a kind of unexplored territory: a pharmaceutical benefits manager who buys an important national health plan, I think it's a sign of the times," said Michael Rea, CEO of Rx Savings Solutions, a company that It offers transparent rency prescription drug tools. "PBMs represented a little-known entity that nobody knew a long time ago, and now they are the most important part of the deal to take over a national insurer."

The agreement comes at a time when health care is in flux, moving towards preventive care and the management of chronic conditions, while transferring a greater share of the cost of medicines to clients through health plans of high deductible.

That evolution has highlighted the business traditionally behind the scenes of negotiating discounts on medicines, which have been become a growing source of frustration for consumers and industry players due to rising costs.

"When drug prices were covered by co-payments, so consumers were isolated, there was less concern," said Brian Marcotte, president of the National Business Group on Health, a membership organization of large employers. " When everyone started to focus more on the sensitivity around the drug rice, which has attracted more attention to the pharmaceutical supply chain model, and I think that's why you're seeing more activity: how to do this differently. "

CVS says it is buying Aetna to expand by managing the entire continuum of a patient's health, not just its drug costs, and more multi-sectoral agreements such as the CVS-Aetna merger are anticipated, in part because the industries in silos, as an independent company that registers reductions in the prices of medicines, does not make as much sense in a health system where companies are increasingly trying to put as many functions as possible under one roof, whether medical consultations, surgery or prescriptions.

That's what the nation's largest insurer, UnitedHealth Group, has done: manage your own pharmacy benefits manager and buy go to a growing network of clinics and surgical care centers.

"Emphasizes that pharmaceutical benefit management is taking on a more significant role in a world that, even 10 years ago, was completely dominated by significant health insurance," said Mark Merritt, president of the Pharmaceutical Care Management Association , the lobbying organization for PBM.

But many people see changes in the industry as realigning players in the opaque drug pricing system.

O The sector at risk in this type of reorganization are companies whose main business is to negotiate the prices of medicines, where it may not be clear exactly how much they contribute to the expected result: healthier patients.

"You go to the players in a kind of session between – the PBMs and the pharmaceutical distributors – it's really an intermediary, it's not diagnostic or therapeutic, it's not really welfare, they're going to get the most pressure," said Gupreet Singh , leader of health services at PwC, an accounting and consulting firm.

Earlier this year, health insurer Anthem broke with its pharmacy benefits manager, Express Scripts Holding Co., and brought in the internal negotiation of drug prices, amid questions about whether the company charged too much for the drugs.

UnitedHealth Group manages its own pharmaceutical benefits administrator through its Optum business segment.

"After a great multidecade execution, [drug] the growth of the industry is slowing down, because the industry is so big that it attracts intense scrutiny from consumers, taxpayers and the government," said George Hill, analyst of RBC Capital Markets "When the growth of an industry slows down … the dynamics become more competitive and more hostile".

The powerful alliance is disturbing for some doctors, who fear that their roles may be usurped by a company anxious to manage care in a more economical environment. Michael Munger, president of the American Family Academy Doctors said his organization is not opposed to the merger, but is concerned, for example, that the merger could push Aetna patients to MinuteClinics instead of doctors' appointments. primary care.

"I think there's a very powerful omission from the word & # 39; doctor. & # 39; I think everything that is described is what we do," said James Cunnar, a family doctor from Naperville, Illinois, who said he read about the deal with growing horror.

As a backdrop to all this change, and partly stimulating, is the threat that online retailer Amazon could enter a part of the intermediary business, further disrupting the drug supply chain with a new business model.

The possible entry of Amazon into the drug business has become a kind of Rohrschah test for health care, with analysts consumers and others projecting several different ways in which the company could make a system Byzantine pricing of medicines is simple and cheaper.

However, as consumers are increasingly aware of their medical costs, and the functioning of the supply chain Increasingly attracting public scrutiny, the idea of ​​a new competition of a company that has built an empire to interrupt the way people buy is attractive.

"We see this as a turning point, we see Amazon as a catalyst or a facilitator," said Richard Evans, an analyst at SSR Health. "All these discordant notes echo, and people are beginning to imagine what the symphony will sound like once the warm-up period is over Let's put it another way: something very different. "

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