When drug company chief executive Heather Bresch was hauled in front of Congress last year to defend the high price of lifesaving EpiPens, she drew skeptical lawmakers' attention to a large poster board that blamed theskyrocketing price tag on a coterie of drug supply chain middlemen Of EpiPen's $ 608 list price, her company, Mylan, received only $ 274, Bresch said.
"What the patient is paying – is not. . . coming back to Mylan, "Bresch said. "And when we were speaking earlier of the people, the middlemen in the system, that's either the pharmacy benefit managers, retailers, wholesalers, insurers."
That supply chain – rarely seen by most consumers – is now the center of attention In the corporate world after CVS Health announced $ 69 billion deal to buy Aetna, the nation's third largest insurer.
Family as a corner store, CVS Health actually makes most of its money from one of the most lucrative points along that supply chain as a pharmacy benefits manager, negotiating drug prices for health insurers and employers.
The merger, which would be one of the biggest health care deals of all time, signals the primacy of those negotiations in the health care system.
"This is kind of uncharted territory – a pharmacy benefit manager buying a major national health plan. I think it's a sign of the times, "said Michael Rea, chief executive at Rx Savings Solutions, a company that provides transparency prescription drug tools. "PBMs represented a little-known entity no one knew about that long ago, and now they are the controlling part of the deal to take over a national insurer."
The deal comes at a time when health care is in flux, moving toward preventive care and managing chronic conditions – while shifting more of the cost of medicine to patients through high-deductible health plans.
That evolution has cast a spotlight on the behind-the-scenes business of negotiating drug discounts – which have become a growing source of frustration for consumers and industry players because of spiraling costs.
"When drug prices were covered through co-pays, and consumers were insulated, there was less concern," said Brian Marcotte, president of the National Business Group on Health, a membership organization of large employers. "When everyone started focusing more on the sensitivity of the price of drugs, that has brought more attention to the pharmaceutical supply chain model, and I think that's why you're seeing more activity around: how do you possibly do this differently."  CVS says it is buying Aetna to expand into managing the entire continuum of a patient's health, not just their drug costs. And more cross-industry deals like the CVS-Aetna merger are anticipated, partially because of siloed industries, such as a stand-alone company that wrings rebates on drug prices, do not make as much sense in a health care system where companies are increasingly trying to put as many functions as possible under one roof – whether it's doctors' visits, surgery, or prescriptions.
That's what the nation's largest insurer, UnitedHealth Group, has done – running its own pharmacy benefit manager as well as acquiring a growing network of clinics and surgical care centers.
"It does highlight that pharmacy benefit management is taking a significant role in that world, even 10 years ago, it was completely dominated by major medical health insurance," said Mark Merritt, president of the Pharmaceutical Care Management Association, the lobbying organization for PBMs.
One sector at risk in this kind of reshuffling are companies whose main business is negotiating drug prices, where it may be unclear exactly how much they contribute to the intended outcome: healthier patients.
"You go to the players kind of sitting in between – the PBMs and the pharmaceutical distributors. It really is a middleman – it's not diagnoses and therapeutics, it's not really wellness. They're going to get the most squeezed, "said Gurpreet Singh, leader of health services at PwC, an accounting and consulting firm.
Earlier this year, health insurer Anthem broke up with its pharmacy benefit manager, Express Scripts Holding Co. and brought drug price negotiation in-house, amid questions about whether the company was charging too much for drugs.
UnitedHealth Group runs its own pharmacy benefit manager through its Optum business segment.
"After a great multidecade run, [drug] industry growth is slowing down, because the industry is so big that it's drawing intense scrutiny, from consumers, payers and the government," said George Hill, an equity research analyst at RBC Capital Markets "When an industry's growth slows down. . . dynamics become more competitive and more hostile. "
The powerful alliance is unsettling to some doctors, who worry their roles could be usurped by a company to manage in a cheaper setting. Michael Munger, president of the American Academy of Family Physicians, said his organization is not opposed to the merger, but has concerns – for example that the merger could push Aetna patients into MinuteClinics instead of appointments with primary care doctors.
" I think there's a very powerful omission of the word 'doctor.' I think that's what is described, "said James Cunnar, a family physician from Naperville, Ill. who said he read about the deal with growing horror.
further disrupting the drug supply chain with a new business model.
Amazon's possible entry into the drug business has become a sort of health care Rohrschah test, with analysts, consumers and others projecting on it to slew of different ways the company could make a byzantine drug pricing system simple and cheaper.
As consumers are increasingly on the hook for their medical costs, however, and the workings of the drug supply chain are increasingly drawing public scrutiny, the idea of new competition from a company that has built an empire out of disrupting how people shop around is appealing .
"We see this as a tipping point; We see Amazon as a catalyst or an enabler, "said Richard Evans, an analyst at SSR Health. "All these discordant notes that are echoing around, and people are starting to envision what the symphony is going to sound like once the warm-up period is over. Let's put it this way: something very different. "