Industry Consolidation

PBM industry consolidation continued this year with the acquisition of PCS Health Systems by Advance Paradigm, Pharmacy Associates by National Medical Health Card, and ProVantage Health Services by Merck-Medco. The acquisition of PCS by Advance makes it the largest PBM in terms of the number of members covered.

What does this news mean for buyers of PBM services? It certainly means fewer PBMs from which to request proposals. However, competition should still be aggressive as the only way for a PBM to grow (other than more mergers) is by taking customers away from another PBM.

Concentrating market share with a smaller number of PBMs should enhance the presence of the remaining PBMs' in the prescriber arena as well as with pharmaceutical manufacturers. The concentration of market share should give the PBMs more leverage in getting the prescribers to pay attention to the PBMs' message and assist the PBMs to negotiate better formulary/ rebate arrangements.

What does this mean for the customers of the PBM that is being acquired? PBM contracts generally are written such that the customer relationship can be assigned by the acquired PBM to the acquiring PBM. The acquiring PBMs are very careful to maintain a good relationship with the acquired PBM's customers because it is generally the customers that it wants; not some product or service the other PBM offered. The most commonly stated concern is that the acquiring PBM will impose changes on the customer that impact the beneficiaries.

To date, the only complaints PBMI has heard regarding mergers are related to poorly managed customer conversions. Although this is a problem, it does not appear that the new PBMs are mandating formulary changes or the adoption of services that are contrary to the customer's existing contract or plan design. Employers should work aggressively with their new PBM to be sure they have input about how and when any conversion is conducted.