Pharmacy Benefits Manager Industry Expected to Grow

Drug patent expirations may cause a significant shift in the pharmacy benefits marketplace.

Looking 5 years into the future, the pharmacy benefits management industry is expected to grow. Why is this? The number of new generic medications entering the market is expected to slow down due to these blockbuster drugs loosening their patent exclusivity, which will diminish industry revenue.

Pharmacy benefits managers (PBMs) are known for negotiating lower prices for generic drugs, which helps increase profitability. Moreover, viewing this industry from an economic standpoint, we will see more growth in public and private health insurance, decreased unemployment rates, and more consumers covered under a prescription drug plan.

The Patient Protection and Affordable Care Act (ACA) is expected to keep expanding over the next 5 years. Penalties for uninsured consumers will force new consumers into the marketplace. In 2015, the penalty for being uninsured increased by 1% and nearly doubled in 2016 and will be adjusted for inflation thereafter.

While the industry is consolidating, it enables PBMs to have the leverage required to secure low-cost drugs from pharmaceutical manufacturing companies. Major players have aggressively started acquiring smaller companies in an attempt to increase their retail pharmacy network, bargaining power with drug manufacturers, and customer base.

PBMs that offer mail ordering services will begin to see the strongest growth. This is because they can offer a lower price on prescription medications by selling directly to consumers at a lower operating cost.

This is something we’re starting to see more often in the retail setting, as more patients are being automatically switched over to mail order pharmacy. Industry profitability is predicted to continue its upward trend over the next couple of years. We will begin to see more specialty medications and biologic therapies.

The ACA will expand consumer access to lower-cost generic drugs by preventing brand-name manufacturers from making label changes to the brand name or listed drugs, delaying generic products.

Patents for a remarkable number of blockbuster drugs started to expire in 2011 and continued this “patent cliff” into 2016. The majority of these therapies are considered small molecule drugs that treat common conditions that affect a significant patient population.

This “patent cliff” has forced more pharmaceutical companies to pivot their focus to the development of large molecule biologic drugs that treat rare conditions (also called orphan drugs), which affect a smaller patient population. Biologic drug manufacturers are able to benefit from a 12-year patent period that justifies the investment into innovative treatments.

This becomes more advantageous in comparison with smaller molecule therapies, such as blockbuster drugs that have only a 5-year patent period. Therefore, the ACA will assist in accelerating generic approvals for these generic alternatives—known as biosimilars—to biologics, which are very costly drugs on the market.

Typically, PBMs benefit from the lower cost of generics because of their ability to negotiate stronger discounts. The steady drop in the number of new generics into the marketplace will impel growth in industry profitability. We will likely see PBMs under stronger pressure to pass on cost savings to more consumers.

Greater regulatory scrutiny is expected to expand compliance costs for PBMs. New regulations will require PBMs to disclose more information on discounts and rebates from pharmaceutical manufacturers, forcing them to become more transparent.

Major companies with most market share:

  • CVS Health Corporation
  • Express Scripts Holding Company
  • UnitedHealth Group, Inc
  • Aetna Inc
  • CIGNA Corporation

About the Author

Brandon Welch is the executive vice president of the American Pharmacy Purchasing Alliance and sits on the Advisory Board of Digital Marketing for the University of South Florida , where he is a PharmD candidate.