UnitedHealth’s Acquisition of PBM Catamaran Heralds Escalating Price War With Drugmakers

This month’s announcement by UnitedHealth Group of its planned acquisition of pharmacy benefits manager (PBM) Catamaran for $12.8 billion officially puts the pharmaceutical industry on notice that the “war” on drug prices is escalating. But are we prepared for a future of aggressive negotiations with these giant PBMs and, ultimately perhaps, ready for price controls? 

Mike Griffith

This latest deal gives PBMs considerable heft. Once the UnitedHealth acquisition closes, the company will become the country’s third largest PBM. Express Scripts retains its position as industry leader representing 90 million patients, while CVS represents another 65 million patients. As a representative of 75% of all pharmacy claims processed last year, the companies won’t be afraid to use their clout to push for lower prices from drugmakers.

Express Scripts already did, igniting a well-publicized price war last year when it excluded from coverage Gilead Science’s new hepatitis C drug Solvadi that cost more than $1,000 a day. The PBM chose a competing medicine from AbbVie Inc. in return for significant discounts. Gilead then turned around and made a deal with CVS in exchange for major price concessions.   

Express Scripts then made the media rounds, talking to the Wall Street Journal, CNBC and others about the unsustainability of drug prices, targeting in particular advanced therapies for cancer that are emerging from the pipeline. 

“We want to be able to start influencing the market by 2016,” said Steve Miller, Express Scripts’ chief medical officer, in an interview at Bloomberg’s offices in New York. “We are accumulating all the keys to the puzzle to be able to do this.”

The PBMs are swiftly becoming among the most influential player in price negotiations, responding to concerns from insurers, employers and government officials who want to get advanced medicines to patients at an affordable price. After a period of relative price stability, prescription drug spending rose more than 13% last year, the largest annual increase in more than a decade. New and specialty medicines coming through the pipeline for cholesterol, psoriasis and cancer are expected to run as much as $150,000 a year for the most advanced immunotherapies. 

All signs point to the fact that cost-plus pricing is nearing an end and we are moving into an era of market-driven pricing. If PBMs are becoming more influential in price negotiations, pharmaceutical companies must become much more impactful in their efforts to improve efficiency, enhance speed and cut costs. Companies should be looking outside the industry for best practices. For instance, what can we learn about distribution from Amazon? What can we take away from the UPS model that allows companies to outsource supply chain management, while increasing accuracy, improving time performance and cutting costs? And what best practices already exist within our own industry that should be more widely adopted?

Much of the expertise needed to enhance efficiencies can be found among the leading Clinical Research Organizations (CRO) and Contract Commercial Organizations (CCO). For example, it is time for pharmaceutical companies to let go of antiquated practices such as using paper for obtaining consent and partner with innovative health technology companies like Mytrus, pioneer of the first FDA-approved electronic informed consent process. A destruction of the silos between clinical and commercial capabilities is long overdue so that endpoint data can be collected during early Phase II that serves to persuade payers of a product’s value. Outsourcing providers already are doing this. And rather than reinventing the wheel each time a new product launches, companies can use outside consultants to build launch excellence capabilities and knowledge transfer infrastructure. Industry should be looking at more nimble, scalable investment that can flex quickly in response to changing market dynamics.

There is much that can be done to help biopharmaceutical companies accelerate performance, navigate pricing gates and ensure that meaningful medicines make it swiftly to the patients who need them. This most recent announcement from UnitedHealth should encourage companies to move quickly.

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About the Author

Michael Griffith is Executive Vice President, inVentiv Health, and President, inVentiv Health Commercial.