Big pharmacies are dismantling the industry that keeps US drug costs even sort-of under control
▻http://qz.com/636823/big-pharmacies-are-dismantling-the-industry-that-keeps-us-drug-costs-even-sort-o
The impetus was October’s announcement from Walgreens, the US’s second-largest chain of pharmacies, that it was buying Rite Aid, the third. Critics said that would create a drugstore duopoly with CVS, the market leader. They didn’t, however, look as hard at another effect of the deal, which likely will bring about the final collapse of the industry tasked with keeping prescription-drug costs under control.
When a pharmacy owns a PBM, “it’s a sweetheart deal—the two entities no longer have an incentive to negotiate with each other.”
Buried inside Rite Aid is a bundle of pharmacy benefit managers (PBMs). These are companies that handle the distribution of drugs for large employers, insurance companies, and government programs like Medicare. Walgreens says that acquiring Rite Aid’s PBMs would help it compete with arch-rival CVS, which controls a large and extremely profitable PBM called Caremark.
But combining pharmacies and PBMs under one roof creates a conflict of interest. It can restrict patients’ access to certain prescription drugs, and can prevent independent drugstores from competing fairly for new customers.
Worst of all, it could push up drug prices. When a pharmacy owns a PBM, explains Bob Zebroski, a professor at the St. Louis College of Pharmacy, “it’s a sweetheart deal—the two entities no longer have an incentive to negotiate with each other.”
As the Federal Trade Commission (FTC) scrutinizes the Walgreens-Rite Aid deal, some experts believe the agency should consider more than just the potential effect on pharmacy retailing, and evaluate whether PBMs combined with pharmacies are good for patients. Indeed, there’s an opportunity here: The FTC could use the review to revisit its controversial 2007 decision that let CVS acquire Caremark. That was the deal that first undermined the ability of modern PBMs to drive a hard bargain with today’s giant drugstore chains.
