Workplace Culture

Merger Means More Options

By Sarah Sipek

Apr. 2, 2015

When the deal closes, $12.8 billion in cash will have likely changed hands. Believe it or not, this is a small price to pay for stronger competition among pharmacy benefits managers.

UnitedHealth Group Inc. announced Monday that it will acquire industry competitor Catamaran in a move intended to boost its pharmacy-benefits business. Catamaran, which is based in Schaumburg, Ill., will be combined with UnitedHealth’s pharmacy services business, OptumRx. Catamaran manages more than 400 million prescriptions each year on behalf of 35 million people — or about one in every five prescription claims in the United States.

In addition to drawing UnitedHealth Group closer to industry leaders Express Scripts Holding Co. and CVS Health Corp., the merger will provide employers with more viable options to provide their employees with cost effective pharmaceuticals.

Pharmacy benefits managers, or PBMs, are the middlemen between the employer and other players in the health care system, explained Ritu Malhotra, vice president and national pharmacy benefits practice leader at consultancy Segal Company. They can save companies significant dollars by using the buying power of enrollees to bargain for lower prices from drug makers and to contract with pharmacies. They can also help patients adhere to their medications through specialty pharmacies and disease management experts. In general, they are the employer’s guide through the increasingly complex world of prescription drugs.

Over the years, there have been a lot of consolidations in the industry, Malhotra said. These moves allow for smaller PBMs to corner niche markets in areas such as Medicaid or the health plan space.

But even as it consolidates, the business is growing too. Managing pharmacy benefits is expected to quadruple to a $400 billion market in 2020, up from $100 billion in 2014.

However, prior mergers of large PBMs created concern in the industry.

“There was concern in the marketplace that this would lead to some of these PBMs being able to charge what they want, which would lead to a lack of price competitiveness,” Malhotra said. “The industry had gotten a little lopsided and the third and fourth players were distant from the top two.”

UnitedHealth Group’s acquisition of Catamaran differs, however, in that the combined strengths of the two companies creates a competitive third PBM at the top of the industry to negotiate prices and drive down costs for employers and employees.

“The combined entity has a unique value proposition,” Malhotra said. “Catamaran comes in with really strong technological sophistication. With UnitedHealth Group’s clinical analysis, the pairing makes them a really unique PBM.”

The bottom like for employers is that more options allow them to meet their employees’ unique needs at an affordable price.

“As an employer you still have the fiscal responsibility to weigh the savings options,” Malhotra said. “You now have three viable players. This gives you a greater choice because, from a pricing standpoint, the third option couldn’t previously be considered as seriously by an employer.” 

Sarah Sipek is a Workforce associate editor.

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