Amidst the chaos and uncertainty caused by COVID-19, one could be forgiven for missing one of the largest changes to occur in the PBM market, the rise of rebate GPOs. Ascent, the first of these entities, actually came to be in 2019. Ascent’s creation had benefits for ESI/Cigna including tax incentives due to the location (Switzerland), access to the GPO safe harbor in the event the rebate safe harbor was shuttered, and reduced transparency with clients. Ascent grew in early 2020 when ESI/Cigna and Prime Therapeutics announced a partnership where pharmacy benefit rebate contracting for Prime would move to Ascent. The change brought millions more lives under the negotiating leverage of Ascent. Not to be outdone, CVS announced the launch of its own GPO, Zinc, in 2020. How will these GPOs change the contracting arena and what does that portend for manufacturers?
The threat rebate GPOs pose to manufacturers is the consolidation of rebate negotiation. When Prime Therapeutics and ESI/Cigna joined forces under Ascent, a behemoth representing approximately 30% of the PBM industry market was created. The deal also created a pathway which other small or mid-sized PBMs may be inclined to join. CVS will likely follow the same model with Zinc and seek out partnerships with other PBMs and/or health plans to add more membership to the GPO. Since rebate contracting is primarily a game of membership size, it will become increasingly difficult for smaller PBMs to remain rebate competitive. Eventually these smaller players may cave and decide to join in, much like Prime did, making Zinc and Ascent even larger while reducing competition.
A decrease in negotiating PBMs means a decrease in formulary diversity. The benefit of multiple PBMs are variations of formulary and policy choices, giving most products an opportunity to thrive, thus enabling patient and provider choice. Ascent and Zinc will change that dynamic. Even in categories where rebate GPOs have broad product choice, rest assured manufacturers will have to pay dearly for it. Zinc and Ascent probably won’t do much to improve the management of drug costs either as the incorporation of yet another player in an already bloated supply chain means less transparency and questionable rebate passthrough, to the actual payers.
How can manufacturers respond? Continued advocacy to employers and elected officials on the lack of transparency of PBMs is a given. Manufacturers may opt to push for parity coverage to help maintain formulary diversity. Advancing value and/or outcomes-based agreements is another opportunity. Value/outcomes agreements tend to be dependent on payer capabilities, which vary widely, and are difficult for entities like Ascent to pull off due to the diversity of covered plans. This may be why value-based agreements were carved out to Prime in the Prime/ESI arrangement. Manufacturers should maintain vigilance as rebate GPOs take shape and plan for a future where more PBMs join an increasingly few, but influential, rebate vendors.