The Impact of Vertical Integration and Marketplace Restrictions into 2021
Mergers and Acquisitions (M&As) have become part of the daily morning routine for many of us in the past few years. Wake up, brush teeth, eat breakfast, read an article about a new healthcare-related M&A. This is true for health systems, health plans, manufacturers, health technology companies and pharmacies. In addition to M&As, marketplace relationships and allegiances are shifting and everchanging. It is not far-fetched to anticipate continued healthcare marketplace metamorphoses in 2021.
It can be challenging to keep up with these changes and predict the direct and indirect impact it may have on your practice or business strategy. However, for health systems these changes in the payer marketplace bring the threats of reduced regional payer competition and potential lockouts or restrictions. Vertical integration creates a story drawing parallels to David and Goliath, where community-based health systems are battling large corporations with power, money, and shareholders.
These battles have become most frequent in the area of specialty pharmacy, impacting both take-home and infusible medications. As the cost of new, innovative therapies has risen in the past 10 years, it has set off a chain reaction within the healthcare payment marketplace.
Prescription benefit managers (PBMs) try to limit the usage of higher cost products, placing medications on higher tiers and requiring prior authorizations with demonstrating medical necessity. However, where there is negative impact for plan sponsors for higher cost products, there is value to the dispenser of the product (e.g., pharmacy). Product mix has become increasingly important in retail pharmacy, where generic and brand reimbursement has diminished as specialty cost and reimbursement has increased. This has created a ‘capture the flag’ scenario for dispensing specialty prescriptions among pharmacies. Vertical integration has changed the rules, as PBM-owned or -affiliated specialty pharmacies have effectively walled off all other competitors through restricted networks.
On the medical benefit side, health plans view hospitals as high-cost sites of care and enact mechanisms to reduce the traditional buy-and-bill model for clinic-administered and infused medications. Mechanisms include restricting the site of care to non-hospital-based infusion sites, forced white bagging and incorporating contract language and policies that make it harder for health systems to be reimbursed. These methods not only increase the administrative burdens on healthcare providers trying to help patients navigate the system, but also fragment care and increase likelihood of patient safety events.
Despite these challenges, there is growing awareness about the services offered by health system specialty pharmacies. Efforts are being undertaken to limit white bagging due to patient safety concerns. Health systems are gaining traction with small victories to gain access to restricted payer and manufacturer networks. Health system pharmacy leaders are working with their employee health plans to look inward for specialty pharmacy services. Trade organizations and coalitions are putting a much heavier focus on advocacy efforts and leveraging collective health systems power. There is growing research demonstrating the value of health system pharmacies in improving patient outcomes.
These battles will continue in 2021, and health systems should expect continued efforts by large marketplace competitors to limit health system service offerings.