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November 23, 2021

Time to HIT back as PBMs Gain More Control of Sensitive Health Information Through Mergers

Personal health information is some of the most valuable data on the planet today—especially in the pharmaceutical industry. Data drives business plans and strategies that often lead to huge Wall Street gains and competitive advantages. Prescription drug data, in particular, is being commoditized by pharmacy benefit manager (PBM) conglomerates to further monopolize and vertically integrate the health care industry.        

The mega-PBMs, like Caremark, Express Scripts, and OptumRx, have consolidated and expanded their market power in recent years through horizontal and vertical mergers and acquisitions. Scant regulatory oversight and loopholes in the existing patchwork of state and federal regulations have given way to increasingly overt and aggressive tactics to trim pharmacy networks, capture patients, and limit patient choice of providers and medications. These restrictions are largely done in the name of lowering drug prices and protecting consumers from bad industry actors, yet drug prices continue to soar, and patients now more than ever feel as if they are just a number at chain and mail-order pharmacies.     

With data being pushed through algorithms and other forms of artificial intelligence, it is not surprising to hear that PBMs are once again seeking to tilt the playing field in their competitive favor. This is coming at the expense of the market share and profitability of independent, community pharmacies—which are often praised for the high-level personalized interface that can cater to a patient’s unique needs and circumstances—and their patients. There are about 23,000 independent pharmacies remaining in the United States. By contrast, there are almost 10,000 CVS Pharmacies, which are affiliated with Caremark, which governs a huge share of the market in which its brand actively competes.

Critically, all of the major PBMs are closely affiliated with their own in-network pharmacies, making them direct competitors of the independent pharmacies they manage and control through highly restrictive network agreements that are subject to little oversight by government agencies or other entities. One of the many conflicts that arise through this integrated business model is the PBMs’ intimate access to confidential information about the patients they serve, drug pricing and margins, and about their competitors—including the relatively small independent pharmacies that remain in the United States—through the claims submission process. This unique and exclusive access yields highly prized data that is known to be the industry’s crown jewels that could then be deployed by PBMs to market, steer and otherwise direct patients to their own pharmacies and for other healthcare services, and increase profit margins at the expense of patient care. Just last week, CVS announced it is closing 10 percent of its stores in order to focus on “enhanced” stores that will provide primary care as a “competitive advantage.”     

PBMs are gaining more control of data through health information technology (HIT) companies, like OptumRx affiliated OptumInsight, which serves as an information exchange with access to claims, payment and revenue services data, and clinical decision. OptumInsight competes with other HIT entities, like Change Healthcare, which provides similar services but is not controlled by a PBM-affiliated company. PBMs have taken notice and are seeking to monopolize the health data marketplace through mergers and acquisitions. 

In early 2021, OptumInsight and Change Healthcare announced the entities would merge. This immediately raised red flags because of the affiliation of OptumInsight to OptumRx and its parent company, United HealthGroup, which controls health care services for about 45 million consumers. The concerns of independent pharmacy groups is that the merger would fuel even more consolidation and market power by giving United and its subsidiaries access to troves of sensitive health information from consumers provided via transactions with other competing providers such as independent pharmacies, hospitals, and other health care competitors of United. With patient steering presenting a significant problem, the proposed pipeline of data to United is a particular threat to independent pharmacies already dominated by mega-PBMs using their market access to drive patients to their integrated pharmacy. The merger has been strongly opposed by hospitals and independent pharmacies, but is still expected to close in early 2022.

Barclay Damon supports and assists independent pharmacies and other health care entities in protecting their interests against the pirating of sensitive customer data and anticompetitive and aggressive or unlawful business practices. Members of our Health Care Controversies teams are available to assist you with pharmaceutical industry matters.

If you have any questions regarding the content of this alert, please contact Linda Clark, Health Care Controversies Team leader, at lclark@barclaydamon.com; Brad Gallagher, partner, at bgallagher@barclaydamon.com; Samuel Chubb, associate, at schubb@barclaydamon.com; or another member of the firm’s Health Care Controversies Team

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