Walmart is in talks to buy online pharmacy Pillpack, as first reported by CNBC. Axios has since confirmed the news, but also has learned that no deal is signed and that conversations have been ongoing for a couple of months.
Why it matters: Pillpack would give Walmart an online pharmacy to compliment its brick-and-mortar pharmacies -- something that could become even more valuable if Walmart scoops up insurer Humana and its millions of Medicare patients.
Pharmacy benefit managers play an important but secretive role in controlling the prices of prescription drugs — and they're working hard to keep it that way. After Axios obtained a document that shed new light on this opaque process, Express Scripts, the country’s largest PBM, forced that document to be taken down.
Why it matters: Americans fill 4.5 billion prescriptions per year. The biggest pharmacy benefit managers are profiting from the vast majority of those transactions, largely through sophisticated and complex financial engineering. Critics argue these tactics contribute to the country's high drug prices, which makes it important to understand how all of this works.
Express Scripts met with analysts at banking giant Barclays in March and mentioned how its "industry-leading EBITDA per claim" — a measure of profit they collect on each prescription — likely will be "sustainable over time," according to Barclays' note to Wall Street. Those comments come as each of the big three pharmacy benefit managers are being attached to health insurers.
The big picture: Some PBMs use a different "transparent" model to earn money, but they are in the minority. New documents obtained by Axios peel back the curtain on the traditional drug benefits business, though many details remain hidden from public view.
One of the biggest mysteries within the Express Scripts contract template is the algorithm that determines whether a drug is a brand or a generic. Here is an example of how the algorithm could be used at the smallest scale.
Pharmacists have been among the most vocal opponents of the drug pricing tactics that pharmacy benefit managers use. PBMs pay pharmacies for each filled prescription, but pharmacists, especially those running independent stores, say the big players are squeezing them by paying out wildly differing rates.
Key quote: "It is an absolute bloodbath for pharmacies right now," said Antonio Ciaccia, a top lobbyist with the Ohio Pharmacists Association. "When things are subjective and they're unclear, that is when the PBM sees opportunity."
One of the primary functions of a pharmacy benefit manager is to negotiate rebates from the list prices of prescription drugs. In return for the rebates, PBMs agree to cover those medications and make it easier for people to access them. PBMs then pass along the savings to the employers and health plans that hire them, often keeping a cut for themselves.
Yes, but: It's not that simple. As the Express Scripts template contract and new documents show, a PBM can carve out and keep entire portions of fees that look like rebates but aren't technically rebates. It also can play other rebate games that could cost unwitting employers a lot of money.
