2. Bad times for PBMs
PBMs will likely be taking it on the chin during today's hearing — and, as my colleague Bob Herman reports this morning, they're already not having a great 2019.
CVS Health rolled out profit estimates for 2019 that were well below what Wall Street had expected, due in part to its PBM proactively passing more rebate dollars to employers and insurers.
- Executives also said CVS won't keep as much money on some generic drugs through a practice known as "spread pricing."
Cigna CEO David Cordani recently said the Trump administration's proposed rebate rule would "not have a meaningful impact on our growth or earnings trajectory," even now that the company has acquired Express Scripts.
- But analysts are not convinced.
Diplomat Pharmacy lost a lot of employer customers within its recently acquired PBM business, and it anticipates writing down a "significant portion" of the PBM's $630 million value.
Magellan Health owns a PBM with $2.5 billion of annual revenue, but activist investor Starboard Value is breathing down the neck and is encouraging a sale due to the company's "poor performance."
That's not all: States continue to be the most aggressive force challenging PBMs.
- Ohio's attorney general wants to claw back "overcharges" from OptumRx, and Kentucky criticized its drug benefit companies for retaining almost $124 million last year through spread pricing.
The bottom line: The rebate rule and general scrutiny on PBMs "poses meaningful risk to [their] profit models," analysts at Robert W. Baird & Co. wrote in an investor note last week.