How Pricey Specialty Drugs Spurred CVS’ Omnicare Deal
When drugs cost $1,000 a pill or $25,000 for a year of injections, insurers and employers want to make sure these prescriptions are being taken at the right place and at the right time and have the right outcome for the patient.
After all, trends in insurance payment from private insurers as well as government payers under the Affordable Care Act increasingly demand patients get cost-effective treatments that are value-based, making sure care is done correctly the first time rather than in volume when dollars can be wasted if patients are over treated.
Enter the specialty pharmacy business, perhaps one of the hottest areas in health care and a key reason why retail pharmacy giant CVS Health (CVS) said it will pay $12.7 billion for Omnicare (OCR).
Omnicare is seeing 20 percent annual increases in revenue from its specialty unit, which provides services that support drug makers, distributors and health professionals who care for patients with complex diseases. Often, these patients are elderly and in long-term care facilities or assisted living.
Increasingly, many new drugs are derived from biotechnology and are injected or infused and require a specialty pharmacy to make sure they are managed appropriately. Some require special handling or refrigeration and adherence by the patient can mean life or death.
The stakes are much higher when the specialty drug costs $1,000 or more for each prescription compared to cholesterol and blood pressure pills that are $3 each as a brand or pennies if they are generics.
CVS said specialty dispending makes up the largest part of Omnicare’s specialty group. These are more complex medications like Humira, which is sold by Abbvie (ABBV) for autoimmune diseases like Crohn’s and rheumatoid arthritis.
Humira as well as Remicade, sold by Johnson & Johnson (JNJ) and Enbrel, sold by Amgen (AMGN) were three of the world’s top 10 selling medications last year, according to IMS Health. Specialty pharmacies also dispense the new Hepatitis C pills that cost $1,000 each and are sold by Abbvie and Gilead Sciences (GILD).
“The specialty pharmacy segment continues to expand with new drug approvals, therapeutic advancements and a growing patient population,” said Lawrence Irene, chief executive officer of Armada Health Care, the nation’s largest specialty pharmacy group purchasing and service organization. “We’ve seen organizations of all sizes make significant strides, through organic growth and strategic acquisitions to enhance their high-touch service offerings for patients facing complex medical conditions.”
Such high-touch services are more important these days. Under the Affordable Care Act, for example, payments are more based on quality and costs, so pharmacies are more involved in coordinating care and have to make sure patients are not only taking their medications but, when possible, using the most effective and often less costly medicines.
“The CVS Omnicare deal is all about distribution and the ability to win on operating synergies and the resulting cost savings,” Chris Geier, head of the investment banking practice at Sikich, a professional services firm said in an interview. “These operating and revenue synergies are often not realized to the degree they are ‘sold’ to shareholders.”
Wondering how the Affordable Care Act will affect your prescriptions? The Forbes eBook Inside Obamacare: The Fix For America’s Ailing Health Care System answers that question and more. Available now at Amazon and Apple.
Source: Forbes
