- Healthcare behemoth CVS Health is reportedly launching its own group purchasing organization, called Zinc, for its pharmacy benefit management business, according to a recent Nephron Research report in Drug Channels.
- Details around the GPO are vague, but it's reportedly similar to Ascent Health Services, a GPO launched by CVS rival PBM Express Scripts last year. Ascent does rebate negotiations for Cigna-owned Express Scripts, along with Kroger Prescription Plans, a PBM owned by the grocer, and Prime Therapeutics, a Blues- and Walgreens-affiliated PBM.
- CVS declined to comment for this story, but the goal of the GPO in the near-term may be to shift discounts to less transparent fee structures that are more difficult for its PBM customers to audit, allowing CVS to retain a greater share of rebate profits, according to the report.
PBMs, middlemen that purchase drugs in bulk from manufacturers to negotiate discounts for payers, employers and consumers, have faced criticism for jacking up prices, though they maintain their job is crucial to make pricey pharmaceuticals more affordable.
Creating an internal GPO could be a savvy move for CVS to streamline administrative costs while potentially expanding the reach of its PBM, Caremark, though it does raise concerns it could result in trickle down costs for consumers by having another intermediary in the already complex drug channel.
"While long term value generation is dependent on expanding the Pharmacy Services segment's reach, the near-term value proposition for CVS may be as simple as capturing its fair share of the GPO admin fees and other data or compliance related fees similar to what [Express Scripts] have been able to establish with Ascent," the note from Nephron Research, a healthcare investment researcher, reads.
"The key questions here are to what extent the purchasing entities are truly creating incremental value for manufacturers and customers ... and to what extent contracting entities are shifting discounts from the rebate profit pool 99% of which flows to clients to fee pools that may be retained by the PBM." researchers wrote.
PBMs have been attracting the ire of state and federal regulators in recent years over their practices, especially spread pricing, where a PBM reimburses pharmacies one price for a drug but charges the plan another, resulting in profits.
The Trump administration introduced then rolled back a sweeping rule that would have banned drugmaker rebates to PBMs in Medicare and Medicaid last year. The U.S. Supreme Court agreed to hear a case earlier this year on whether states can regulate prescription drug reimbursement to curb the practice.
The prescription drug benefit sector has experienced rampant vertical consolidation over the past few years as major commercial payers look to bring the function in-house. UnitedHealth Group, the largest private payer in the country, owns the PBM OptumRx; CVS (which runs Caremark) acquired insurer Aetna in 2018; and Anthem is rolling out its own PBM, called IngenioRx.