The nascent partnership between Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. that threatens to shake up healthcare may compel competitors to seek consolidation or deals within their supply chains, consultants said.
"A lot of our clients are looking at this and saying 'should I be considering similar moves?'" Gurpreet Singh, U.S. health services leader at PwC, said in an interview.
The global value of healthcare M&A this year is likely to exceed the approximately $200 billion recorded in 2017, according to consulting firm EY, and the industry has already seen a spate of deals looking to streamline products and costs. CVS Health Corp.'s proposed $69 billion purchase of medical insurer Aetna Inc. would link the chain from pharmacy benefits management through payer coverage and retail pharmacy sales.
Elsewhere, hospitals are banding together to make their own, cheaper versions of medicines, possibly disrupting a business dominated by generic-drug makers Mylan NV and Teva Pharmaceutical Industries Ltd., but also the products' distribution through companies such as AmerisourceBergen Corp., McKesson Corp. and Cardinal Health Inc.
"All those I think are indicators that there's an opportunity to create different types of deals," Singh said. In a recent review of healthcare M&A, PwC found that while transaction volume went down 2.5% across the industry between 2016 and 2017, the value went up by 146%, reflecting a few high-value, nontraditional acquisitions, he added.
"The biggest opportunity in healthcare right now is the strategic use of data," Singh said.
Managing massive data is an area familiar to the billionaire-led healthcare venture. An executive at one of the new partnerships' companies said in an interview that JPMorgan and Amazon's combined data and technology platforms could be used to target industry waste and negotiate lower prices, creating greater transparency around current healthcare costs.
Those goals would put it squarely in front of pharmacy benefit managers, or PBMs, the middlemen that negotiate discounts and rebates from pharmaceutical companies in exchange for access to their millions of customers. Their price agreements are typically kept secret.
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The three largest PBMs — Express Scripts Holding Co., CVS Health's Caremark unit and UnitedHealth Group Inc.'s OptumRx — collectively managed roughly 288 million Americans' prescriptions in 2016, a far cry from both smaller PBMs' capacity and also the 1 million employees under the new venture's umbrella. Yet these traditional middlemen have been feeling pressure: Criticism over their role in drug pricing has mounted, attracting the ire of drugmakers and legislators alike.
The leverage provided by their vast patient pools is a key part of PBMs' success in driving negotiations and managing benefits. CVS and OptumRx's exclusion of Sanofi diabetes drugs last year contributed to a 23% sales slump one quarter, CEO Olivier Brandicourt has said.
Other times, PBM choices can lead to litigation. Pfizer Inc. has taken Johnson & Johnson to court over accusations that the U.S.' largest pharmaceutical company struck deals with the PBMs to keep Pfizer's cheaper version of their autoimmune drug Remicade off coverage lists — Pfizer's Inflectra has just 5.7% market share as a result.
Whether PBMs fundamentally change in the wake of the Amazon partnership with Berkshire Hathaway and JPMorgan, their link in the chain likely will not, Tim van Biesen, a partner in consulting group Bain & Co. and a leader of their healthcare practice, said in an interview.
"You have to manage drug benefits, because if you don't, you return all the pricing leverage back to the pharmaceutical companies," he said.
Long road ahead?
From that view, the new healthcare venture could have a long road ahead. "This entity that these three have formed must, by definition, do PBM-like work. It's the only way for them to manage pharma costs," van Biesen said. "Only when they have massive scale and can influence consumer behavior will they have any leverage with pharma companies beyond what exists today."
Express Scripts stands alone as the one major PBM not attached to an insurance provider or retailer, an advantage when capturing the managed care market, but conspicuous in the current consolidation phase. Express Scripts has been making its own purchases, including the $3.6 billion acquisition of medical benefit manager eviCore.
The partnership between Amazon, JPMorgan and Berkshire Hathaway is a clear recognition that the healthcare system needs to continue creating value for payers and patients, Express Scripts spokesperson Phil Blando said in a statement. "We look forward to hearing more about this new initiative and how we can work together to improve health care for everyone."
Employers' drive toward cost transparency could also eventually hit hospital systems' business model, Gregg Slager, a partner at consulting firm EY and its global health transaction advisory services leader, said in an interview.
Healthcare providers are especially conflicted about implementing value-based care models, Slager said, referring to a pricing approach that has evolved to take the lowest-cost, highest-value road in treatments.
"They are the highest-cost arenas of care: they have the bricks and mortar structures, the beds to fill, and inpatient volumes are still a primary profit driver," Slager said. An employer-led healthcare initiative, emphasizing preventive care, wellness programs and even services such as telemedicine could fundamentally change the way patients use this system, he added.
On the other hand, drugmakers — typically the targets of pricing discussions — could welcome the shakeup.
The distribution system is already highly efficient, but the rebates and pricing system is less so, Pfizer Inc. Chairman and CEO Ian Read said during the U.S. pharmaceutical company's Jan. 30 earnings call.
"I would see it as totally positive for our industry," Read said. "I would hope that private actors that come into this space ... would initially see more opportunity throughout the whole distribution chain of costs."

