The Evolution of the PBM Industry

The Pharmacy Benefit Management (PBM) industry is only about 40-years old.

It was first conceived back in the 1970s and took off in the early 1980s. Today, it continues to develop due to the pharmacy electronic transacting capability and an increased demand for pharmaceutical drugs.

The key players tapping into this new market early on were Diversified Pharmaceutical Services (DPS) and CatalystRx. Express Scripts quickly picked up on this new market and expanded their company offerings to include this service by acquiring DPS.

At this same time, pharmacy drugs increased significantly. Consumers discovered pharmaceutical remedies to their ailments through TV commercials and other media advertising outlets available to the public. In the 1980s, companies started to not only market drugs to doctors and pharmacists but also to patients through direct-to-consumer advertising methods.

Pharmacies never appreciated the PBMs forcing them to lower cost for access to the Pharmacy Benefit Management network. However, the increasing use of prescription drugs nonetheless increased revenues.

Originally, PBMs specialized solely in providing its clients with low cost drugs through its national pharmacy and drug manufacturing contracts. However, later as the industry market share grew slim, both PBMs and Pharmacies began buying each other out to gain market share and diversify.  

The Pharmacy Benefit Management Industry Begins to Consolidate Through Mergers and Acquisitions

Starting in the mid-2000s, the PBM industry started to consolidate through mergers and acquisitions. This is first seen in March 2007 when CVS, one of top pharmacies in the nation, acquired Caremark, the second largest PBM in the nation.  

In less than a decade by 2012, the leading PBM, Express Scripts, bought out Medco, the second largest PBM in the industry. Another key merger during this time is when Systems Xellence (SXC), pharmacy claim adjudicator company, acquires Catalyst Health Solutions (CHSI and formerly CatalystRX) in 2012. SXC, one of the first companies to build the technology to process pharmacy claims in the PBM industry and CHSI was the fourth largest pharmacy benefits manager.

The CHSI and SXC acquisition was so unique it decided to rebrand its company as Catamaran. But don’t stop there, just a few years later in March 2015, OptumRx, a UnitedHealth Group company, acquired Catamaran.

What the Pharmacy Benefit Management Industry Looks Like Today

After many mergers and acquisitions, there are three key players in the marketplace with billion-dollar revenues and earnings.

There are several companies across the healthcare spectrum that now include pharmacy benefit management services. The leading companies with these services span from companies originating in the related healthcare sectors of pharmacy, insurance and claim processing. It’s expected to see a continuation of changes in the PBM space as healthcare demands evolve, technology advances, and government regulations change.

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