Talk about filling the shopping cart! As many of you have heard, Catalyst Rx announced the purchase of Walgreens Health Initiatives (“WHI”). 
Not surprisingly, WBC (wbcbaltimore.com) has some thoughts on the transaction.
For Catalyst:
Looks like a good deal for Catalyst. They were reportedly competing against Express Scripts to buy the business. This acquisition more than doubles Catalyst’s size, giving them the scale to now rank as the 5th or 6th largest PBM. Here’s the Catalyst press release (Click here). Seems like they did some solid horse trading and at a very good price. They are going to pay about $6/Rx which compares very favorably when you consider that Express Scripts paid about $14/Rx to acquire NextRx.
It seems like a good fit. Walgreens will continue to provide mail service to Catalyst and Catalyst will provide PBM services to Walgreens approx. 250,000 employees and retirees. As in all of these types of deals, integration will be key. Both WHI and Catalyst operate on a SXC platform so this should help minimize systems problems.
For Walgreens:
The deal looks good for Walgreens as well. They had announced back in October that they wanted to sell the PBM operation in order to focus on their core businesses. Interestingly, they must have determined that the PBM outlet was not that significant for them. Their core businesses that they want to focus on includes retail, mail, specialty, home-infusion and work-site pharmacies.
Big Picture on the Industry:
Some key considerations on what this new combination means to the industry:
- Calls into question the impact of the retail/PBM marriage. Keep an eye on CVS/Caremark. Some commentators think that it’s just a matter of time for that divorce to occur
- Walgreens may or may not decide to pursue direct contracting options (Caterpillar; Delta Airlines). Their multi-tentacled distribution channels positions them to by-pass the PBM model
- Helps expedite new pricing models as AWP discounting heads south
The biggest impact will be bringing the pass-through pricing model into the big-leagues. Catalyst has been committed to this pricing approach. They now have the scale to be considered a major player when competing against “The Big Three” PBMs who still rely on traditional spread pricing. Benefit managers and plan sponsors have often times been reluctant to switch to the smaller PBMs even though it appeared that pass-through pricing provided lower total drug spend.
This transaction may wind up actually helping The Big Three as well. Pass-through pricing may help devolve the PBM model into a commodity by discounting unit costs. The real future, then, of Rx management resides in improving health status of members and measuring health outcomes, a space where the Big Three are happy to compete. Stay tuned!
