Top health industry issues of 2018

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Healthcare’s endangered middleman

With frequent news about drug price hikes and hospital bills that bankrupt consumers, healthcare spending has become prominent in public and political discourse. Amid finger-pointing on rising costs, healthcare purchasers—including health insurers, employers and the government—are scrutinizing the industry’s middlemen.

In 2018, intermediaries such as PBMs and wholesalers will be pressed to prove value and success in creating efficiencies or risk losing their place in the supply chain.

As pharmacy costs have become the fastest growing component of healthcare spending, purchasers are examining pharma’s intricate web of buyers and sellers.1 According to HRI’s analysis, stock values for five of the largest intermediaries in the pharmacy supply chain have slumped in the last two years as demands for lower costs and better outcomes have intensified (see Figure).

Pharmacy benefit managers have been criticized widely for opaque pricing and rebate practices.2 In 2017, Anthem Inc. signaled that it’s overhauling its PBM strategy, while Aetna Inc. called the traditional, standalone PBM model a “troubled relationship.”3 State legislatures are considering new laws that will require PBMs to disclose more pricing information.

Wholesalers are suffering financially because of ongoing deflation in generic drug pricing and because manufacturers are limiting branded drug price increases in response to public and political pressure.5 Because they typically receive a percentage of a brand name drug’s price, wholesalers earn more whenever a manufacturer increases the drug’s price.

Middlemen will have to reassert their value to avoid extinction. “It’s not that purchasers don’t value their relationships with intermediaries,” said Mike Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions. “In general, where companies have stepped up and taken innovative approaches to move to value, purchasers have their back.” Amazon has acquired wholesale pharmacy licenses in 12 states, with at least one other pending, signaling a possible entry into the pharmacy business by the online retail giant.6

In an effort to reinvent their value, Prime Therapeutics LLC—a PBM owned by several Blue Cross and Blue Shield health plans—has created a combined specialty pharmacy and mail services company with Walgreens.7 With a PBM, retail pharmacy chain and health plan working together, the alliance aligns economic incentives across the supply chain better, increases purchasing power to reduce the cost of goods, and enhances medical and pharmacy benefits’ integration.8

Industry newcomer EmpiRx Health, based in New Jersey, has an evidence-based clinical care management program in which pharmacists work with physicians to ensure patients get the most appropriate treatments.9 Express Scripts announced in October that it will acquire South Carolina-based eviCore healthcare, an evidence-based medical benefit management services company, to fight overutilization and waste by making sure the right patients get the right treatments.10

Eschewing traditional payment models, some PBMs—including EmpiRx, Cigna Pharmacy Management and RxAdvance—also are moving toward value-based care, putting themselves at financial risk with guarantees on per member per month costs and using outcomes-based contracts with pharmaceutical companies.11

The quest for savings goes beyond the pharmaceutical sector. Twenty percent of employers are considering sidestepping health insurers to contract directly with a provider or accountable care organization in the next three years.12 Providers recognize the opportunity. Seventy-seven percent of provider executives surveyed by HRI said bypassing insurers to contract directly with employers will be important to their organization’s success in the next five years.13 Companies like Texas-based Euphora Health and California-based Carrum Health are enabling this future with technological platforms that connect employers to top-performing providers directly.


Diversify how you provide value

Healthcare intermediaries should evolve to be more than just a pass-through serving a contracting function. They should increase pricing transparency and take responsibility for more of the value chain. That includes holding manufacturers accountable for drug efficacy, driving population health by merging pharmaceutical and clinical data, and helping individual patients manage their care better. Doing so can help intermediaries secure their place in industry. Companies should look for ways to diversify their lines of business, building out capabilities for care management and data analytics on their own or through partnerships. 

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Revisit contracts

Healthcare purchasers should regularly re-evaluate contracts with industry middlemen. They also should demand greater transparency and prioritize models based on outcomes—which drive better clinical management—not merely seek the best price by volume.

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Consider taking on more risk

Healthcare providers should take advantage of chances to work directly with purchasers, such as signing direct contracts with employers. They also could consider launching their own specialty pharmacies to offer more integrated patient care and create new revenue.

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1 PwC Health Research Institute, “Medical cost trend: Behind the numbers 2018,” June 2017,

2 Pharmaceutical Commerce, “Health Transformation Alliance sets its 2017 agenda,” April 4, 2017,; National Community Pharmacists Association, “The PBM Story: What They Say, What They Do, and What Can Be Done About It,” April 25, 2017,; Joseph Walker, “Drugmakers Point Finger at Middlemen for Rising Drug Prices,” The Wall Street Journal, Oct. 3, 2016,; Thomas Sullivan, “MedPAC Discusses Pharmacy Benefit Managers,” Sept. 21, 2017, Policy and Medicine,

3 Anthem, “Anthem launches IngenioRx, New Pharmacy Benefits Manager,” press release, Oct. 18, 2017,; Aetna Q1 2017 Results - Earnings Call Transcript, May 2, 2017, Seeking Alpha,

4 State of Nevada, S.B. 539, 79th Session (2017),

5 AmerisourceBergen Q3 2017 Results - Earnings Call Transcript, Aug. 3, 2017, Seeking Alpha,; PwC Health Research Institute, “Medical cost trend: Behind the numbers 2018,” June 2017,; McKesson, “McKesson Reports Fiscal 2017 Third-Quarter Results,” press release, Jan. 25, 2017,

6 Samantha Liss, “Amazon gains wholesale pharmacy licenses in multiple states,” St. Louis Post-Dispatch, Oct. 27, 2017.

7 Prime Therapeutics LLC, “Walgreens and Prime Therapeutics complete formation of Alliance Rx Walgreens Prime, a combined central specialty pharmacy and mail services company,” press release, April 3, 2017,

8 Adam Fein, “Why the Walgreens/Prime Deal Could Transform the PBM Industry,” Drug Channels, Sept. 7, 2016,

9 EmpiRx Health, “EmpiRx Health’s Clinical Care Management Program Shows Immediate Results,” case study,

10 Express Scripts, “Express Scripts to Acquire eviCore healthcare; Accelerates Company’s Shift to Patient Benefit Management,” press release, Oct. 10, 2017,

11 Cigna, “Cigna Receives Excellence Award for Using Outcomes-based Contracting as a Strategy to Help Manage Prescription Drug Costs,” press release, March 7, 2017,; Stephen Littlejohn, “Scaling the Limits of Scale: The PBM Path to Value-Based Healthcare,”, Oct. 11, 2015, 

12 PwC Health Research Institute analysis of PwC Health and Well-being Touchstone Survey for 2017, spring 2017

13 PwC Health Research Institute Provider Executive Survey, 2017


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Kelly Barnes
US Health Industries and Global Health Industries Consulting Leader, PwC US
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Benjamin Isgur
Health Research Institute Leader, PwC US
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Gurpreet Singh
Health Services Leader, PwC US
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Karen C. Young
US Pharmaceutical and Life Sciences Leader, PwC US
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