The workers’ comp pharmacy benefit management (PBM) industry is consolidating, with two recent transactions accelerating a trend that started several years ago.
This trend will continue.
There are several inter-related things going on here. Every payer uses a PBM, so market share can only be gained by taking business from a competitor or buying it by acquiring the competitor.
Competing for business puts a premium on price and service, and squeezes margins. Now, price is important, but so is buying power (leverage over the retail chains that are suppliers), technology (especially adjuster/case manager interfaces) and, more and more, clinical expertise and the ability to make that expertise actionable.
The latest deal involves industry founder PMSI and long-time rival Progressive Solutions. Progressive Solutions is itself the product of the acquisition of Progressive Medical (one of the other early entrants in the WC PBM business) by Stone Point Capital. Stone Point owns Stone River, the leading third party biller (they are a factor, buying workers’ comp scripts from retail pharmacies and billing the right employer or insurer). Stone River had long sought to be thought of as a true PBM; buying Progressive Medical fixed that need.
The PMSI-Progressive transaction is not as simple as Healthcare Solutions’ purchase of Modern Medical, which appears to be a straight purchase to gain share, expertise (Modern’s clinical pharmacy program is strong, as is their government affairs function), and strength in DME and home health business.
In contrast, the PMSI/Progressive deal is anything but straightforward. Kelso and Company is in the lead position on the deal, while Stone Point “will continue to be a significant shareholder in the combined business.” Kelso’s entrance into the PBM business is significant, as is their lead position. While some in the industry see this as Stone River acquiring PMSI, that is clearly not the case.
Industry followers may recall Healthcare Solutions purchased ScripNet a couple years back, and industry leader Express Scripts bought rival MSC several years prior to that transaction.
When the Kelso/Stone Point deal closes, there will be six PBMs with significant market share; Express, PMSI/Progressive, HealtheSystems, myMatrixx, Coventry/FirstScript, Healthcare Solutions. The dominant third-party network supplier is Catamaran, a position the company assured with their purchase of rival Restat.
What does this mean for you?
A fiercely competitive business is driving more value for buyers – and buyers are demanding more value.