Elevance, Cigna, CVS accelerate push into specialty pharmacy

Specialty pharmacy has emerged as a promising line of business for health insurance companies confronting challenges in their traditional operations.

Cigna subsidiary Evernorth Health Services, Elevance Health subsidiary Carelon and Aetna parent company CVS Health have made big plays into the $400 billion market for medications that are too costly or complex for traditional pharmacies.

Related: GLP-1 costs drive employers to specialty benefits vendors

Specialty pharmacies dispense drugs, typically coupled with clinical programs, to treat ailments such as rheumatoid arthritis, multiple sclerosis and cancer.

Only about 2% of people use specialty medications, but they account for more than half of pharmaceutical spending, according to Evernorth. This market is expected to grow by 8%-12% a year as new drugs are approved. For instance, there are about 1,000 cell and gene therapies in development, according to the Milken Institute, an economics think tank.

“These drugs can cost hundreds of thousands or millions of dollars per patient. The opportunity within specialty is significant," Matt Perlberg, president of pharmacy and care delivery at Evernorth, said at a Cigna investor conference in March.

The health insurance market, while still profitable, has encountered challenges lately, giving companies an added incentive to diversify their offerings and to manage pharmaceutical costs. Medical spending has outpaced expectations, care delivery operations have struggled and policymakers are closely scrutinizing how pharmacy benefit mangers such as Cigna division Express Scripts, Elevance Health unit CarelonRx and CVS Caremark do business.

“We're in a very volatile period,” said Wayne Winegarden, director of the Center for Medical Economics and Innovation at the Pacific Research Institute for Public Policy, a conservative think tank. “There's a lot happening all at once, and everyone's trying to thrive in a bad system.”

Cigna acquired the specialty pharmacy Accredo in 2018 and made big investments into the venture this year. Elevance Health amped up its efforts last year and has since closed a handful of deals. CVS Health launched a subsidiary, Cordavis, that manufacturers biosimilar versions of biologic drugs and brought its first product to market this year.

“It's a very viable way to increase their revenues, and the corporate companies need to show sequential growth to investors,” Winegarden said.

The business opportunity

There's ample room for insurers to grow in specialty pharmacy and a lot of money at stake.

Health insurers and PBMs owned just 10% of accredited specialty pharmacies last year, but CVS Health, Cigna and OptumRx parent company UnitedHealth Group still collectively accumulated two-thirds of specialty drug revenue, according to the Drug Channels Institute.

“The reason all of those are doing it is to gain control over the flow of dollars and particularly the difference between what their acquisition cost is and what the reimbursement is," said Steven Lieberman, president of Lieberman Consulting and a health policy fellow at Brookings Institution.

Elevance Health began its foray last year when it acquired BioPlus Specialty Pharmacy. The company bought infusion services provider Paragon Healthcare in March and Kroger Specialty Pharmacy this month.

The Elevance Health deal with the grocery chain Kroger significantly bolsters its presence. While the insurer was not among the top 15 generators of specialty pharmacy revenue last year, Kroger Specialty Pharmacy came in ninth with about $3.2 billion in revenues, according to the Drug Channels Institute.

This year, Elevance Health is opening three more BioPlus dispensing centers and four non-dispensing pharmacies, CarelonRx President Amy Mulderry said in a statement. “We are deepening our capabilities around providing affordable, convenient access to specialty medications and best-in-class services for our members living with chronic and complex illnesses,” she said.

The push into specialty pharmacy also comes at a time of heightened interest in biosimilars. CVS Health, Cigna and UnitedHealth Group recently have increased their attention to this business.

“This is a volume game with specialty pharmacy,” Winegarden said. “They’re such expensive drugs that everyone you steer to your own pharmacy, that’s a big deal.” Evernorth, which houses Express Scripts and Accredo, generated more than 80% of Cigna’s second-quarter revenue.

Patient, employer impact

Insurers argue their scale and assets facilitate lower prices and better care. These companies may be most suited to integrate pharmacy and medical capabilities, said Dr. Razia Hashmi, vice president of clinical affairs at the Blue Cross Blue Shield Association.

“The care involved has to be very comprehensive,” Hashmi said. “One has to be able to manage both the delivery of the care, the outcomes, the data, the complications and the patient journey.”

CVS Specialty helps patients navigate the prior authorization process, offers digital support tools and provides guidance from clinicians beyond the capabilities of an independent pharmacy, a CVS Health spokesperson said.

Healthcare conglomerates tacking on more specialty pharmacy could be beneficial for employers and workers who have seen the average annual price for a family health plan rise to over $25,000 this year, if they pass along savings to customers.

“There's certainly an opportunity to reinvest those funds however feels appropriate, whether that's passing back rebate savings to employers and potentially to patients and members," said Adnan Qureshi, senior vice president in the mergers and acquisitions practice at Kaufman Hall, a healthcare consulting company.

M&A to come

More specialty pharmacy dealmaking is expected. Last month, Cigna CEO David Cordani said the company is open to deals that strengthen its specialty pharmacy business, for example.

Insurance companies may look to acquire smaller, independent specialty pharmacies that have strong clinical programs in place, Qureshi said.

“That's a really attractive acquisition for them because they're getting the benefit of that clinical differentiation,” Qureshi said. “With the cost being so high for therapeutics, the importance of managing that care really well to ensure that it is accretive economically for everyone involved is all predicated on the strength of the clinical program and adherence."