Three strategic considerations for PBMs to win

Over the past several decades, various sources of healthcare disruption and shifting profit pools have forced pharmacy benefit managers (PBMs) to optimize their traditional business model to survive in the marketplace.

In recent years, PBMs have responded with optimization of core functions to achieve efficiencies, more focused investments in digital technology, and adapting value-based care strategies and campaigns. Now, however, PBMs are facing even greater impact from vertical integration and industry convergence, forcing these players to recalibrate their value proposition in a way that can position them to not just survive, but win.

What was true just three years ago is even more valid today. Core PBM activities are rapidly entering commoditization levels, especially those that are transaction-oriented, with substantial PBM market-share slippage anticipated by 2026.

As large health players and newer entrants begin to compete for core PBM business and as the flow of funds ultimately changes, the challenge for PBMs is to understand which critical capabilities they should focus on to differentiate and what the prospective value is in restructuring the business model. To address these decisions, the PBM should commit to three strategic building blocks that will inform its value proposition moving forward. The key is understanding that the path to growth and profitability cannot be rooted in just one of these.

  1. Embrace convergence. As ecosystem players seek to enter collaborative arrangement models both inside and outside of the healthcare value chain, convergence is becoming a new market reality. With payers buying PBMs, PBMs buying payers and cross-industry leaders striving to achieve share of wallet, blurred industry lines are becoming more clearly shaped into what is now a new convergence ecosystem.

    PBMs are increasingly being seen by forward-thinking market leaders as strategic levers, rather than value chain costs to manage. Understanding that the pure-play independent PBM model is a thing of the past is a first step on the path to winning.

  2. Double down on member engagement. For PBMs to prosper, they need to lean in on customer experience, identifying what customers really want and moving away from models which are solely transaction-based. With convergence comes synergetic opportunities for engaging existing members and prospective members alike. To become more relationship-centric, PBMs should not only look for ways of optimizing the core business, but also invest more across the front office to better engage, onboard, and deliver care and prescriptions. PBMs willing to make bold plays at farming fresh fields of opportunity that transition away from administrative-type interactions put themselves in positions to win.

  3. Lean forward with ecosystem platforms. Accenture research shows nine out of 10 health executives view adopting a platform-based business model and engaging digitally with customers as critical to their future success. What PBMs need to understand is that a platform-based business model does not necessarily mean a one-size-fits-all technology play, but rather the manifestation of connected value propositions, capabilities and member experiences orchestrated in a connected ecosystem to shift to a less administrative, more customer-forward approach. Investing in these areas can pay off in improved member experiences by enabling services including better order status tracking, coordination of prescription pickup and intelligent operations across channels.

If PBMs rethink strategies around the above points and move beyond strict optimization of core functions into potentially more divergent business model plays, they will be strongly positioned for greater value and renewed value chain ownership in a rapidly growing, converging marketplace.

Yianni Douros

Senior Manager – Strategy, Health

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