High-priced drugs have everyone ticked off this year. And for good reason. While health-care spending in the U.S. is growing faster than the economy, pharmaceutical costs are growing faster still. New treatments for arthritis and cancer certainly merit a premium, but pharmacy bills can’t grow unchecked.
A whole industry exists to keep drug bills in check, of course, namely pharmacy-benefit managers, or PBMs. Leaders like Express Scripts Holding and the pharmacy-benefit units of CVS Health and UnitedHealth Group have rung up big profits in recent years while promising to slow the upward trend in drug prices. But the relentless rise raises questions about their effectiveness.
There are other reasons for investors to wonder about the prospects for PBMs. After rising four times more than the market in the past decade, shares of Express Scripts (ticker: ESRX) got knocked for a loop early this year when the company’s largest commercial client, health-insurer Anthem (ANTM), claimed in a lawsuit that Express Scripts was overcharging it by $3 billion a year. Express Scripts disputes the claims, and the stock has begun to recover. But analysts fear that the PBM will lose Anthem’s business and, with it, as much as 20% of its earnings.