Elevance to buy Kroger’s specialty pharmacy

2024-03-19

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Dive Brief:

Elevance Health’s pharmacy benefit manager has agreed to buy Kroger’s specialty pharmacy business, as PBMs continue to double down on sources of reliable revenue in a competitive pharmacy market.

If the deal is finalized, Kroger’s specialty pharmacy will merge with CarelonRx, Elevance’s PBM. Kroger will retain its in-store retail pharmacies and walk-in clinics.

Terms of the transaction were not disclosed. In a Monday release, Kroger said it expects the deal to close in the second half of 2024. Elevance did not respond to a request for comment by time of publication.

Dive Insight:

Specialty pharmacies dispense expensive prescription medicines for complex, chronic conditions. They’re a key source of revenue for PBMs: Less than 2% of the U.S. population takes specialty drugs, according to industry estimates, but the prescriptions account for 50% of total U.S. pharmacy spend. Specialty drugs can result in profits of hundreds or even thousands of dollars per prescription.

Specialty pharmacies also provide wraparound services like side-effect management and personalized care. As a result, it’s a difficult segment of the pharmacy supply chain for other players to disrupt, at a time when legacy PBMs are losing clients to newer businesses with more transparent business models.

For example, CVS Caremark — one of the largest PBMs in the U.S. — lost a massive client in Blue Shield of California late last year, when the payer decided to contract with multiple vendors for pharmacy services instead. However, BSCA retained Caremark for its specialty business, in part due to the difficulty of switching specialty vendors.

As such, Kroger’s specialty business could be a valuable addition for CarelonRx.

Elevance’s PBM has hustled to build out its specialty offerings since launching in 2019 as IngenioRx: Early last year, Elevance completed its acquisition of BioPlus, one of the largest specialty pharmacy organizations in the U.S. And in March, Elevance closed its buy of Paragon Healthcare, a company that provides infusion services, including through specialty pharmacies.

CarelonRx has steadily grown to account for more of Elevance’s topline. CarelonRx brought in $33.8 billion in revenue last year, up 19% year over year, and notched the highest operating margin of Elevance’s reportable segments, at 5.8%, according to a 10-K filed with the Securities and Exchange Commission earlier this year

Meanwhile, Kroger is divesting assets as it looks to get a $25 billion merger with competitor Albertsons across the finish line. The Federal Trade Commission sued to block the deal last month, citing anticompetitive concerns.

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