‘We don’t set the price. Pharmaceutical manufacturers set the price.’
Pharmacy benefit managers are facing heat for not doing enough to slow down drug price hikes.
UnitedHealth Group’s subsidiary, OptumRx, recently acquired Catamaran Corp. for almost $13 billion, making it the third-largest PBM in the country by market share. Modern Healthcare Midwest Bureau Chief Bob Herman recently asked OptumRx CEO Mark Thierer about the controversy swirling around the industry. The following is an edited excerpt.
Modern Healthcare: Does the PBM business model need an overhaul given the scrutiny around escalating drug prices?
Mark Thierer: The industry model is fundamentally a consumption model. And when I say this, I mean PBMs profit from increased use of mail order. In the case of the largest players, they profit from increasing utilization of medications, from directing traffic into a specific store, and driving up foot traffic and frontend-of-store purchases and prescription drug purchases. They actually benefit from price increases.
There’s a misalignment here of interests because that’s not what sophisticated buyers want. They don’t want to drive increased utilization. They want someone to stand in front of this train. They want someone to be a guardian of their pharmacy spend.
We’ve concluded at OptumRx that our model is really a pharmacy care services model. Underneath every decision we make is a data play that’s focused on taking everything we know about a member—their entire condition including their prescription drug usage—and making a decision about the next best clinical action.
MH: OptumRx has recently won several large pharmacy benefits contracts, including deals with General Electric, the California Public Employees’ Retirement System and the Texas Public Employees Association. How?
Thierer: It is this new model. What we’re doing for them is aligning our interests with what they’re hoping to accomplish, and it’s simple. This is not rocket science when you think about it— we’re taking the fact that we have full management of pharmacy, and the fact in a couple of those cases where we’ve got medical benefit management.
We’re integrating those things and creating a better outcome. We take your data, and then we take your medical claims data and other claims feeds into this (proprietary) database, and this is the thing that sets us apart.
By the way, GE—I’ve been hanging around this industry forever—there isn’t a more challenging, sophisticated, difficult, tough negotiator. They are the top of the food chain. They picked us because we have a tool set and a capability and a focus on aligning interests with them.
MH: If your business plan is as good as it sounds, does that mean in the future we’ll actually see the rate of growth for employer premium increases go down? Or even employer premium decreases?
Thierer: Today, we have customers who are seeing year-over-year medical trend reductions, and this is a fact. Now, you have to sign on and utilize the capabilities, all the machinery, all the clinical programs.
On the whole it’s up. It’s all up because the machinery in healthcare is still built for volume. We are really building this for value. This is what we’re really talking about. This is creating a better value, more appropriate utilization, better care management and only using resources that are required to make you better.
MH: If I’m an employer and I hire you, and drug expenses are actually being managed, do I really want to tout how great things are going? Don’t employers want to keep their competitors in the dark?
Thierer: There’s an element of truth to that. But do you know what’s funny? Especially since I’m running in the same circles as benefit managers and vice presidents of human resources, they like to talk about what they’re doing. That’s what they do. There are people who want a new way right now, so timing is everything.
MH: What was your reaction to Martin Shkreli and Valeant
“Even people in healthcare don’t understand sometimes or fully appreciate what PBMs do.”
“Sophisticated buyers … want someone to stand in front of this train. They want someone to be a guardian of their pharmacy spend.”
Pharmaceuticals, which raised drug prices often and excessively? What about other drug prices that are rising?
Thierer: The innovators of these drugs are creating amazing therapies and are saving lives, and I think nobody can debate that. But what you’ve seen the pharmaceutical industry do is use price increases as a way to deliver shareholder value. In particular, it’s the high-cost biotech drugs.
They’re passing through price increases that are exorbitant, so we’re taking a stand with the industry. And we’re acting as the guardian for our customers and contracting with the industry in a way that doesn’t allow those full price increases to go through to the plan.
As an example, if you’re a manufacturer and you increase a price of a drug beyond a 6% threshold, then any price increase above that number—call it a 15% price increase—at the end of the year, you’re going to pay the client back the 9% over the threshold that we contracted that you would cap.
This is one of the things that I think the American public doesn’t understand. Even people in healthcare don’t understand sometimes or fully appreciate what PBMs do. We don’t set the price. Pharmaceutical manufacturers set the price. We negotiate with them and try to talk sense to them and actually even advocate for price changes. But then in the end we contract for protections for our clients. That’s what they pay us to do.
MH: What worries people is that there’s not as much transparency about how that high list price goes down and how the PBM takes its cut.
Thierer: You’ve raised an important issue, and transparency really across the healthcare spectrum has been a pretty widescale debate. But as it relates to PBMs, that’s been an ongoing discussion.
If you were to sit down and uncouple a client contract, you’d see that these large, sophisticated buyers have full visibility because they’re so large that they demand it. We provide it: full transparency to what’s being earned, where it’s being dispensed, what are the rebates, what do the network contracts look like. It’s a fully transparent business model.
MH: The PBM industry, and insurance industry more broadly, still has a pretty bad rap for customer service. What are you doing to fix that?
Thierer: We are going to be the market leader on member experience. We have room to improve for sure. But every single business unit starting with me has a specific five-point plan on Net Promoter Score, (which measures customer loyalty). What are you going to do to drive up the Net Promoter Scores? I report on it once a month to the CEO of this company. It’s as serious as a heart attack.