PBM scru­tiny likely to in­crease af­ter An­them, Ex­press Scripts breakup

Modern Healthcare - - NEWS - By Shelby Liv­ingston

An­them’s de­ci­sion last week to cut ties with its long-time phar­macy ben­e­fit man­ager, Ex­press Scripts, is be­ing called a game changer for a seg­ment of the in­dus­try that’s in­creas­ingly un­der fire for pric­ing and trans­parency.

“It’s be­com­ing trans­par­ent that PBMs are en­gag­ing in shell games to gain prof­its, and pay­ers and cus­tomers are pay­ing the price,” said David Balto, an an­titrust at­tor­ney for­merly with the Fed­eral Trade Com­mis­sion and a critic of the PBM in­dus­try.

Ex­press Scripts an­nounced April 24 that An­them, its big­gest client, will not re­new its con­tract with the PBM af­ter the cur­rent agree­ment ex­pires at the end of 2019. The two have been locked in a feud for more than a year af­ter An­them claimed Ex­press Scripts with­held bil­lions in sav­ings and over­charged An­them for its services by $3 bil­lion an­nu­ally. An­them sued the PBM for $15 bil­lion last year. Ex­press Scripts de­nied those al­le­ga­tions and coun­ter­sued An­them. An­them de­clined to com­ment on the an­nounce­ment.

Ex­press Scripts’ shares plum­meted more than 10% in the wake of the news that it lost its largest client. An­them’s con­tract ac­counts for about 18% of Ex­press Scripts’ rev­enue.

“What we’re see­ing with An­them is some frus­tra­tion in the mar­ket,” said Michael Rea, CEO of RX Sav­ings Solutions, a com­pany that sells soft­ware to health in­sur­ers and self-in­sured em­ploy­ers to help them lower their drug costs. “The mar­ket is de­mand­ing ac­count­abil­ity and re­lief” over ris­ing pre­scrip­tion drug prices.

Health in­sur­ers, along with em­ploy­ers and con­sumers, have long com­plained that pre­scrip­tion drugs are un­af­ford­able. The is­sue has be­come a na­tional dilemma and many point to it as a rea­son for con­tin­ued cost-shift­ing to con­sumers.

Drug costs ac­counted for about 10% of to­tal U.S. health­care spend­ing in 2015, which topped $3.2 tril­lion. And list prices for pre­scrip­tion drugs rose more than 12% in 2015, although net prices rose only 2.8%, ac­cord­ing to IMS Health.

PBMs are the be­hind-the-scenes mid­dle­men that han­dle pre­scrip­tion drug ben­e­fits for self-in­sured em­ploy­ers and health in­sur­ers. They process drug claims and ne­go­ti­ate drug dis­counts with phar­ma­ceu­ti­cal com­pa­nies. They also build net­works of phar­ma­cies and help man­age the for­mu­lary.

PBMs have been crit­i­cized for keep­ing their prac­tices shrouded in se­crecy. They take a cut from the re­bates they se­cure from drug­mak­ers, but it’s hard to know how big that cut is. The deals be­tween PBMs and drug­mak­ers are guarded by nondis­clo­sure agree­ments.

“A move taken by an or­ga­ni­za­tion as large as An­them is go­ing to be a wakeup call to other large PBMs to re­ally re­assess their busi­ness struc­ture as well as their pric­ing struc­ture,” said Tom Borzil­leri, for­mer CEO of PBM ValoreRx, who re­cently launched In­teliScript, a tech­nol­ogy com­pany that pro­vides drug price trans­parency to the doc­tor and pa­tient right in the exam room. Oth­er­wise, he said in­sur­ers will take their busi­ness else­where.

Ex­press Scripts will strug­gle to make up the gap­ing hole left by An­them. In­sur­ers and self-in­sured em­ploy­ers don’t of­ten switch PBM part­ners, said Craig Oberg, a man­ag­ing con­sul­tant at PBM con­sult­ing firm the Burch­field Group. He added that PBMs’ typ­i­cal re­newal rate hov­ers be­tween 92% and 94%.

Even with­out An­them, Ex­press Scripts still boasts more than 65 mil­lion mem­bers and han­dles more than 1 mil­lion pre­scrip­tions an­nu­ally, the PBM told in­vestors last week.

“With or with­out An­them, our strat­egy, in­de­pen­dent busi­ness model and unique so­lu­tion col­lec­tively po­si­tion us for a strong fu­ture,” Ex­press Scripts CEO Tim Went­worth said.

For its part, An­them, which re­ported on April 26 a net in­come of $1 bil­lion in the first quar­ter, a 43.7% in­crease over the same time last year, could take its busi­ness to CVS Health; Unit­edHealth Group’s PBM unit, Op­tumRx; or Prime Ther­a­peu­tics, which man­ages drug ben­e­fits for not-for-profit Blue Cross and Blue Shield com­pa­nies.

Or, An­them could move its PBM busi­ness in-house to have more con­trol over the drug ben­e­fit, like Unit­edHealth has done with Op­tumRx—one of the in­surer’s big­gest rev­enue driv­ers.

Ex­press Scripts and An­them have been locked in a feud for more than a year af­ter An­them claimed Ex­press Scripts with­held bil­lions in sav­ings and over­charged An­them for its services by $3 bil­lion an­nu­ally.

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