Merger speculation, vertical integration of pharmacy lives shakeup PBM
Speculation that CVS Health is making overtures to purchase Aetna has sent shockwaves through the managed care industry. The deal, purportedly in the $66 billion range, would certainly be a game changer. Aetna accounts for about 13 million pharmacy lives and CVS/Caremark (the PBM arm of CVS) accounts for about 5.5 million, according to Decision Resources Group data. Even if the Aetna/CVS deal is only speculation and never comes to fruition, it’s a sign of the times when it comes to national payers and PBMs merging or forming strategic alliances. At the same time, Amazon lurks as a potential competitor with the online giant weighing entering this industry.
In October, Anthem announced it was creating its own PBM through a partnership with CVS Health. Not only does that finalize the inevitable end of Anthem’s relationship with Express Scripts, it will create a new rival for the PBM.
Anthem’s new PBM will be launched as IngenioRx and will offer a full suite of PBM solutions, starting 2020, after the expiration of Anthem’s contract with Express Scripts’ contract. IngenioRx will serve Anthem-affiliated plans as well as contest for national accounts and health plan business. The new PBM aims to decrease costs by aligning rebates across the value chain and leveraging strength of Anthem’s provider relationships. The transition of Anthem’s members to IngenioRx is expected to be completed by 2021.
Anthem also signed a five-year pact with CVS Health, through which CVS will provide prescription fulfillment, claims processing and point-of-service engagement services, beginning January, 1, 2020 to IngenioRx. According to Anthem, IngenioRx will not only better integrate medical and pharmacy services, it will result in an estimated $4 billion in pharmacy savings per year after full integration.
Almost all the large, national payers are moving pharmacy benefit management in-house (Aetna, Humana, and Cigna managed pharmacy benefits internally) and using PBMs for channel management, including retail, mail order or claims administration. In a sense, national competitors are following the lead of UnitedHealth, which has successfully navigated the trickiness of competing for managed care enrollment while providing PBM services to its competitors through OptumRx. Prime Therapeutics, which has become a robust PBM is collectively owned by 18 Blue Cross and Blue Shield Plans, subsidiaries or affiliates of those plans.
For Pharma, this means growing influence of national payers on prescription drug sales. Collectively, the five largest national payers (Anthem, Aetna, Cigna, Health Care Service Corp., and UnitedHealth) account for about 44 percent of commercial pharmacy lives in the nation, according to Decision Resources Group data. This structure of managing formulary internally gives insurers more control to lower healthcare cost and opportunity to extend their relationships with providers directly. This also suggests an increasing trend toward value-based contracts between payers and pharma based on health outcomes in future. As noted in Decision Resources Group’s Formulary Insights report series, Aetna and UnitedHealth are already moving in that direction, putting increased emphasis on value based or outcomes-based care.
While the move of national payers toward in-house pharmacy benefit management points to a challenging future for PBMs, there is still an ample amount of business to be had. Sixty-six percent of commercial pharmacy lives are enrolled with smaller, regional health plans, and that doesn’t take into account government plans, state contracts, or employer contracts. The path forward for PBMs to sustain growth may be to focus on regional and smaller payers and employers. PBMs have already started taking larger roles in adopting value-based care and initiating nationwide utilization programs targeting specialty drug spending, lowering the cost of filling prescriptions and limiting opioid prescriptions. For example, Express Scripts this year expanded its Oncology Care Value Program, which aligns costs based on efficacy and refunds plans for early discontinuation of treatment.
Express Scripts also inked a deal to buy privately held medical benefit management company eviCore healthcare for $3.6 billion. eviCore applies evidence-based methodology to benefit management, and its services are used by about 100 million individuals who are covered by health insurers and employers, according to the company. In a statement released announcing the acquisition, company leaders noted the deal should “position (Express Scripts) to take advantage of the transition to value-based care and the increasing demand from payers for a more comprehensive set of service offerings.”
The shifts in the competitive landscape for PBMs comes at a time when the industry is facing increased scrutiny from lawmakers and payers. As drug prices continue to escalate, PBMs have drawn criticism for rebating policies and overall lack of transparency. With a large swath of commercial enrollment shifting away from PBMs through vertical integration, it stands to reason that the industry is due for a makeover. Whether it’s Anthem’s move to create its own PBM or a potential megamerger between CVS and Aetna, the timing of that makeover seems to be sooner rather than later.
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About Formulary Insights
The Formulary Insights report series provides analysis of the trends and market dynamics affecting formulary decisions and product opportunity in each U.S. state, Washington, D.C., and Puerto Rico. Each report includes our proprietary Opportunity Index, analysis of Value-Based and Innovative Contracting, and regulatory and policy matters. Formulary Insights are an enhancement of DRG’s Health Plan Analysis portfolio.