Anthem’s new PBM to spark change throughout the industry

Anthem’s creation of its own pharmacy benefit management company could drive change throughout the industry as health plans and PBMs aim to maintain their competitive edge, experts said.

The national health insurer teamed up with CVS Health to form IngenioRx, which will take shape in 2020 after Anthem’s long-disputed contract with Express Scripts ends. IngenioRx will offer the PBM’s services to customers of Anthem-affiliated health plans and members outside of the brand.

CVS Health will provide prescription fulfillment and claims processing services for the PBM, as spelled out in a five-year agreement. Anthem and CVS will be able to combine their medical and pharmacy businesses to cover more individuals, drive savings and better coordinate care while building other avenues to grow, executives said. The new PBM will net more than $4 billion in gross savings annually, most of which would translate to lower drug costs for consumers, Anthem said.

“We are focused on the incremental value that can be created within the integrated value proposition when we are managing both medical and pharmacy, that will be IngenioRx’ competitive advantage in the market,” Anthem Executive Vice President Brian Griffin told analysts during a Wednesday morning call.

There has been heightened scrutiny as to what role PBMs play in the pricing of drugs in recent years. PBMs, which oversee prescription drug benefits for employers and insurers, negotiate drug discounts with pharmaceutical companies, build pharmacy networks and create their own drug benefit plans, are involved in a blame game across the secretive pharmaceutical supply chain. PBMs, drug manufacturers, insurers and wholesale distributors have pointed fingers at each other to try to explain why savings via negotiated rebates aren’t ultimately passed to the consumer.

Anthem’s new PBM will give the insurer the opportunity to offer transparency throughout the supply chain, said Dr. Kevin Schulman, a professor of medicine at Duke University.

“More than just driving returns from their own PBM, Anthem has a real opportunity to curb abusive practices in the market,” he said.

Anthem will have “complete control” over its formulary—the preferred list of covered drugs for members, executives said.

“We will have CVS as a partner and think there is a significant advantage that our collective volume brings to table in respect to our negotiations with pharma,” Griffin said on the call.

Anthem can use the platform to not only produce better prices, but leverage CVS’ point-of-sale engagement including its Minute Clinic to improve communication with consumers, 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.

“It emboldens the market to look at things differently, challenge the status quo and find new ways to accommodate the needs of the market,” he said.

The move could drive industry-wide change, according to Tom Borzilleri, former CEO of PBM ValoreRx, who launched InteliScript, a technology company that provides drug price transparency.

“A lack of transparency in contract negotiations has opened the opportunity for PBMs to significantly profit off of these plans and artificially cause costs to rise to meet their need of profitability,” he said.

But it’s unclear whether the move will ultimately amount to anything.

Erin Fox, who directs the Drug Information Center at the University of Utah Health system, said she was not sure a new player in the PBM marketplace will bring transparency, but at least competition may provide some improvements.

While insurers may push back more on their arrangements with PBMs, it will not be enough to alleviate the concerns with patients who are footing higher prescription drug costs, said Lindsay Bealor Greenleaf, director at consultancy ADVI Health.

“This is an interesting side effect of insurers that are dealing with PBMs that they say aren’t passing along the rebates to insurers and ultimately the consumers,” she said.

Anthem was previously in the PBM business prior to 2009 when it sold its in-house PBM to Express Scripts. Tension grew last year when Anthem CEO Joseph Swedish said that his company was overpaying $3 billion annually for prescription drugs through its contract with Express Scripts. In April, Express Scripts said that Anthem, its biggest client, would not renew its contract with the PBM after the current agreement expires at the end of 2019. The companies are currently tied up in dueling lawsuits.

Express Scripts said that while the company was disappointed that Anthem decided to work with another PBM, “no other PBM will offer Anthem the combination of savings, member and client stability, and clinical expertise that Express Scripts represents,” the company said in a statement Wednesday.

There has been a wave of consolidation sweeping the PBM industry. Insurers have formed their own PBMs, giving them access to more consumers and an established a physician network as some, like UnitedHealth and its PBM OptumRx, have diversified their offerings.

Having control of both medical and pharmacy under their own PBM will make it easier for Anthem sell comprehensive packages to members and consolidate their data to improve operations, according to Craig Oberg, a managing consultant at PBM consulting firm the Burchfield Group..

Based on Anthem’s size, it will be able to negotiate better rates and rebates with pharmacies and drug manufacturers as well as control business costs including drug repackaging, Borzilleri said.

Anthem’s new PBM will cause companies like Express Scripts to think about transitioning to a more cost-effective and transparent type of business model and likely drive further consolidation, he said.

“It will cause consolidation especially within the PBM space,” Borzilleri said. “Profitability is directly tied to how many lives they manage.”

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