Anthem's legal strike against Express Scripts Holding Co. may spur other health insurance companies to re-evaluate their contracts with pharmacy benefits managers to see if they are getting shortchanged on drug savings. It could also allow Anthem and others to consider integrating drug benefits under their own corporate umbrellas.
At a minimum, observers expect more calls for transparency throughout the drug pricing process, which often is shrouded in secrecy in the name of “trade secrets” and has become one of the most divisive issues in healthcare.
“It's just a testament to the complexity that exists,” said Michael Rea, CEO of Rx Savings Solutions, a company that sells software to health insurers and self-insured employers to help people lower their drug costs.
After months of public frustration, Anthem sued Express Scripts Monday for more than $15 billion. Anthem argued the St. Louis-based PBM did not share enough drug savings with Anthem, which led to “an obscene profit windfall” for Express Scripts, according to a copy of the lawsuit (PDF).
Under the 10-year contract, which runs through 2019, Anthem has the ability to call for a periodic pricing review to ensure Express Scripts' processes are leading to the most competitive drug prices for Anthem and its members. Express Scripts said Anthem's lawsuit has no merit.
The amount paid for prescription drugs skyrocketed in 2014, due in large part to specialty medications like Harvoni and Sovaldi for hepatitis C patients. Consequently, drug pricing has been one of the most visible political and business targets in the past year. Several healthcare CEOs told Modern Healthcare last fall they favor the government stepping in to curb the rising cost of drugs. Some doctors have accused PBMs of contributing to the cost crisis by demanding rebates for expensive drugs instead of leaning more on generics.
Anthem, which is one of the largest U.S. health insurers and is in the process of acquiring Cigna Corp., appears to be content with severing ties with Express Scripts as soon as possible. A lawsuit of this magnitude usually means one company's unhappiness is beyond repair.
“This has gotten to a different level,” said Ana Gupte, a managing director at investment bank Leerink Partners. “Now I feel like it's sort of unsalvageable …when you've had so much contention and public animosity.”
That animosity hit a tipping point early this year, after Anthem CEO Joseph Swedish said his company was overpaying $3 billion annually for prescription drugs through the contract. Express Scripts struck back by arguing Anthem was not entitled to anything near that amount.
“I have no clue where the $3 billion came from,” George Paz, Express Scripts' retiring CEO, said during the company's fourth-quarter earnings call in February. “The number doesn't make any sense to me. So if you really want to get into that, you got to talk to Anthem about that.”
There has been a lot of consolidation among PBMs during the past several years, and Gupte said it's changed how insurers and PBMs do business. Express Scripts is the largest pharmacy benefits company in the country, but it's also one of the only ones that functions as a stand-alone PBM.
CVS Health Corp. has a giant pharmacy chain component along with its PBM segment, and Rite Aid, which is being gobbled up by Walgreens Boots Alliance, also recently bought a PBM. UnitedHealth Group, the nation's largest insurer by revenue, decided to build out its own PBM, OptumRx. Cigna has a relationship with OptumRx already, Gupte said, and it is possible OptumRx could be the biggest winner from the melee if Anthem decides to take its drug business there.
UnitedHealth isn't the only health insurer that owns a PBM. Humana controls one of the five largest PBMs by prescriptions filled, and Aetna is in the process of acquiring Humana, hinting that it wants to follow in UnitedHealth's footsteps.
“I think they want to own them,” Rea said of health insurers and PBMs. “They just maybe haven't put the transaction there yet.”
Gupte isn't convinced Anthem will build its own PBM just yet. But she does believe independent PBMs like Express Scripts face a disadvantage in competing with PBMs owned by health insurers, which can offer access to an established a physician network--assuming other insurers are convinced there's “Chinese wall” protecting their proprietary information from leaking over to competing health plans.
Insurers, as well as self-insured employers that pay for the medical costs of their workers, are increasingly demanding that members and employees have the ability to shop around for drug costs. That function, along with periodic price reviews, could help ensure PBMs are in fact saving money and encouraging the most effective drugs.
“They are really going to scrutinize where that money is going and where it's being used,” said Rea, a pharmacist by trade whose company, Rx Savings Solutions, contracts with Blue Cross and Blue Shield of Kansas City and the state of Kansas, among others. “It's going to spur new interest in companies that expose prices and help people make decisions.”