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Twelve PBM Contracting Pitfalls ... and Ways to Avoid Them

Josh Golden, Senior Vice President Solid Benefit Guidance

Helen Sherman, Pharm.D., R.Ph., Vice President Solid Benefit Guidance

Thursday, June 30, 2016

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About the SpeakersJOSH GOLDEN is an area senior vice president at Solid Benefit Guidance (a division of Arthur J. Gallagher), where he is responsible for the successful delivery of a wide range of pharmacy consulting solutions to Fortune 500 employers, government entities, labor unions, and other benefit plan sponsors. He has over 17 years of experience as a strategic consultant within the health care industry, and brings to bear a keen understanding of the entire pharmacy benefits supply chain to help his clients optimize financial and health care outcomes for the populations that they cover. Josh is recognized as a thought leader in the pharmacy benefits arena, and is frequently called upon for speaking engagements and media inquiries at a national level. He has extensive expertise in the areas of vendor procurement, contract negotiation, benchmarking, audit and plan design consultation. Before joining Solid Benefit Guidance in 2016, Josh was the practice leader of the Employer Consulting Segment of Pharmaceutical Strategies Group, LLC. Prior to that role, Josh served as a senior pharmacy consultant with Aon Hewitt. He has also served as a pharmacy specialist consultant with Mercer Human Resource Consulting and a benefits analyst with Buck Consultants. His clients have included some of the largest and most complex employers in the country. Josh has a Bachelor of Science degree in Industrial and Labor Relations from Cornell University. Contact Josh at [email protected].

HELEN SHERMAN, Pharm.D., R.Ph., is vice president at Solid Benefit Guidance, where her lifelong commitment to advancing the best use of medications supports payers, consumers and health care professionals with informed, value-based decisions. She is an advocate of health care transparency and value and focuses on using solid scientific evidence as a foundation for health care decisions. She is dedicated to helping clients develop effective solutions in a dynamic and evolving health care marketplace. Helen has comprehensive leadership expertise in pharmacy benefit management, including business development, market evaluation, clinical services, rebate management, sales, account management, operations, claims processing, customer service, Medicare Part D, Medicaid, regulatory requirements and vendor/system transitions. Helen spent 15 years in the health plan/pharmacy benefit industry, including as vice president for business development and chief pharmacy officer for RegenceRx (a health plan-owned PBM), where her leadership supported medication-purchasing decisions for 10 million members nationwide with an annual drug spend of $1 billion. She is an internationally recognized speaker and sits on several industry boards, including the advisory board of Drug Benefit News. Helen graduated from Oregon State University with a Bachelor of Science degree in Pharmacy and has a Pharm.D degree from Purdue University. Contact Helen at [email protected].

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• SPECIALTY PHARMACY NEWS is a monthly newsletter packed with 12 pages of business news and management strategies for containing costs and improving outcomes related to high-cost specialty products. Designed for health plans, specialty pharmacies, pharma companies, providers and employers, the hard-hitting newsletter contains valuable insights into benefit design tactics, the emerging biosimilars market, specialty markets for certain conditions, formulary decisions, merger and acquisition activity, payer-provider partnerships, patient adherence strategies, and new products.

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Webinar MaterialsTwelve PBM Contracting Pitfalls…and Ways to Avoid Them...…………....…...page 1

Josh Golden, Area Senior Vice President, and Helen Sherman, Pharm.D., R.Ph., Vice President, Solid Benefit Guidance

Selected Articles From AIS Publications.……………………………………….page 18

Webinar Outline

Part 1: Josh Golden and Helen Sherman, Solid Benefit Guidance

• Overview of PBM Contracting and Revenue Model

• Vague Brand/Generic Definitions

• Guarantee Offsets

• Rebate Loopholes

• Price Modification Rights

• Nuances of Transparency

• Limited Termination Rights

• Market Check Provisions

• Audit Right Considerations

• Hidden Fees & Charges

• ZBD Priding Exclusions

• Specialty Drug Nuances

• Weak Service Performance Guarantees

Part 2: Questions and Answers

April 2015

Twelve PBM Contracting Pitfalls… And Ways to Avoid Them

The information contained herein is compiled by Solid Benefit Guidance from a variety of sources, and is provided for educational purposes only. This information is not to be distributed further without the permission of Solid Benefit Guidance.

Presented by: Josh Golden Helen Sherman, PharmD. [email protected] [email protected] 404-862-3605 201-571-3840 Solid Benefit Guidance Solid Benefit Guidance

June 30, 2016 An AIS Webinar

1

PBM Underwriting & Contracting

The PBM (Pharmacy Benefit Management) bidding and pricing process is extremely complex, and often opaque.

Like any high volume business, the “fine print” is where the money is made.

Subtle manipulation of definitions can have significant downstream financial impact.

There is constant movement within the industry, allowing vendors to manipulate margin over time.

Specialty pricing is playing an increasingly important role in total cost outcomes.

“Business Transparency” is used (and misused) widely in the industry, with mixed success.

There tends to be a lack of “pull through” – negotiated items do not always end up in the contract draft.

2

PBMs: A Diversified Revenue Model

CLIENT FEES

PHARMA REVENUE

RETAIL NETWORK

DISPENSING ASSETS

3

Common Contracting Mistakes

4

Single-Source Brands

Achieved Discount of

AWP – 16.5%

Multi-Source Generics


AWP – 75%

Contractual Definitions: Every Word Matters!

PBMs may reclassify specific claims: • Single-Source Generics • Fewer than three manufacturers • Drugs subject to Patent Action • Generics launched after effective date

If defined as “Generics”, the network offer is:

Brands: AWP – 16.5%

Generics: AWP – 71.1%

If defined as “Brands”, the network offer is:

Brands: AWP – 18.1%

Generics: AWP – 75.0%

Single-Source Generics


AWP – 40%

Q: Isn’t the difference between a Brand Drug and Generic Drug obvious?

AWP = Average Wholesale Price 5

Guarantee Offsetting

Channel Drug Type AWP %

Performance Contract % Surplus/

(Shortfall)

Retail Brand $28,000,000 16.20% 15.00% $336,000

Retail Generic $30,000,000 77.00% 78.00% ($300,000)

Offsetting allows PBMs to avoid paying out on “missed” guarantees during the year-end reconciliation by overachieving on others.

At year end, client is owed…

Offsetting Allowed $0

Offsetting Not Allowed ($300,000)

6

Rebate Guarantee Loopholes & Exclusions

Specialty Drug

Rebates

Rebate Administrative

Fees

340B-Eligible Claims Generic Drug

Claims

Low Day Supply Claims

Onsite Pharmacy

Claims

A full pass-through of “Rebates” likely does not capture all of the revenue that the PBM receives from pharmaceutical companies.

Inflation Protection Revenue

7

Price Modification Rights

Changes in laws or

regulations

Changes in plan design or

formulary alignment

Changes in AWP or other

reference price

Changes in clinical

programs

Change in “underlying

assumptions”

Action by pharmaceutical

companies

Release of new generic

products

There are likely several “triggers” in the contract that allow the PBM to modify pricing during the term of the agreement.

8

Example: These prescriptions were filled at the same pharmacy on the same day with two different plans that both had “transparent deals” with the same PBM:

Date of Service

Pharmacy Name NDC11 Name Qty AWP

Ing. Cost Discount

07/08/2011 Blinded 68180051703 lisinopril 40mg 30 $46.24 $12.90 72%

07/08/2011 Blinded 68180051703 lisinopril 40mg 30 $46.24 $15.50 66%

Nuances of Transparency

…for many PBMs means a pass-through of “A Rate”, not necessarily the “Best Rate”

9

Limited Termination Rights

Consider all possible scenarios that may warrant early termination of the PBM agreement…

Repeated service deficiencies

Change in ownership of PBM

Change in ownership of client

Significant member disruption

Inappropriate changes to pricing

Discretionary termination

Other?

…and negotiate for these rights during the RFP/renewal process.

A multi-year contractual commitment with fewer early termination provisions gives the PBM greater underwriting favorability.

10

Market Check Provisions

The Market Check is a critical component of any multi-year PBM contractual commitment.

This process ensures that your contract remains market-competitive in a rapidly evolving pharmacy landscape.

PBMs have generally been willing to accommodate these rights – but the details vary considerably from contract to contract.

COMPONENTS OF A GOOD MARKET CHECK

Client controls the evaluation

Independent third party involved

Data-driven, based on real deals

No savings threshold requirements

Includes client termination rights

11

Audit Right Considerations

• Limit to frequency of audits

• No re-audit of same time span

• Audit blackout periods

• Charges or fees for audits

• Only “approved” auditors allowed

• Slow response time commitments

Standard PBM contract language may place significant limits on the client’s ability to effectively audit their plan.

12

Hidden Fees & Charges

PBMs rely on “aftermarket” fees and charges, some of which may not be clearly delineated during the RFP/renewal process.

CDHP Data Integration

Fees

Clinical Program

Fees

Custom Formulary

Fees

Member Appeals Services

Ad Hoc Reporting Charges

Custom Member

Letter Fees

CDHP = Consumer Directed Health Plan 13

ZBD Exclusions

“Zero-Balance Due” (ZBD): Claims where the member pays the full cost of the prescription, so no balance is due to the PBM by the plan.

Perceived Discount for This Claim

How Claim Is Handled In Annual

Reconciliation

How Claim Is Processed at

Pharmacy

AWP: $20 Ing. Cost: $10 Copay: $15 Mbr. Pays: $10 Plan Pays: $$0

Claim is included in discount

reconciliation Discount = 50%

Claim is excluded from discount reconciliation

Discount = N/A

Discount is calculated based on net plan cost

Discount = 100%

14

Specialty Drug Nuances

15

Don’t Forget About Service

“Off the Shelf” PBM Service Performance Guarantee (PG) targets are generally not set at best-in-class levels.

• Loose call center metrics

• Vague account management commitments

• Book-of-business measurement where client-specific basis is warranted

• “Gimme” guarantees with easy-to-hit target metrics

• Key areas of service ignored or excluded from PGs

• Insignificant dollars at-risk

• No right to modify PGs over time based on actual service experience

16

SBG is a unique benefits consulting firm with a specialty practice in pharmacy benefits.

We engage with clients that collectively manage over 60,000,000 covered member lives.

Our experts have a combined 450+ years of INSIDER Rx/PBM experience.

We have complementary skill sets in all aspects of pharmacy and healthcare management

SBG was acquired by Arthur J. Gallagher, Inc. (NYSE: AJG) in June 2015.

About Solid Benefit Guidance

SBG offers clients an INSIDERS’ EDGE that is unique in the marketplace.

PBM Procurement and Contract Negotiation

PBM Vendor Management

Pharmacy Program Audit and Oversight

Medicare Part D and EGWP Expertise

Specialty Pharmacy Management Strategies

Plan Design Modeling and Recommendations

Financial, Clinical, and Service Benchmarking

17

Copyright © 2016 by Atlantic Information Services, Inc. All rights reserved. Reproduction by any means — including photocopy, FAX or electronic delivery — is a violation of federal copyright law punishable by fines of up to $150,000 per violation.

Atlantic Information Services, Inc.

Distinct PBM Models Emerge as Optum Outbids CVS on CalPERS, Texas ERS PactsReprinted from the June 10, 2016, issue of AIS’s biweekly newsletter Drug Benefit News. Visit the MarketPlace at http://AISHealth.com for more information.

Analysts are marking the differences in PBM models as the 2017 selling season pro-gresses, with UnitedHealth Group’s OptumRx unit usurping CVS Health’s CVS/caremark to claim two major state-run retirement contracts in one week. Specialty pharmacy manage-ment will dictate which of the competing models will drive industry evolution, according to one expert who says that PBMs are “racing” to integrate specialty solutions.

On May 18, the California Public Employees’ Retirement System (CalPERS) selected OptumRx over incumbent CVS for a five-year contract to administer pharmacy benefits for nearly 486,000 members and dependents enrolled in all of CalPERS’ health plans excluding Kaiser Permanente and Blue Shield of California HMOs. The decision came one day after the Employees Retirement System of Texas (Texas ERS) made the same move for its six-year contract, under which fellow UnitedHealth Group subsidiary UnitedHealthcare administers the largest plan. While the deals could be interpreted as a victory for the integrated, payer-owned PBM model over the retail approach, Ritu Malhotra, Pharm.D., senior vice president of pharmacy benefits consulting for Pharmaceutical Strategies Group (PSG), tells DBN that the word on the street is that OptumRx has been putting “very aggressive pricing on the table this year.” UnitedHealth did not return requests for comment.

OptumRx bid $4.88 million for the CalPERS contract, coming in below CVS’s $4.9 mil-lion offer and Express Scripts Holding Co.’s $4.95 million bid. For the Texas ERS contract, OptumRx bid $5.27 million for commercial plans and $3.76 million for Medicare Advantage Employer Group Waiver Plans (EGWPs) and wrap-around services. Express Scripts had the next lowest bid at $5.84 million and $4.4 million, respectively, and CVS had the highest bid at $5.96 million and $4.35 million. Net cost made up 50% of the Texas proposals’ evaluation.

CVS declined to discuss losing the contracts to OptumRx, but spokesperson Christina Beckerman says in a statement that the company has maintained a 98% retention rate for cli-ents this year, and that clients across its book of business saw a 5% decrease in trend for 2015. CVS has the “broadest capabilities” to manage drug trend, Beckerman says, citing “flexibil-ity” in clients’ implementation solutions, scale and “real-time analytics and data tools.”

Adam Fein, president of Pembroke Consulting, Inc. and author of the Drug Channels blog, analyzed the CalPERS bids, noting that CVS projected the fastest growing drug trend, while Express Scripts forecast the lowest drug trend but highest total cost (see chart, p. 19).

PBMs Reach Turning Point in 2017

But while pricing is necessary to get you in the door, Malhotra says, another reason OptumRx may have won the contracts is because its integration with UnitedHealthcare has a strong impact on clients. “Through the merger [with Catamaran Corp.] they were able to gain some leverage with pharma and put some aggressive rebates on the table, so we’ve been seeing that all bid season,” she says. “But the other is, I believe, that the OptumRx message and marketing is really resonating with clients. They’re focused on overall wellness, their tie-in to their medical plan and the efforts that they can partner with plan sponsors to en-gage participants across both medical and pharmacy.”

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This selling season is the first in which the three major players have really distinguished themselves from each other, Malhotra says, which is “exciting.”

“We see clients being able to make a decision about which is most going to support their long-term goal,” she says. “We still see CVS with retail access and pricing they’re able to give for their Retail-90 Network being very much appealing to clients who have access to their retail stores, but that’s not every client. And we still have ESI [Express Scripts] clients that are happy with home delivery, have high penetration of home delivery and stay with ESI for that reason, because they offer very competitive pricing for home delivery rates.”

Ashraf Shehata, a principal in KPMG’s health care life sciences advisory practice and in its Global Healthcare Center of Excellence, contends the return of the payer-owned PBM represents the “new wave” of the PBM model and that the recent movement of contracts is “very interesting.”

“A lot of [PBMs] have these capabilities,” he tells DBN. “What is unique is when those ca-pabilities become in-house and they become embedded. Now we’ve seen a rise in data ana-lytics, and data analytics becoming a bigger and bigger process of managing the drug spend and helping to create a better consumer-centered model. So the idea here is that now if I have a direct connection between claims data and PBM data, can I create a better PBM?”

Prime Therapeutics, a PBM owned by 14 Blues plans, in March won a five-year deal with Blue Cross & Blue Shield of Rhode Island away from OptumRx. Prime didn’t pursue the CalPERS contract because its strategy rests in part on a pledge not to compete with clients, Cory Super, vice president of sales, tells DBN. Prime provides mail-order services to Blue Shield of California. Super says the recent shift in contracts shows how competitive the mar-ketplace is.

“I think where we’re going with the health care system trends more toward payer-based and accountable care type of models,” he says. “I think you have an opportunity as a payer-based PBM to really align with how they want to deliver care in terms of paying for value instead of just paying for fee-for-service.”

The discord between Anthem, Inc. and Express Scripts Holding Co. is another sign that payer-owned PBMs might be on the rise. But Shehata, who, like Malhotra, is unfamiliar with the details of the CalPERS and Texas ERS contracts, says deciding which type of PBM is best still will be a case-by-case consideration for clients.

One solution all clients are looking for is the ability to manage the sky-rocketing cost of specialty pharmacy. CalPERS said in a statement that the ability to manage prescription drug prices was given “a lot of emphasis.”

“One of the big unknowns is which one of these three models will manage specialty pharmacy better,” Shehata says. “The market model that will better manage specialty will probably be the SOURCE: Pembroke Consulting. Published on Drug Channels

(www.drugchannels.net) on May 24, 2016.

Projected Drug Trends for CalPERS, by PBM, 2018-2021

19



prevailing model.” All three are “rushing” to build better solutions for specialty pharmacy spend, he adds.

Other models are “brewing,” too, Shehata says, including the rise of the provider-owned PBM. The increase in accountable care contracting creates a need for close coordination with doctors, and large medical groups are perfectly situated to undertake the pharmacy benefit themselves. “Which one of these entities will have better leverage or better relationships with the providers? That’s going to be another key,” he says. “People always used to say the most indicative indication of pharmacy spending is the power of the pen. And the power of the pen is owned by the physicians.”

Regardless of the approach, PBMs will need to put more emphasis on accountable care, Malhotra says.

“Certainly all PBMs need to understand which of the plan sponsors have those long-term goals,” she says, “because many are starting to look at — instead of just pricing, which has been the focus for many years — they’re starting to look at long-term programs that will really bend the curve as opposed to just getting them the best discount right now.”

Contact Beckerman at [email protected], Luddy at [email protected], Malhotra via Ron Trujillo at [email protected], Shehata via William Borden at [email protected] and Super via Karen Lyons at [email protected]. G

Express Scripts Denies Breach-of-Contract Claims From Anthem, Seeks RestitutionReprinted from the April 22, 2016, issue of AIS’s biweekly newsletter Drug Benefit News. Visit the MarketPlace at http://AISHealth.com for more information.

In a response to Anthem, Inc.’s lawsuit containing various breach-of contract-claims against its PBM, Express Scripts Holding Co. on April 19 denied all allegations made by the insurer and disclosed that Anthem chose at the start of their long-term pact to take a $4.7 bil-lion lump sum payment rather than receive lower pricing over the contract term. The parties have repeatedly failed to see eye to eye on a repricing provision, and the latest filing indi-cates a growing divide that does not bode well for the future of Express Scripts’ relationship with its largest PBM customer.

After unsuccessful attempts to negotiate with Express Scripts for satisfactory pricing terms for the remainder of a 10-year agreement that runs through 2019, Anthem on March 21 filed a lawsuit seeking $15 billion (DBN 4/8/16, p. 5). The insurer had already claimed in January that it could be saving at least $3 billion on drug costs per year based on competitive benchmark pricing, and in the suit alleged that Express Scripts refused to negotiate in good faith over Anthem’s offers to reprice the contract and failed to offer “anything remotely close to competitive benchmark pricing.”

In a redacted version of the answers and counterclaim filed in the U.S. District Court for the Southern District of New York to the lawsuit (Anthem, Inc. v. Express Scripts, Inc., 1:16-cv-02048), Express Scripts asserted that it has a contractual obligation to negotiate in good faith, but that it is not required to make pricing concessions. Nevertheless, the PBM said it made five separate counterproposals to Anthem between June 2015 and March 2016 that were

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“well within the range” of what Anthem had publicly said it expected to receive prior to January 2016, and contended that the Anthem lawsuit is without merit.

The company is seeking as part of its counterclaim restitution of no less than the initial lump sum — which it said has “unjustly enriched” Anthem — plus interest, and said it has been materially damaged by Anthem’s various allegations. The PBM also asked that the court issue a declaratory judgment finding that, among other things, Anthem is in breach of the good faith negotiation requirement in the PBM agreement and award damages in an amount to be proven at trial, that Express Scripts has no contractual obligation to agree to any new pricing terms proposed by Anthem, and that Anthem does not have the right to terminate their agreement, which is one of the requests Anthem made in its suit.

“In our view, both companies remain far apart from a resolution on more than just price, where today’s filing makes it seem less likely the companies will find an amicable long-term solution,” wrote Citi Research Vice President, Healthcare Technology & Distribution, Garen Sarafian in an April 19 research note. Express Scripts and Anthem may shed more light on the situation when they host their earnings conference calls on April 26 and 27, respectively, he added.

Contact Sarafian at [email protected]. G

Changing Insurer, PBM Landscape Makes ‘Unstable’ Rx Plan Purchasing EnvironmentReprinted from the April 8, 2016, issue of AIS’s biweekly newsletter Drug Benefit News. Visit the MarketPlace at http://AISHealth.com for more information.

Merger and acquisition activity in the PBM industry has been heavy for years, but with two major pending combinations between large insurers and the recent integration of Catamaran Corp. into the UnitedHealth Group-owned PBM OptumRx, plan sponsors that are looking to procure a new PBM vendor or renew with their existing one are having to deal with a whole new set of variables as the 2017 selling season gets underway, several ben-efits consultants tell DBN.

For large employers, “one frustration a lot of clients are feeling right now is a lack of viable options outside the two or three players that are currently controlling the market,” remarks Josh Golden, practice leader, employer consulting, with Pharmaceutical Strategies Group LLC, referring to CVS Health’s CVS/caremark, Express Scripts Holding Co. and OptumRx. And less choice means potentially having to consider a PBM you’ve had a bad experience with once before, he suggests.

If clients go out to bid, “Will they find a materially different experience somewhere else? That’s kind of the predicament that your average employer is in right now when it comes to pharmacy services,” weighs in Robert Ferraro, R.Ph., principal, national pharmacy practice, Xerox HR Services. “And the landscape is changing so rapidly in terms of the players and consolidation — not just on the PBM front but the health plan front — plans don’t know [whether] what they’re buying today and what they’re making decisions on today are going to be exactly what they get when the plan goes live, for example. It’s a really unstable envi-ronment out there…but I think the market has to do the best it can with what it knows at the time.”

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Because of such uncertainty, Ferraro says he’s seeing greater plan sponsor interest in negotiating “convenience termination” provisions that clients could, for example, exercise in the event of a change in control. “I think the trend is to have wiggle room when it comes to contracts,” he tells DBN. However, Ferraro says PBMs are pushing back, even though histori-cally clients that have put such provisions in their contracts have very rarely utilized them. “We’re seeing the PBMs try to pull that out in a renewal negotiation because they don’t want that risk.”

One new development that could have an impact on the 2017 selling season is a partner-ship between OptumRx and Walgreens Boots Alliance, Inc. allowing PBM customers to fill 90-day supplies of medications via home delivery or any Walgreens retail pharmacy loca-tion for the same copayment (DBN 3/18/16, p. 8). Sources report that the new offering, which is available Jan. 1, 2017, is generating interest among potential employer clients and could offer competition to CVS/caremark’s Maintenance Choice Program. Introduced in 2009, Maintenance Choice allows customers to obtain 90-day supplies of maintenance medications from a CVS/caremark mail facility or retail location and is now used by more than 23 mil-lion members, executives recently stated on an investor call.

Golden suggests industry experts were “probably a little bit surprised” by the new partnership, since many were expecting a closer alliance between Express Scripts and Walgreens. While the new deal “attempts to kind of mimic a Maintenance Choice arrange-ment, it’s clear that financially speaking it’s going to have to work a little differently, because you’re talking about two different companies having to compete for margin, while CVS has the luxury of being able to move margin around the global organization if necessary,” he observes.

“At the same time, you’ve got Express Scripts out there suggesting that they also have a 90-day solution that’s competitive to Maintenance Choice,” he adds. “So I don’t think there’s a lot of clarity just yet about how these arrangements truly compare, and whether they are truly interchangeable.”

Express Scripts in 2013 teamed up with Walgreens to create a similar offering with the launch of Smart90 Walgreens (DBN 8/16/13, p. 3). But that model differs from the OptumRx-Walgreens pro-gram in that the copay discounts aren’t always the same, points out Ferraro, who adds that he hasn’t heard as much “buzz” about Smart90 as the companies might have anticipated.

In a Feb. 22 conference call to dis-cuss 2015 fourth quarter and full year earnings, Express Scripts President and Director Timothy Wentworth said the company offers two options when it comes to 90-day fills, including one that does not feature Walgreens. “I wouldn’t say the uptake has been dramatic, but I would say that for clients or prospects

Estimated PBM Market Share, 2016

SOURCE: Company reports, Deutsche Bank estimates. March 2016. Contact George Hill at [email protected].

Express Scripts 29.8%

CVS/Caremark 24.6%

OptumRx 13.6%

Catamaran 9.2%

MedImpact 5.1%

EnvisionRx 1.4%

Prime Therapeutics 6.3%

Humana 7.5%

All Other 2.6%

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who are either in or interested in a retail 90-mail combination program, we have a very strong offering,” he remarked.

Ferraro says partnering up with Walgreens was a “great move” on the part of OptumRx because most of his clients’ employees have preferred the 90-day-at-retail channel over mail when given the option. “A lot of employers have really grown accustomed to that type of program and taking that away [from their employees] would have been difficult considering how much activity it’s received,” he points out. “So they created a pathway to do that, and kudos to them, because I think now they’ll be able to challenge CVS on a lot of market open-ings where all things being equal that could have been the tipping point.”

To Carve In or Carve Out?

Meanwhile, with Aetna Inc. planning to purchase Humana Inc. (DBN 7/10/15, p. 1) and Anthem, Inc. looking to close a proposed acquisition of Cigna Corp. (DBN 8/7/15, p. 1), insur-ers’ varying approaches to carving out portions of their pharmacy business to large PBMs could undergo major renovations, sources predict.

Anthem, for example, has a 10-year agreement with Express Scripts through which the latter in 2009 acquired the assets of Anthem’s (then WellPoint’s) NextRx PBM subsidiary, although that partnership could end sooner than anticipated due to a contract dispute. And Cigna has a 10-year co-sourcing deal with Catamaran (now OptumRx) that runs out in 2023. Meanwhile, Aetna has a 12-year strategic arrangement with CVS/caremark that runs through 2022, with termination rights beginning in January 2020. None of the insurers have said whether they plan to bring their pharmacy businesses back in house.

“With some of the national health plans leveraging PBMs for services in aspects like net-work management and mail order services, they have been able to get just as competitive as the stand-alone PBMs in many regards. And with the evolution of the Affordable Care Act and a lot of the things that are part of that, such as requiring better or more enhanced coor-dination between the medical plan and the prescription drug plan, it’s really created an en-vironment in my mind where carving prescription drug services back in to the health plan is making a lot more sense,” asserts Ferraro.

Likewise, Anderson predicts that once the major health plan mergers are completed, at least one of the combined insurers “will emerge as a PBM in the near future,” possibly build-ing it internally but using an aggregator for rebates. And while the insurer trend of getting out of the PBM space was sparked by the Anthem-Express Scripts deal, the combination of OptumRx and Catamaran — which secured OptumRx’s position as the third-largest PBM — could be what reverses that trend.

Meanwhile, OptumRx is trying to market both an integrated medical-pharmacy ap-proach with UnitedHealthcare and a stand-alone PBM model leveraging the capabilities of legacy Catamaran. But consultants tell DBN that health plans are still reluctant to contract with an insurer-owned PBM. Blue Cross & Blue Shield of Rhode Island, for example, last month said it would transition pharmacy services from Catamaran to Prime Therapeutics LLC, which is owned by 13 Blue Cross and Blue Shield plans (DBN 3/18/16, p. 8).

UnitedHealth now owning Catamaran is a “big problem” for health plans, suggests Anderson. “We’re doing an RFP now for a health plan and we could probably get really com-petitive pricing from OptumRx, but since they’re owned by UnitedHealth, they’re not going to be included in the bid because they’re competing in that market,” he says.

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Outside of “the big three,” there are still “plenty of options” for health plans and smaller and mid-sized employers looking to carve out their pharmacy services, adds Anderson. These include Prime, MedImpact Healthcare Systems, Inc., Argus Health Systems, Magellan Rx Management and EnvisionRx, which Walgreens stands to acquire through its pending $17.2 billion purchase of Rite Aid Corp. (DBN 11/6/15, p. 1). “The mid-tier PBMs are growing and there are opportunities to [continue to grow] through consolidation. The mid-tier PBMs are also using similar aggregators for rebates, which is allowing them to compete. And peo-ple still like that independence of the pass-through [model offered by some mid-tier PBMs], but as they’re competing with these larger health plans, they’re going to need to focus on price,” he suggests. “I’m still waiting for that fourth PBM to define itself...as willing to play.”

Contact Anderson at [email protected], Ferraro at [email protected] or Golden at [email protected]. G

Price-Check Standoff Creates Uncertainty Over Express Scripts’ Future With AnthemReprinted from the Jan. 22, 2016, issue of AIS’s biweekly newsletter Drug Benefit News. Visit the MarketPlace at http://AISHealth.com for more information.

During a recent presentation at the 34th Annual J.P. Morgan Healthcare Conference, held Jan. 11-14 in San Francisco, Anthem Inc. estimated it could save at least $3 billion on drug costs per year by exercising a “repricing provision” in its long-term PBM contract with Express Scripts Holding Co. That estimate boggled some analysts, who questioned whether Anthem would ultimately renew with Express Scripts, and news of unrest between the PBM and its biggest client sent Express Scripts’ stock tumbling 6.5% by the close of Jan. 13.

Anthem in 2009 inked a 10-year agreement with Express Scripts through which the latter acquired the assets of Anthem’s (then WellPoint) NextRx PBM subsidiary (DBN 5/1/09, p. 3). Anthem Chairman, President and CEO Joe Swedish on Jan. 12 told investors that the insurer is contractually entitled to new pricing terms effective Dec. 1, 2015, but has not yet received an offer from Express Scripts that it views as reflective of “market-competitive benchmark pricing” and is trying to engage them in “good faith negotiations” under the terms of the price-check provision.

The $3 billion annual “gross” savings projection is for the period of 2016-2019, and would be achieved primarily through lower generic drug pricing, explained Swedish. It was de-rived from “multiple independent reference points to determine and validate appropriate competitive benchmark pricing,” including requests for information from competitive ven-dors and market analyses from third-party consultants, he added.

But that figure was hard for some analysts to digest, given that Anthem had previously given an estimated annual savings range of between $500 million and $700 million. In a Jan. 13 research note, Citi Research Vice President of Healthcare Technology and Distribution Garen Sarafian called the $3 billion estimate “unrealistic.” “To put that [$3 billion figure] in perspective, that’s over 40% of Express Scripts’ entire 2016E EBITDA [estimated full-year 2016 earnings before interest, taxes, depreciation and amortization],” Sarafian said. But, he added, Anthem combined with the TRICARE military health system accounts for only one-quarter of Express Scripts’ total sales.

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And even a $2 billion reduction in Express Scripts’ annual operating earnings would impact annual earnings per share by more than 25%, estimated securities analyst George Hill of Deutsche Bank. “Given the current state of discussion, it is hard to imagine [Express Scripts] now retaining the Anthem PBM contract beyond 2019, and the earnings risk to [Express Scripts] now becomes even more difficult to quantify,” he wrote on Jan. 13.

“On average we believe drug pricing via rebates and enhanced generic sourcing has im-proved materially since 2009,” observed Evercore ISI Senior Managing Director and Partner Ross Muken in a Jan. 13 research note. Operating on the assumption that Express Scripts currently processes between about 225 million and 245 million prescriptions for Anthem, he estimated that the $3 billion savings figure would equate to roughly $13 per prescription, compared to the average market rebate of approximately $17 per Rx observed by Evercore.

“While our assumptions are not confirmed and we are just postulating, we believe the implication is that these dollars have been passed back to ESRX [Express Scripts] members and ANTM [Anthem] is now arguing that these savings should be shared back,” continued Muken. “In our mind, they are arguing that ESRX used their incremental scale to improve sourcing but did not share back the magnitude of savings with their members and likely then by logic kept the dollars for their own client base (while keeping some portion).”

During a Dec. 22 conference call to discuss Express Scripts’ 2016 financial guidance, Chairman and CEO George Paz pointed out that the companies engaged in a similar pricing review in 2012 that “ultimately resulted in a mutually beneficial agreement” and stressed that Express Scripts is “fully committed” to reaching another one. “We are excited to con-tinue productive discussions with Anthem regarding our relationship and particularly the powerful savings they can achieve and pass onto their clients under the range of cost-saving programs we offer,” he said. “Based on the range of variables that could influence our dis-cussions with Anthem, we are unable to provide a timetable or the likely financial terms of the successful negotiation at this time.”

“Express Scripts has consistently acted in good faith and is in full compliance with the terms of its agreement,” spokesperson Brian Henry tells DBN. “Anthem has mischaracter-ized these terms and how they were reached. While the contract calls for good faith negotia-tions regarding a pricing review, it does not mandate specific price adjustments.”

Swedish added that the savings estimate does not include any incremental value that could be derived from its pending acquisition of major insurer Cigna Corp. “It’s too early to quantify additional savings available, as we have not yet been able to analyze their current agreement,” he said.

Anthem in July 2015 unveiled plans to acquire Cigna in a cash-and-stock transaction worth $54 billion, creating the largest health insurance entity in the U.S. (DBN 8/7/15, p. 1). Swedish had indicated at the time that the companies may explore the possibility of “a better pharmacy contract” as a combined entity but would not make any decisions until well after the close of the deal, which is expected to happen in the second half of 2016.

Swedish concluded that Anthem will “continue to analyze all the available options for the most efficient and cost-effective long-term pharmacy solution.”

“It is unusual for negotiations to be as public and contentious as they have been,” Morningstar Inc. securities analyst Vishnu Lekraj tells DBN sister publication Health Plan Week. “Joe Swedish is looking at every possible avenue to improve Anthem’s operations. And he has been one of the better managers over the last few years and done a great job, and this

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is all part of it. No other company or insurer can carry as much weight and power as far as a relationship with a vendor, except for UnitedHealth Group or when the Aetna-Humana deal closes.”

Contact Henry at [email protected], Hill at [email protected], Lekraj at [email protected], Muken at [email protected] and Sarafian at [email protected]. G

With Anthem-Cigna Deal, Insurer M&A May Have Long-Term Implications for PBMsReprinted from the Aug. 7, 2015, issue of AIS’s biweekly newsletter Drug Benefit News. Visit the MarketPlace at http://AISHealth.com for more information.

Following up a $37 billion planned purchase of Humana Inc. by Aetna Inc. unveiled last month (DBN 7/10/15, p. 1), Anthem, Inc. and Cigna Corp. on July 24 said they’d reached a definitive agreement whereby Anthem will acquire all outstanding shares of Cigna in a cash-and-stock transaction worth $54 billion. While several industry analysts (and some of the PBMs themselves) say recent merger and acquisition (M&A) activity has not had a signif-icant impact on the 2016 PBM selling season, insurer consolidation may have implications for major PBMs like CVS Health Corp.’s CVS/caremark — which has a long-term arrangement with Aetna — and Express Scripts Holding Co. in the long run.

The combination of Anthem and Cigna would create the largest health insurance entity in the U.S., surpassing UnitedHealth Group’s UnitedHealthcare unit with an estimated 16% market share of total medical membership, according to AIS data. But the deal creates un-certainty for the long-term relationships both companies have with major PBMs. Anthem in 2009 inked a 10-year agreement with Express Scripts through which the latter acquired the assets of Anthem’s (then WellPoint) NextRx PBM subsidiary. Cigna, meanwhile, has a 10-year co-sourcing deal with Catamaran Corp. that runs out in 2023. And UnitedHealth on July 23 completed the previously announced acquisition of Catamaran, which will be merged with the insurance operator’s OptumRx PBM.

During a July 24 conference call to discuss the planned transaction, Anthem President and CEO Joe Swedish indicated that the companies will explore the possibility of seeking “a better pharmacy contract” as a combined entity, but will not make any decisions until well after the close of the deal, which is expected to happen in the second half of 2016. Cigna also reminded investors that it has a “change in control” option in its PBM contract.

In a research note posted the same day, Evercore ISI predicted that the two scenarios most likely to play out following the combination of the two insurers are: (1) Anthem and Cigna in-source their PBM contracts and establish a fully functioning PBM, which would take a significant investment on the part of Anthem and could have a negative impact to Express Scripts’ earnings per share in 2019, or (2) the combined entity renews the PBM deal with Express Scripts but at a lower margin.

During a July 29 conference call to discuss second-quarter 2015 earnings, Express Scripts Chairman and CEO George Paz emphasized the company’s model of alignment with clients and patients to take advantage of its size and scale and its “bold moves” to drive down costs and improve outcomes. When asked during the question-and-answer session how health

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insurer consolidation and the UnitedHealth-Catamaran combination is impacting the “com-petitive landscape” for Express Scripts, Paz said, “A lot of people picked our pockets over the last couple years as we’ve gone through integration. To be honest, we’re going to try to do the same…. We feel like our model is good, and it resonates. So we’re excited about the opportu-nities that all these consolidations are offering to us.”

As for CVS, which has a 12-year strategic agreement with Aetna that runs through December 2022 — with termination rights beginning in January 2020 — the company ap-pears to be confident in the value its integrated model could bring to a combined Aetna-Humana. “We’ve got a very strong working relationship with [Aetna],” said President and CEO Larry Merlo during an Aug. 4 conference call to discuss second-quarter earnings. “I think the fact that we have a singular focus on pharmacy and…the innovation that we bring, the scale that we have as the largest purchaser of generics, the integrated model that brings solutions to access, quality and outcomes, and the broad capabilities that we have… I think that it puts us in a very, very good position. I think there’s the possibility that folks could be thinking about in-sourcing their PBM, but I think when you consider all of those factors,…it creates a suboptimal situation.”

Merlo added that the 2016 selling season has not been impacted by recent M&A activity, and that “that opportunity’s in front of us.”

Insurer Consolidation Will Affect Part D Rates

“Overall, the impacts of these mergers may not be directly felt in the short term, but they will have major impacts [on the PBM industry] in the next five to 10 years,” predicts Brian Anderson, a consultant with Milliman. While neither the Aetna-Humana nor the Anthem-Cigna combination will have much of an effect on plans that purchase standalone PBM ser-vices, insurers that operate Medicare Part D Prescription Drug Plans and the self-insured/fully insured plans that purchase medical and pharmacy benefits as a package will be im-pacted, he adds.

“In the Medicare market, this will impact the premiums for the next few years as large plans reduce margins to drive enrollment,” Anderson explains. “In the medical/pharmacy benefit market, this reduces the number of options that plans have to drive competitive bidding due to market-access limitations. Also, I expect that the large insurers will look at aligning themselves with retailers and begin bringing the PBM services in-house as a way to compete with UnitedHealthcare in the future. Wal-Mart and Walgreens are still major play-ers that are on the sidelines watching the industry consolidating.”

“Of the three major healthcare consolidations currently in progress, the Catamaran ac-quisition [by UnitedHealth] will have the greatest direct impact on the PBM marketplace,” weighs in Josh Golden, practice leader, employer consulting at Pharmaceutical Strategies Group LLC, via email. “UHC is clearly interested in making a strong play in the carve-out PBM space — an area where they have historically not made much of a splash. This deal poses the biggest potential challenge to [Express Scripts] and CVS Health, the two reigning oligopolists in the market. It also increases pressure both up and down the supply chain. Manufacturers, retailers, and wholesalers are all going to get the squeeze from this new combined entity.”

Golden adds, “The Anthem-Cigna deal is exciting in its own right, and it has down-stream implications for the millions of Cigna pharmacy lives currently serviced by

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Catamaran/OptumRx. We’re all wondering how long Anthem will leave that population sitting with a direct competitor.”

Contact Anderson at [email protected] and Golden at jgolden@ psgconsults.com. G

Proposed Aetna-Humana Combo Raises Questions About Existing PBM OperationsReprinted from the July 10, 2015, issue of AIS’s biweekly newsletter Drug Benefit News. Visit the MarketPlace at http://AISHealth.com for more information.

Adding to the already frenzied pace of PBM consolidation over the last several years, Aetna Inc. on July 6 said it had reached a definitive agreement to acquire all outstanding shares of Humana Inc. in a cash-and-stock deal that has a total transaction value of $37 bil-lion. While the two companies did not disclose plans for their respective PBM divisions, options include combining the businesses to create the fourth-largest PBM or funneling the Humana pharmacy business, now internally managed, to Aetna’s existing PBM partner, CVS/caremark.

During a July 6 conference call to discuss the proposed transaction, leaders from Aetna and Humana described how it would improve Aetna’s positioning in the Medicare Advantage and Part D markets and strengthen the acquirer’s efforts to lead a more con-sumer-oriented marketplace. The purchase is expected to add 14.2 million total members, including 9.8 million medical lives and 4.4 million stand-alone Prescription Drug Plan en-rollees, and will create a “leading provider” of PDPs with 5.8 million members, said Aetna Chairman and CEO Mark Bertolini, who will serve as chairman and CEO of the combined company. The largest Part D provider is UnitedHealth Group, which has 5.1 million PDP members and 3.2 million Medicare Advantage prescription drug plan lives, according to an Avalere Health LLC analysis of CMS enrollment data as of January 2015.

The deal will also bring “certain pharmacy benefit management capabilities” back into the Aetna portfolio, added Bertolini. He did not provide any specifics on those capabilities, but when Aetna and CVS entered into their strategic alliance in 2010, CVS took over ad-ministration of Aetna’s retail pharmacy network, management of pharmacy customer and member service functions, and purchasing, inventory management and prescription fulfill-ment for Aetna’s mail-order and specialty pharmacy operations (DBN 7/30/10, p. 1). Aetna retained its PBM and management of clinical programs, protocols and oversight of its phar-macy benefits business.

Will Aetna, Humana Combine PBMs?

The deal is expected to close in the second half of 2016, with an estimated $1.25 bil-lion in annual cost synergies to be fully realized in 2018. That figure does not include any PBM-related synergies. When asked during the question-and-answer session if Aetna could rework its contract with CVS to take advantage of any PBM synergies created by the combi-nation, Aetna leaders indicated it is too soon to make any projections.

“In terms of the PBM, we have a contract with CVS…and this is something that we have to work through over time. So again, I think it would be premature to speculate on the levels

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of synergy there, but it certainly is something that when we think about the long-term value gives us some really good optionality in the future,” said Shawn Guertin, executive vice president and chief financial officer of Aetna.

If the companies were to combine their pharmacy divisions, they would create the fourth-largest PBM on a stand-alone basis that will process more than 600 million prescrip-tions in 2015, estimated the companies. But when asked during the call about the possibility of bringing PBM operations in-house, Bertolini said, “That’s something that we are work-ing through as part of the integration planning, and by that I mean the notion of creating this fee-based…business segment — I’ll call it Optum-like....Clearly this combination of as-sets gives us that optionality now and clearly one element of that optionality over the long haul is the PBM.” He added that Aetna has “every intention” of abiding by its CVS contract and is more likely to consider internalizing the business after it expires in 2019. After all, UnitedHealth Group brought its pharmacy benefits to its in-house PBM, OptumRx, after its contract with Medco Health Solutions, Inc. expired in 2012 (DBN 10/28/11, p. 1).

In a July 6 research note, Deutsche Bank securities analyst George Hill remarked, “Aetna executives did not rule out bringing the PBM business of the combined entity back in house once the deal closes. Having said that, we do not see any near term earnings risk to CVS as its current contract with Aetna runs through 2019.” The firm estimated that Aetna-related business without any contribution from Humana will represent roughly $20 billion in PBM revenue for CVS by the end of 2017. Losing that PBM business could have an impact of 10 cents to 20 cents per share, excluding any effect on the retail division’s front-store sales, he added.

Changes Would Have Minimal Impact on CVS

Once the companies combine, Aetna will have several options to consider. “Aetna could have the option to either shutter the Humana PBM and push that volume through its rela-tionship with Caremark, end its relationship with Caremark and use Humana’s in-house PBM, or let the two run separately,” suggested Hill on June 15. “Give[n] the size of CVS, it is hard to estimate any of these moves having more than a 5% impact to [CVS’s] EPS in either direction.”

About a year ago, there was speculation that Humana was exploring a possible sale of its PBM division or a co-sourcing arrangement to create a more efficient in-house PBM (DBN 6/27/14, p. 1). But the company has continued to manage its own PBM internally, while long-term relationships exist between Aetna and CVS/caremark, Cigna Corp. and Catamaran Corp. — which is about to merge with OptumRx — and Express Scripts Holding Co. and Anthem Inc. The Humana PBM business operates mostly in the Medicare sector, although it does have some commercial clients that are integrated with the medical carrier.

Anthem is now attempting to acquire Cigna, and both insurers were rumored to be pursuing Humana. The fact that Humana went to Aetna may be a relief for Express Scripts given its long-term PBM contract with Anthem. The possibility of an Anthem-Humana com-bination could have resulted in Anthem bringing its PBM business in-house, suggested Hill in a June 22 research note on ongoing health insurer consolidation. Anthem last month of-fered to buy Cigna for roughly $54 billion, which Cigna rejected, but if the insurer does suc-ceed, Hill predicted the additional scale would lead Anthem to “press harder to renegotiate its current contract with [Express Scripts] and drive a deep price concession.”

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Citi Research offered a slightly different take in a June 17 research note on consolida-tion. “We believe winning PBMs will likely be those with relationships with the acquirers, supported by our analysis of Rx market share across PBMs and MCOs,” wrote securities analysts Garen Sarafian and Allen Lutz. Their analysis suggested that no combined man-aged care PBM asset could gain enough scale to compete with the “big three PBMs” Express Scripts, CVS/caremark and UnitedHealth once it acquires Catamaran. In the short term, they predicted that Humana’s PBM would remain stand-alone but eventually merge with Aetna’s pharmacy business.

Contact Hill at [email protected] and Sarafian at [email protected]. G

New Surveys Suggest PBM Clients Are Content, Willing to Stay PutReprinted from the May 22, 2015, issue of AIS’s biweekly newsletter Drug Benefit News. Visit the MarketPlace at http://AISHealth.com for more information.

Two new independent surveys measuring PBM client satisfaction illustrate that health plans and employers are generally happy with the performance of their PBMs and fa-vor long-term relationships with those vendors. But both surveys suggest areas where there’s room for innovation and improvement, such as specialty pharmacy and formulary management.

Plan sponsors surveyed by the Pharmacy Benefit Management Institute (PBMI) for its 2015 Pharmacy Benefit Manager Customer Satisfaction Report are for the most part satisfied with their PBMs, giving them an average overall rating of 7.7 (up slightly from 7.5 in 2014) on a scale of 1 to 10. The PBMI survey included 421 plan sponsor respondents representing more than 96.6 million lives; more than half (57%) were employers and about one-third were health plans. Unions, which accounted for less than 4% of participants, tended to rank their PBMs higher across all services, and gave them an overall satisfaction rating of 9.3.

“Overall satisfaction scores have remained relatively steady and that marks about the sixth year of no material changes across the survey,” observes Jane Lutz, executive director of PBMI, in an interview with DBN. “So I think in general while the satisfaction levels aren’t on the high end, everybody’s happy enough to stay where they are because obviously mak-ing a change in this day and age, it takes a lot of effort and the pain isn’t always worth the gain for plan sponsors.”

Longevity Is Important to Plan Sponsors

One-third of respondents in the survey report using the same PBM for three to five years, 28% for one to two years, 21% for 10 years or more and 15% for six to nine years. Only 3% have been with their PBM for less than one year, observed PBMI.

PBMs were rated on various components of their business, including PBM function, PBM service, specialty management function and service dimension (see chart, p. 32). PBMI observed that decision makers are “generally happy” with core functions such as ID card production, claims processing and network administration — services that are “really be-coming commodities” — but Lutz says she still sees an opportunity for differentiation in “noncore services” such as formulary management Medicare Part D offerings. While PBMI

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did not observe “a huge change from the prior year in any given category by service,” the biggest differential was 7.3 to 7.7 on rebates and 7.4 to 7.8 in Part D, adds Sharon Frazee, Ph.D., vice president of research and education at PBMI.

On overall satisfaction by service dimension, PBMs on average ranked highest for having no conflict of interest issues (8.2) and meeting financial guarantees (7.8). But when it comes to innovative programs and services, PBMs for the last two years have received an overall rating of 7.4, up from 7.2 in 2013. “Innovative programs and services have been on the low-est end of the scale for several years now, and it’s an area where I really think if somebody comes out with something amazing, something that’s truly innovative, it could make a huge difference,” Frazee tells DBN.

Areas where there’s room for innovation include formulary management and adher-ence — “programs that keep members happy but also improve clinical and cost outcomes” — and specialty benefit management, suggests Frazee. Lutz adds that she sees opportunity for better integration of overall PBM services with medical services. “You continuously hear it talked about and I would say there’s marketing around it, but the actual execution side of it and the [return on investment]…there’s still a market void,” she remarks. “And as you look at some of the new therapies coming to market and where they are placed on the benefit, because so much of it impacts medical, there’s a huge opportunity for that data integration component.”

She continues, “I think there’s no perfect solution out there, and plan sponsors realize there’s never going to be a seamless transition or a seamless execution of the program. It’s how PBMs handle situations in a service environment that keep the business with them.”

Citi Poll Shows Improving Satisfaction

Meanwhile, a separate survey of 56 benefits managers, commissioned by Citi Research and conducted in April to assess “key purchasing criteria,” observed rising PBM client satis-faction levels. According to the May 13 report, 87% of employers indicated being satisfied or highly satisfied with their current PBM, up from 78% when a similar survey was conducted in January. Another 11% said they were indifferent and only 2% said they were somewhat dissatisfied. Citi said these results are encouraging, since it suggests that Jan. 1, 2015, “go-lives went relatively well” and could be a driver of high satisfaction levels, whereas Express Scripts Holding Co., in particular, did not have a very successful Jan. 1, 2014, implementation.

The survey included employers ranging from less than 399 employees to more than 10,000 with the largest representation (48%) covering between 1,000 and 9,999 lives. While 28% of survey participants contract with Express Scripts, 21% use CVS Health and 20% use Catamaran Corp., the survey was not exclusive to publicly traded PBMs.

When it comes to managing rising specialty drug costs, 40% of respondents said they believe Express Scripts will be able to meet their needs, which may be a “reflection of the company’s outsized role” in recent negotiations with the makers of new high-cost hepatitis C therapies, which resulted in Express Scripts making an exclusive deal with AbbVie Inc. (DBN 1/9/15, p. 1). Another 30% of respondents pegged CVS Health as the most effective at controlling specialty costs, while 10% selected Prime Therapeutics LLC. “It’s not surprising that 70% of respondents chose either Express Scripts or CVS Health, where we view scale as the leading factor in driving specialty drugs lower,” observed Citi.

Despite specialty formulary management being a hot-button topic in recent months, nearly half of benefits managers surveyed appeared to be indifferent to PBMs becoming

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more involved in drug negotiations with manufacturers. Forty-three percent of respondents said they somewhat favor or strongly favor that involvement, which is an improvement from 35% in the January survey, but still below Citi’s expectations. One possible explanation is that employers were slightly less impacted by hepatitis C than other payers, added the report.

Additionally, the majority of respondents surveyed by Citi said they would not switch PBMs for less than a 5% discount, which is consistent with prior years’ surveys. “Net, the market appears to be favoring incumbents, a positive for PBMs, particularly [Express Scripts] which needs to prove a return to high retention levels this selling season,” added the report.

To obtain the PBMI report, visit www.pbmi.com/research. Contact Frazee and Lutz via Julie Blackman at [email protected] and Citi Research securities analyst Garen Sarafian at [email protected]. G

PBM Clients’ Mean Overall Satisfaction Rating by Service Dimension

Base=Respondents providing a satisfaction score. Number sizes vary in 2014 from 338 (meets financial guarantees) to 376 (delivery of prom-ised services) and in 2015 from 362 (no conflict of interest issues) to 406 (delivery of promised services and commitment to good customer service).NA=not asked.SOURCE: The Pharmacy Benefit Management Institute’s 2015 Pharmacy Benefit Manager Customer Satisfaction Report, April 2015.

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