Tag Archives: $CI

The Era Of The Two-Tier PBM Strategy

After Aetna, Cigna, and Wellpoint all moved into different PBM relationships with CVS Caremark, CatamaranRx, and Express Scripts, it certainly marked the end of much of the debate on whether a captive PBM (i.e., owned and integrated with the managed care company) could compete with the standalone PBMs.  There are really only a few big integrated models left including Humana, OptumRx (as part of UHG) and Kaiser with Prime Therapeutics having a mixed model of ownership by a group of Blues plans but run as a standalone entity.  Regardless of where the latest Humana rumors take them, it made me think about what the market has become with these new relationships.

  1. Scale matters.  All of these relationships and discussions show that there are clear efficiencies in the marketplace.
    1. Drug procurement (i.e., negotiating with the manufacturers (brand and generic) and the wholesalers)
    2. Pharmacy networks (i.e., getting the lowest price for reimbursement with the retail pharmacies)
    3. Rebating (i.e., negotiating with the brand and specialty drug manufacturers for rebates)
  2. Outcomes matter.  If scale was all that mattered, there be no room for others in the marketplace.  But, we continue to see people look at this market and try to make money.  That means that “outcomes” matter in different ways:
    1. Clinical outcomes (i.e., does the PBM have clinical programs or intervention strategies that improve adherence and/or can demonstrate an ability to lower re-admissions or impact other healthcare costs?)
    2. Financial outcomes (i.e., does the PBM have innovative programs around utilization management (step therapy, prior authorization, quantity level limit) or other programs like academic detailing that impact costs?)
    3. Consumer experience (i.e., does the PBM’s mail order process or customer service process or member engagement (digital, call center, etc) drive a better experience which improves overall satisfaction and overall engagement…which drives outcomes?)
    4. Physician experience (i.e., does the PBM engage the physician community especially in specialty areas like oncology to work collaboratively to drive different outcomes?)
    5. Data (i.e., does the PBM use data in scientifically valid but creative ways to create new actionable insights into the population and the behavior to find new ways of saving money and improving outcomes?)

While I’ve been beating the drug of the risks of commoditization to the market for years, I’m going to make a nuanced shift in my discussions to say that there is still a risk of commoditization and driving down to the lowest cost, but we may be quickly approaching that point.  What I’m realizing is that there can be a two tier strategy where you commoditize certain areas of the business and let the other areas be differentiated.  And, that this can be a survival tactic where you either outsource the core transactional processes to one of these low cost providers or figure out how to be one of them while creating strategic differentiation in other areas.  

Maybe you can eat your cake and have it too!

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Care Is Coming To Your PBM

The creation of the “softer, gentler” PBM is one of my predictions driven by the rise in specialty pharmacy. While generic fill rates and mail order penetration still matter to earnings, the focus across the industry is on specialty. 

  • What can we expect in terms of pipeline?
  • How and when will genetic tests be required? (i.e., companion diagnostics)
  • How can we treat the patient not just fill the drug?

This will bring back a focus on how pharma and the PBMs work together which has had a bumpy past. Initially the two were very close. Then, with the rise of generics and more trend programs like prior authorization and step therapy, the PBMs and pharma butted heads frequently.

Of course, the situation for pharma has changed also. They are trying to figure out how to go “beyond the pill” and create new consumer relationship and make money. (Here’s a good article about pharma and digital from the other day.)

In case you missed them, here’s a few other things that are relevant:

And, I think this screenshot from the Barclays Global Healthcare Conference Presentation given by Express Scripts shows that they are focused on this care and delivery intersection by continuing to show the success from the Therapeutic Resource Centers.

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So, what do you think?  Will the PBMs become more care management focused?  Will they integrate with the other care providers?  Will this be the beginning of their focus on working with ACOs and PCMHs?  Will this change their approach?  Will we see PBMs differentiating around key, chronic diseases like the specialty pharmacies have done?  Will this create an opportunity for integrated PBMs (i.e., Humana, Cigna, Aetna) to differentiate?  

Why The Cigna PBM Deal With Catamaran Is Relevant?

Not a big shock to anyone, but Cigna announced yesterday that they were signing a 10-year deal with Catamaran (formerly SXC) to outsource the operations of their pharmacy (PBM) business.  (see WSJ article or the story on Adam Fein’s blog)

This PBM industry has been full of change over the past 5 years as I’ve discussed many times.  So, the question is why is this deal relevant or just another yawner.

Let me give a few reasons:

  1. This is the 3rd big managed care company (Aetna, Wellpoint, Cigna) to decide to create this type of long term relationship with one of the big PBMs.  They each picked a different one.  (Aetna/CVS, Wellpoint/Express, Cigna/Catamaran)  United brought their business in-house from Medco, and Humana has continued to expand their pharmacy business.  
  2. Eric Elliott (former head of Cigna’s PBM and now head of Prime Therapeutics PBM) and Dan Haron (current head of Cigna’s PBM) are both very smart executives who I believe saw lots of value in the integrated PBM story.

So, if I read between the lines here, I come to a few quick thoughts:

  1. Are they all structuring long term deals that get them through this reform period and minimize risk, but give them the chance to bring this back in house after this settles down?  
  2. Could this symbolize a further repositioning and commoditizing of the PBM industry that all of these companies want to retain marketing, engagement, strategy, and formulary but outsource call center, operations, contracting, network management, and other tasks?  Would this further accelerate a “race to the bottom” on price that I’ve talked about before?
  3. Does this have implications to specialty pharmacy?  Will that become split into two different businesses – operations versus clinical care?  (more on that later)
  4. I don’t know the bidding here, but scale used to matter a lot.  If CVS and Express Scripts didn’t aggressively bid for this contract, that might imply a point of diminishing returns in terms of scale.  (which I clearly believe exists)
  5. Under what circumstances does the integrated model work (i.e., what does Humana, United, and Kaiser see differently) or will all the payers look to outsource certain tasks to the big PBMs?

The interesting times in the industry continue.  It’s a head scratcher of what comes next!

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