PBM Industry Forecast: What Health Plans Should Expect in 2020 and Beyond

By Steve Baumgardner
Thu, Feb, 27, 2020

Many health plans are still adjusting to market turbulence stemming from PBM mergers with some of the nation’s largest health insurers. Even more changes could lie ahead. This post briefly discusses what health plans should expect to see heading in to 2020 and beyond as well as steps they can take to adjust in an era of disruption and unpredictability.

Increased competition and differentiation. PBM-payer integration is now the new normal given recent mega-alliances, including UnitedHealthcare with OptumRx, CVS with Aetna, Express-Scripts with Cigna, and Anthem’s launch of its own PBM, IngenioRx. For many health plans, this means they must now view their PBM as not just a partner, but as a market competitor. Expect to see increased competition as these entities work to differentiate their value as PBMs and as health plans sharpen their focus on their individual markets.

Implications: If your health plan contracts with one of the big PBM players, you’ll have to consider which business models align with your plan’s focus and which don’t. For example, does one PBM’s investment in more brick-and-mortar locations offer advantages compared with another PBM’s focus on purchasing physician practices, or vice versa? Also, don’t overlook doing business with some of the smaller and medium-sized PBMs. Unlike the big players, these smaller PBMs offer their own differentiating value in terms of service levels and pricing transparency.

Drug pricing and rebate fluctuation. Increased political pressure in Washington has largely kept Average Wholesale Price (AWP) inflation in check. However, PBM rebates continue to face scrutiny. The result is that we could eventually see more widespread adoption of alternate approaches to calculating and distributing rebates and rebate guarantees. This includes point-of-sale rebates, rebates calculated on a Per Member Per Month (PMPM) basis, and expanded drugs being excluded from rebates

Implications for health plans: Pricing and rebate transparency will continue to be an area of focus. Any potential move away from long-standing rebate practices may be disruptive, given that some health plans retain on rebates to offset medical and administrative costs.

Drug discount card programs. The growing prevalence of high-deductible health plans, coupled with the expanding number of high-cost specialty drugs approved, have shifted more financial burden (in the form of first-dollar coverage) onto members. As a result, more members are seeking relief by joining drug discount card programs, such as GoodRx. In some cases, consumers can pay less for a drug by going out of network through such programs than by remaining in network, depending on their deductible and copay amounts. This creates challenges for health plans, because claims data for drugs procured via outside discount programs are not captured, which can impact adherence reporting and rebates over time.

Implications: Expect more players entering the market to offset rising consumer out-of-pocket costs, which will drive more consumers to procure medications outside traditional drug distribution channels.

Outcomes-based purchasing. PBMs will negotiate more value-based purchasing of high-cost specialty drugs. Pharmaceutical companies will likely be negotiating more outcomes-based contracts, in which PBMs and plan sponsors receive refunds if the drug doesn’t work as well as promised. Given challenges with outcomes-based purchasing conflicting with Medicaid Best-Price rules, future changes in regulations could enable additional dollars at risk via outcomes contracts.

Implications: Expect more PBM formulary decisions to be made based on new evaluation processes that consider the total value of a drug product (including outcomes guarantees) that go beyond pricing and rebates. PBMs have varied ways to distribute (or keep) improvements in rebate from outcomes-based contracts. Therefore, payers need extra vigilance surrounding contracting and auditing of drugs with outcomes-based rebate invoices.

What’s Next and What Should Plans Do?

Health plans should anticipate the possibility of more changes ahead. Fiercer competition based on price and service offerings can intensify with the next selling season. The best strategy for health plans: make sure your PBM contracts allow you to make changes to the terms mid-contract should radical, unforeseen disruptions occur. This is especially true concerning how pricing and rebates are calculated. In the mean time, health plans should buckle up and hang on for the ride ahead.