Plan Ahead to Thrive During PBM Industry Disruption

By Steve Baumgardner
Mon, Jul, 29, 2019

Disruptions in the PBM industry and health plan markets have left many health plans wondering: “Is my PBM the right partner for me?”

In just the last 18 months, we’ve witnessed major changes in the PBM industry, including the mergers of CVS with Aetna and Cigna with ESI. These mega-mergers mean that some of the largest PBMs are now closely affiliated with some of the largest health plans. These large plans, in turn, often compete for Medicare and commercial lives directly with many of the smaller, mid-sized regional and Blues plans served by these PBMs.

Anthem recently responded to these changes within the PBM industry by launching its own PBM, IngenioRx. Other health plans have recently decided to switch to alternate PBMs, such as OptumRx. Such a switch to a PBM (OptumRx) owned by a health plan (United) would not have happened just two years ago, given the ownership structure. Now that OptumRx is no longer the only PBM affiliated with health plan ownership, this has, in effect, opened up a more level PBM playing field than has been true historical.

All of this recent activity indicates now is a good time for health plans to step back, assess the market, and factor this in when planning a long-term, multi-year, PBM contracting strategy.

It’s not just concerns about helping the competition that’s driving plans to re-evaluate their PBM vendors. Some health plans report declining PBM service levels as a result of the recent mergers, often due to staff turnover.

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The following tips are designed for health plans to take advantage of emerging PBM industry opportunities and market changes:

  • Review your PBM contract terms. Become familiar with provisions that allow you to renegotiate pricing, or other terms of the agreement, even if your contract is not yet up for renewal. Understand your protections if your PBM is acquired, or is acquired by or merges with another company.
  • Review your contract’s PBM performance guarantees and hold your PBM accountable for service components such as responsiveness, member wait times on the phone, accuracy of copayments charged, and other measures.
  • Have a multi-year contracting strategy in place. This includes planning for market checks, renewals and potential RFP’s. Ensuring your contract language is set up with the correct market check provisions included is imperative to your long-term strategy. This planning and preparation is important to give you enough advance time to execute effectively in your plan’s best interest at any point in the contract.
  • Be aware of market events that may drastically change your PBM financial package, such as CMS removing safe harbor protections for rebates (a proposal that was recently tabled, for now). This, along with other proposed changes under the current administration, will likely continue, given heightened national discussion about the need to reduce drug costs. If your PBM approaches you for rebate concessions, make sure the PBM gives you other pricing concessions in return. Make sure you understand what’s in your contract and what constitutes a true “market event” that would justify renegotiation.
  • Be in the driver’s seat with your PBM. Have them demonstrate the differentiating value they bring to you in today’s market. This goes beyond pricing and should include innovative tools and solutions that help you track drug spend and reduce overall healthcare costs. It can also include sales, marketing, and underwriting support to help plans grow and succeed in their local markets.
  • Establish relationships with alternative PBM’s to understand their business model and how it may support your market and goals. This should be a continuous process, not one that is only performed when recontracting begins. This affords you the leverage to obtain the most thorough and competitive bid once you do go out for RFP.

Remember that change in the PBM industry creates new opportunities for health plans to take advantage of favorable pricing and increases your negotiating leverage – if you know how to use these to your advantage. It’s often in health plans’ best interests to work with an experienced, independent PBM consulting and procurement firm that can assist you in interpreting and modifying your PBM contract language -- so you will have maximum negotiating leverage and flexibility in the short- and long-term.

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