Navigating the Changing Prescription Drug Market

As health insurers merge with pharmacy benefit firms, who will reap the rewards?

By Joanne Sammer November 8, 2018
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Employers facing rising prescription drug costs might want to revisit their vendor relationships as mergers between health insurers and pharmacy benefit managers (PBMs) alter the competitive landscape.

Merger Mania: Promise or Peril?

Prescription drugs are the top health care cost driver for employers, according to Mercer's 2018 National Survey of Employer-Sponsored Health Plans. And driving up the cost of prescription coverage are specialty drugs—high-cost medications for complex diseases, often injected or administered intravenously.

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The recent spate of health insurer and PBM mergers, notably CVS and Aetna and Cigna and Express Scripts, creates both promise and concern for employers, health care analysts said. CVS and Express Scripts, along with PBM Optum/Rx―owned by UnitedHealthcare and expanding through new acquisitions―now control nearly 75 percent of the PBM market.

At the same time, Amazon's acquisition of online pharmacy Pillpack potentially adds more consumer-oriented change to the mix. 

But the 2019 Health Care Strategy and Plan Design Survey of 170 large employers by the National Business Group on Health (NBGH) found that only 26 percent of employers are optimistic that these deals will lead to lower costs, improved quality and improved consumer experience. Fifty-six percent are skeptical that this will happen. The most pessimistic employers (18 percent) see these deals merely as a defensive move and expect costs to increase as a result.

To rein in cost increases for prescription drugs in employer-sponsored plans, "there needs to be a desire to change the model, which is complex, inefficient and not transparent," said Brian Marcotte, president of NBGH in Washington, D.C. "Scale for the sake of scale won't work and could simply drive up costs." 

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Greater Price Transparency Ahead

Plan sponsors and consumers can't be blamed for being wary of PBMs, although new legislation may limit some of the PBMs' more controversial practices.

President Donald Trump recently signed into law the Patient Right to Know Drug Prices Act, which makes it illegal for insurers or PBMs to enact "gag clauses" that prevent pharmacists from discussing cheaper price options with consumers with private or employer-sponsored drug coverage (a companion law targeted gag clauses in Medicare plans).

These clauses are usually instituted by PBMs, "the most famous of which include CVS Health, Express Scripts or United Health," according to GovTrack, a website that covers congressional activities. The clauses "are put in for cases in which most consumers would save money by paying out of pocket — if only they knew. Pharmacy benefit managers pocket the difference."

Operating in an Evolving Market

Some health care analysts believe that integrating the services of health insurers and PBMs could help drive down pharmaceutical costs and improve patient outcomes. These deals "could create opportunities to see the impact of specific drugs on the total cost of care and to look at the comparative effectiveness of these drugs," said Marcotte. With that information, employers could get a clearer picture of the total cost of care and move toward more value-based use of prescription drugs, so that health plans cover more of the cost of the most-effective and price-competitive medications.

Data integration also could yield greater price transparency and give providers the tools and opportunities to discuss the cost of medication options with patients at the point of care, which would typically be the pharmacy counter. This discussion could focus on identifying any barriers that might keep the patient from filling the prescription and completing the drug regimen as prescribed.

"Thirty percent of prescriptions never get filled," said Marcotte. Better data integration could enable more open discussion about a patient's drug options and the drugs' cost, impact and efficacy.

Cigna's 2018 Value of Integration Study, which examined 4.9 million customer claims, found a 9 percent reduction in high-cost medical claims for customers with integrated medical, behavioral and pharmacy health benefits.

"Offering a fully connected pharmacy benefit allows us to maximize every opportunity available to engage the people we serve, and we're encouraged by the consistent value shown by connecting medical, behavioral and pharmacy benefits," said Jon Maesner, chief pharmacy officer at Cigna.

[SHRM members-only toolkit: Managing Health Care Costs]

PBM Negotiating Tips

Despite their initial skepticism of these deals, employers must still effectively navigate the changing marketplace. "It will take one to two years before these health plan/PBM combinations can really integrate," said Erin Tatar, senior vice president with Fidelity Benefits Consulting in Denver.

In the meantime, employers may see aggressive bidding for the typical three-year PBM contract, she said.

Tatar noted that employers must be prepared to gauge what is going on. "Any deal could be stale within a year," she said. "Employers that don't look at the market regularly are doing a disservice to their employees."

She recommended:

  • Insisting on contract language that allows employers to annually check the terms of its contracts against the marketplace and renegotiate accordingly.
  • Checking market conditions every six months, including pricing and any changes to the definitions of key terms, such as what is considered a specialty drug, as these are often covered in a separate plan tier with greater cost-sharing by employees.

To ensure that employers are getting everything promised from these newly merged health plan/PBMs, Tatar also recommended an independent audit to ensure that all elements of the contract are honored so that the employer gets what it pays for.

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Articles:

CVS-Aetna Merger Could Change How Employers Buy Health Benefits, SHRM Online, December 2017

Care Management Vital in Tackling Specialty Pharmacy Costs, SHRM Online, February 2017

Employers Take Steps to Curb Specialty Drug Costs, SHRM Online, February 2017

Negotiating Price Transparency with PBMs Pays Off, SHRM Online, January 2017

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