Anthem Changes PBMs Earlier Than Expected: 5 Takeaways

On January 30, Anthem announced that it will change its pharmacy benefit manager (PBM) from Express Scripts to its newly-created PBM IngenioRx on March 1 rather than December 31, 2019-its original contract date. Anthem will begin to transition members in quarter two of 2019. Anthem was able to terminate its agreement with the PBM sooner because of the Cigna acquisition of Express Scripts.

Here are five takeaways that healthcare executives should know about the decision.

1. Anthem will gain more control

Anthem stated that operating its own PBM will give the health plan full control over development and strategy when it comes to what drugs are in the insurer’s preferred list of prescriptions.

“This will enable the insurer to manage formularies in a way that controls costs and directs otherwise non-price sensitive patients to lower cost drugs at lower copays,” says Rupa S. Lloyd, shareholder and attorney at GrayRobinson, a law and lobbying firm. “By not having control over a drug list, a brand can sometimes cost the same or less, thereby causing a patient to pick a drug that actually costs the insurer more without realizing there’s a lower cost option.”

Related article: Cigna-Express Scripts Deal: 5 Takeaways for Health Execs

Rodney K. Adams, JD, a law professor at University of Richmond Law School in Virginia, says that the more vertical integration a company has, the more it can control its strategy and costs, and hopefully reduce costs. “By using big data, it is likely to be able to better analyze drugs’ effectiveness,” he says.

2. The combination will drive Anthem’s strategy

Anthem said that its decision will accelerate its “whole person health strategy,” which is proven to reduce the total cost of care. Lloyd thinks this could occur, because PBMs generally handle pharmacy benefits and health plans control medical benefits. “By combining the two, it would naturally enhance the possibilities of a whole person approach,” she says. “When a health plan has access to claims data from both sources, it can identify patterns and potential negative interactions, or if drugs prescribed to treat one ailment may create others.”

3. There could be growing pains

Cigna says that Anthem’s decision will likely disrupt its members because of the size and scope of the migration. “Building technology, processes, and immediately scaling a PBM operation is naturally going to be more error prone and less efficient,” says Nathan Ray, senior principal in West Monroe Partners’ healthcare practice. “But in the 12- month timeline, appropriately capable systems from IngenioRx and conservative applications of account management should get Anthem up to speed quickly. The quicker they get to scale, the faster they will yield benefits.”

But ultimately, Anthem's members could benefit from reduced costs through better pricing and formulary management in the medium term, and potentially have better adherence and whole person health as the insurer finds ways to analyze and better engage members in improving their health, Ray adds.

4. Vertical integration could hurt Anthem

Anthem’s move could have some negative effects on the insurer itself. “By reducing the market share of a PBM from providing services for several insurers down to one, an insurer may face a weaker negotiating position with pharmaceutical companies. However, Anthem is a significant player in the market,” Adams says. “As an insurer becomes more vertically integrated in providing healthcare services, the more exposed it becomes to anti-trust and anti-competitive behavior claims.”

Furthermore, “As an insurer takes on more aspects of providing healthcare, it becomes liable for more regulatory compliance with state and federal laws as well as more liability to patients which is beyond what insurers typically face,” Adams adds.

5. Anthem’s move could have negative effects for its members

“Ideally, vertical integration would reduce costs to consumers,” Adams says. “However, there are plenty of recent examples where monopoly or oligopoly power has led to consumers suffering dramatic increases in prices as well as decreased choices because of reduced competition. In addition, if a captive PBM has reduced negotiation power, then a consumer covered by the insurer may not have a needed medication available or it may be at an unaffordable price.”

Related: Opinion: The Need for Value-Based PBMs

With the health insurer in control, Lloyd says that patients may find themselves pushed into generic options to get the best value. “But as long as there is oversight to ensure generics have similar efficacy as the brand, this strategy shouldn’t have negative outcomes,” she says.

Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.