(10-15 minute read)
This article was originally posted on wesspencer.com.
Thursday, March 8, 2018, health insurance company Cigna Corp, (CI) announced it will purchase Express Scripts Holdings Co (ESRX) in a deal that involves both cash and stock, valued at over $67 billion, an approximate 31% premium. This following Anthem’s October ’17 announcement to dump ESRX for a five-year partnership with CVS to launch its own [new] pharmacy benefit management company, called IngenioRx. The move, Anthem said, will give the health insurer “complete control” over its formulary, the list of drugs covered for its customers.
So, we’ve now seen Blues, UHC, Cigna, and Aetna (BUCA) all find a date to the big formal dance I am now calling #DrugProm2020.
Let’s review the guest list:
As these couples prepare for the big night, what does it mean to us as employers and members? Well, each of them have a similar story to tell. It goes like this…
“To further reduce the cost of healthcare, we [omnipotent & altruistic] health insurance companies are looking out for your best interest! By creating synergies with our prescription benefit managers [merging], we plan to eliminate the middle-men who drive up the cost of your healthcare plan. Furthermore, by managing both medical and Rx data, we will protect you — from you [taking the place of your doctor’s recommendation] getting you the drugs you need.”
Here’s the thing, it’s entirely not true. Why would an insurance company buy a pharmacy benefit manager (PBM) at a 31% premium to value? Simple, PBMs are very profitable! Furthermore, as a separate entity, PBM’s fees, which will now be paid by their parent insurance company, reduce the impact of the ACA profit cap (15/20% rule). PBM fees are considered a cost of claim management. It’s taking money from your front pocket, and putting it your back pocket, because the IRS/HHS only looks in your front pocket!
PBMs [supposedly] negotiate reduced drug costs from Big Pharma, usually taking a cut of this so-called “discount.” The problem is, they don’t control the top-line “retail” cost of the drug. They get paid for deepening the discount. So, here’s a laughable example; PBM negotiates a 99% discount on a drug that Big Pharma retails at $1000. Sure the net cost is $10, but the PBM makes 30% (industry standard) of the discount, or about $300. But now, the insurance company owns the PBM, they keep that $300, yet your renewal calculation will show this as a “retention” expense, inflating your premiums. Hmmmm….
If Big Pharma actually wants to make $15 per fill, they can freely mark-up the drug to $1,500, take the 99% discount, and the PBM actually makes $445.50 (48% more) and charges the insurance carrier, who charges YOU premium, and it’s not applicable to profit caps. I’m no Nostradamus, but that can’t work out well for plan sponsors.
Sure, a 99% discount is laughable, but who’s going to stop it? If the PBM is incented by bigger discount, and the insurance carrier owns the PBM, when Big Pharma increases the cost of a drug, the insurance company wins. Period. Think it won’t happen? Check out Humira’s price from 2010 to now. Really, I’ll wait… go check it here. No other industry, is doing less for more. We have faster phones, faster internet, more megapixels, faster shipping, safer cars, and free podcasts. But Abvie can make the same liquid (Humira) for 8 years, and inflate costs 180%? And now, the payer is joining in, all while avoiding regulation.
When you consider your fully-insured options as an employer, the outlook is terribly bleak. You’ve got HMOs owned by your local hospital, who gouge you on facility fees, or you can partner with Big BUCA who after #DrugProm2020, will certainly soak you for Rx costs, which BTW are already trending at 18% YOY.
So what do we do? As an advisor, I recommend every employer read this book (I make no money off of this): The CEO’s Guide To Restoring the America Dream – Dave Chase
It is the blueprint for how my company advise our clients, and implementation is not easy.
However, our current employer-sponsored plans average <$7,900 per employee per year. National average is north of $13,000. Is your effort worth 40%? If that doesn’t scare you, think of what happened with 401k fiduciary guidelines for plan administrators. With the ballooning costs of health insurance, don’t you think we’ll start to see health plan administrators at risk of fiduciary responsibility legislation?
June 14, 2018
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