Tuesday, October 8, 2013

Moves by Walgreens, Other Employers to Private Exchanges Create PBM Uncertainty

While health plans across the country are preparing for the Oct. 1 open-enrollment launch of publicly funded health insurance exchanges, a separate movement toward private exchanges is taking place that raises some questions about where PBMs ideally fit into these arrangements and how they will profit from them. Walgreen Co. on Sept. 18 joined a growing list of large employers that have opted to move a portion of their insured employees into private exchanges, through which insurers offer a range of health plan options that employees can select.

And while private exchanges have been gaining traction in the last couple of years, the role of pharmacy still appears to be evolving, with some PBMs pursuing carve-out options and others seeking to operate as partners to the health plan participants. A private exchange allows employers to offer more benefit design choices to employees and in some cases set a defined contribution toward coverage. If workers select a more expensive health plan, they pay the difference in premiums. Some private exchanges make available benefit designs from several different insurers. Other private exchanges are operated by a single carrier and only stock that carrier’s plans. Depending on the exchange model, the health plans may be fully insured or self-funded.
“I think we’re seeing a lot of experimentation going on, and I think the PBMs are in a bit of a standoff mode directly with the exchanges because they don’t know quite how to deal with it other than through whatever insurance company is offering that solution out to the exchanges,” observes Brian Bullock, R.Ph., founder and CEO of The Burchfield Group, Inc. “So I think we may see some changes in that landscape over the coming year or two, but my assessment is, because of the way the private exchanges are being assembled, it’s a challenge for the PBMs to figure out where they fit other than through their partner, the insurance company.” Where the PBMs are most likely to participate as traditional carve-out pharmacy benefit providers, he adds, are in situations where the exchange is offering a self-insured solution.
In the case of Walgreens, 160,000 eligible employees will be able to shop for plans offered by up to five carriers in their geographic region through its proprietary “Live Well Benefits Store,” a marketplace that is an outsourced solution through the Aon Hewitt Corporate Health Exchange. According to the press release issued by Walgreens, the new program enables the employer to continue its “value-based pharmacy benefit, which excludes prescriptions from plan deductibles.”
When asked by DBN whether Walgreens would offer a carve-out option administered by its current PBM, Catamaran Corp., Walgreens spokesperson Michael Polzin responded, “I can’t get into many specifics of our arrangement, except to say that we have been able to set up a solution through each of the insurance carriers that allows us to retain the pharmacy benefit design we have today. But I won’t be able to address questions about specific players.” An Aon Hewitt spokesperson says pharmacy benefits are generally provided as a carve-in through the participating health plans in its Corporate Health Exchange.
Catamaran became the default PBM provider for Walgreens when it purchased Catalyst Health Solutions, Inc., which had acquired the Walgreens Health Initiatives PBM business in 2011. Catamaran declined to comment for this story.
Analysts took the news to mean that Catamaran would no longer be providing pharmacy benefits for Walgreens’ covered employees as of Jan. 1, 2014. In an ISI Group LLC research note issued immediately following the Walgreens announcement, Managing Director Michael Cherny observed that while the loss is an “incremental negative” for Catamaran, it presents a minimal financial impact on the PBM. “Given the company’s increased size following the merger with Catalyst, recent business wins, the long-term Cigna agreement, and the Restat deal, the overall impact should be fairly well mitigated,” he assured investors.
Meanwhile, a BMO Capital Markets research note cited by Investor’s Business Daily pointed out that although Catamaran would lose about 2 million annual prescriptions due to the changeover, those scripts represent a small portion of its overall business and do not raise concerns about profitability.

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Reprinted from DRUG BENEFIT NEWS, biweekly news and proven cost management strategies for health plans, PBMs, pharma companies and employers.

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