Single Payer Healthcare - Effect on Medical Industry

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U.S. Pharmacy Benefit Managers..A modern day drug cartel.

Google "percentage of profit from healthcare insurance" and and the first thing you see is this:

Do Health Insurance Companies Make Profits? - Verywell Health
https://www.verywellhealth.com › Health Care › Health Insurance
May 22, 2019 - Under the MLR rules, insurers that sell individual and small group health insurance coverage must spend at least 80 percent of premiums on medical claims and quality improvements for members. No more than 20 percent of premium revenue can be spent on total administrative costs, including profits and salaries.

If you don't understand what a PBM is:

John Arnold: Are pharmacy benefit managers the good guys or bad guys of drug pricing?
By JOHN ARNOLD AUGUST 27, 2018


In the ongoing debate over drug prices, the pharmaceutical industry has been highly effective in shifting the blame to the middlemen — in particular to pharmacy benefit managers. As they currently operate, pharmacy benefit managers are part of the problem. But if incentives were realigned, pharmacy benefit managers could — and should — play more of a vital role in controlling runaway prices for prescription drugs.

PBMs started with the idea that their buying power would reduce health care costs and pass the savings on to consumers. They act like giant buying networks for drugs, representing consumers from multiple employers and insurers. In economic terms, they aggregate demand, which gives them leverage in the market.

PBMs use their buying power, combined with utilization management strategies, to lower the total cost of pharmaceuticals. They have been largely successful: Almost all payers have, at least until recently, chosen to contract with pharmacy benefit managers rather than manage drug procurement internally. PBMs are used by commercial insurers, in Medicare for its Part D benefit, and in the Medicaid program — particularly by Medicaid managed care organizations.


Moreover, in a market with competitive alternatives — such as generics and multiple name brands — pharmacy benefit managers should be able to move patients from more expensive brand drugs to less expensive versions and extract lower prices by playing brands off one another. Net prices are often lower than list prices, but because of the rules of engagement around pharmacy benefit managers and manufacturers, the true cost to the PBM is often opaque. And that’s where things start to go wrong with the PBM model.

Related: Imagine there are no PBMs. It’s easy if you try
These companies are supposed to use their formulary power, management tools, and price concessions to benefit the insurers they serve which, in turn, are supposed to pass the savings on to their customers through more generous benefits and lower premiums. In general terms, pharmacy benefit managers have three revenue sources: fees from the supply chain, rebates from manufacturers, and pharmacy “spreads” — the difference between what they pay for drugs from a pharmacy and what they get paid by the insurer.

This model has generated significant criticism lately for good reason. Commercial insurers complain that pharmacy benefit managers are not passing through the rebate revenue they should. In Medicare, the Medicare Payment Advisory Commission has consistently raised concerns that pharmacy benefit managers are not choosing the lowest-cost drugs. And recent work by 46brooklyn suggests that pharmacy benefit managers are charging Medicaid managed care organizations, or MCOs, much more for generic drugs than they are paying pharmacies.

So where did pharmacy benefit managers go wrong? In three areas: consolidation, rebate revenue, and transparency.

Like everything in else in health care, pharmacy benefit managers have consolidated. There are now three large PBMs — CVS, Express Scripts, and UnitedHealth’s Optum — that account for more than 70 percent of claims volume. Concentrated market share should allow pharmacy benefit managers to extract deeper concessions from manufacturers and the rest of the supply chain. But market power has made a flawed business model sticky, with payers finding few alternatives to the shared rebates.

Related: The Trump administration can’t decide whether drug industry middlemen are the enemy — or part of the solution
A second problem involves rebates. Many industries offer incentives of shared savings to align the interests of an intermediary and a buyer. And because payers do not know in advance which drugs and in what volumes they will need when signing a multiyear contract, a fixed-price contract is not realistic. However, rebates are now distorting incentives.

Instead of placing the lowest-priced drug on the formulary and passing the savings to insurers, pharmacy benefit managers may simply supply the drug with the highest rebate. Pharma argues that rebates increase list prices. They also fail to lower premiums if they are not passed on to insurers. But rebates aren’t the only cause of rising drug prices. For example, prices are high and increasing for drugs that don’t offer rebates and in markets without rebates, such as Medicare Part B.

Which brings us to transparency. The drug pricing world is shrouded in secrecy. Some economists argue that price discrimination — when no one knows what anyone else is paying — results in bigger discounts. This is similar to airline ticket pricing. Most travelers buy tickets without knowing what anyone else is paying for other seats on the same flight. Pharmacy benefit managers may be able to get deeper discounts from drug manufacturers if the drug companies can keep the size of the discounts secret and not have to offer them to every other PBM.

Yet economists argue that transparency is one of the characteristics of a well-functioning market. Most government contracting requires full transparency. Greater transparency in drug pricing could encourage competition and force manufacturers to cut prices to gain market share, especially for drugs that compete within a class.

The problem of secretive pricing is further complicated because the whole system of out-of-pocket expense is based on list prices. After all, it is difficult to build a copay model based on net prices if those prices are not transparent. Basing consumer expense on an artificial price to maintain the negotiating leverage of pharmacy benefit managers forces patients to overpay.

Related: Mega-mergers would mean the death of standalone PBMs. Should consumers mourn or rejoice?
The flaws in the system have reached a breaking point. Anthem accused Express Scripts of failing to pass on rebates and sued for $15 billion. Ohio recently terminated its pharmacy benefit managers contracts for issues around spread pricing. Meanwhile, others are attempting to internalize the PBM-insurer conflict by reintegrating. Cigna is trying to buy Express Scripts and CVS Health is buying Aetna.

Pharmacy benefit managers could provide significant value, but the business model must become more closely aligned with the interests of patients and payers. Pharma would love nothing more than to see the PBM model implode, creating the opportunity to extract higher prices by negotiating against smaller, less sophisticated buyers.

Some have proposed that all rebates should be eliminated and pharmacy benefit managers should simply charge fees. But how would payers evaluate the effectiveness of the PBMs? The shared rebate system was designed to align incentives around discounts. A new fee model that better aligns the interests of consumers, insurers, and pharmacy benefit managers must be developed.

Perhaps foundations should support the formation of a nonprofit PBM governed by its customers, similar to the nonprofit generic drug company being launched. The Laura and John Arnold Foundation has supported the development of value-based pricing through the Institute for Clinical and Economic Review, which can be used by pharmacy benefit managers to select drugs that maximize patient value rather than the size of the rebate. CVS recently announced it would use ICER pricing in establishing its formulary.

It is easy to cast pharmacy benefit managers as the bad guys of drug pricing, but with changes to the basic business model, they may be consumers’ best hope for holding down the price of pharmaceuticals.

John Arnold co-founded, with his wife, Laura, the Laura and John Arnold Foundation in 2010.

https://www.statnews.com/2018/08/27/pharmacy-benefit-managers-good-or-bad/

The article above does a good job of explaining what a PBM is (or used to be). This is the current trend:

With Cigna’s recent announcement that it intends to purchase Express Scripts, five of America’s top health insurance companies now own or plan to own pharmacy benefit managers (PBMs).
The move is the latest example of vertical integration in the health insurance industry. This pattern continues at a time when PBMs are receiving intense scrutiny regarding their candidness and effectiveness in lowering drug costs.

Which other big-name companies are bringing PBMs into their fold, and why are they doing it? As Aetna CEO Mark Bertolini said in his 2017 Q1 earnings call, it seems “going forward, the PBM relationship as a standalone model is a troubled relationship.” Let’s explore why.

A Trend in the Making
As recently as 2017, the three largest PBMs operated by completely different business models: Express Scripts remained independent, OptumRx was owned by an insurance company, and CVS Caremark was run by pharmacy chain CVS Health. Now, they could all soon be under the control of nationwide insurers.

Back in 2015, we saw UnitedHealth Group’s OptumRx purchase then fourth-largest PBM, CatamaranRx. We also saw Aetna announce its intention to acquire Humana; a deal which the Department of Justice blocked a year and a half later after their antitrust review. The failed acquisition would have brought Humana’s PBM services in-house for Aetna.

In October 2017, Anthem announced that it would not renew its contract with Express Scripts, but instead, launch its own PBM, IngenioRx, in 2020. More recently, Aetna also made clearer its intention to control a PBM with its December 2017 proposal to merge with CVS Health in a $69 billion deal. And just last month, Cigna divulged its agreement to purchase Express Scripts for $52 billion.

Five Top Nationwide Insurers and Their PBM Partners

 
 Insurers	PBM Partners 
 UnitedHealth Group	OptumRx (in-house); CatamaranRx (purchased 2015) 
 Anthem	IngenioRx (launching in-house in 2020) 
 Aetna	CVS/Caremark (purchase under review) 
 Cigna	Cigna Pharmacy Management (in-house); Express Scripts (purchase under review) 
 Humana	Humana Pharmacy Solutions (in-house) 
 Clearly insurance companies have an interest in reining in control of PBM operations, but why the acquisitions and consolidation?

The Appeal of the PBM
PBMs, which arose in the 1960s, are “middlemen” designed to process the substantial number of “small-dollar” prescription drug claims for insurance companies and plan sponsors. They use their large purchasing power to negotiate prices with pharmaceutical manufacturers and impact almost every aspect of the prescription drug marketplace.

How did they grow to play such a significant role in health care? As coverage expanded with the inception of the Medicare Part D program in 2006 and the Affordable Care Act in 2010, insurers became more interested in outsourcing management of prescription claims and client services. PBMs stepped in to lighten the load.

Today, PBMs handle far more than claims processing, including drug utilization review, drug plan formulary development, determining which pharmacies are included in a prescription drug plan’s network, deciding how much network pharmacies will be reimbursed for their services, and operating mail order and specialty pharmacies themselves. With drug prices continuing to rise, companies, lawmakers, and other individuals are questioning if PBMs have been abusing their power and pocketing large savings from pharma manufacturer rebates that, in theory, could be passed down to consumers.

A major reason why Anthem will allow its contract with Express Scripts to end at the close of 2019 is it believes Express Scripts withheld billions in savings and overcharged them for services. Modern Healthcare reports PBMs have been criticized for keeping their rebate deals with drugmakers guarded by nondisclosure agreements.

According to insurers, employers want drug pricing to be more transparent. With more oversight of PBMs, insurers could provide their clients with this increased transparency and streamline and further integrate their members’ care. In turn, this could lead to lower prescription drug costs for consumers — but there’s a good chance it won’t.

If drug manufacturer rebates become more transparent, the drug manufacturers themselves could then use information about their competitors to minimize their rebate amounts. This would make drug manufacturers more competitive, which would lead the overall price of drugs to go up, not down. Moreover, for the average joe to see lower prescription drug prices from these mergers, insurers would have to pass on the rebate savings they negotiate to beneficiaries. Right now, it’s likely companies are more interested in claiming a “rich” slice of the pie before it’s gone.

Market Share
Due to their expanding involvement in the prescription drug industry, PBMs pull in profits from several different directions. Industry experts surmise that, as baby boomers age, health care and prescription drug spending will continue to rise, meaning more revenue for these claims processing giants.

According to a 2015 Applied Policy report, the top three PBMs in the country manage the drug benefits of 78% of the U.S. population, or 180 million people. Pending the approval of the Aetna-Caremark and Cigna-Express Scripts deals, these giants would be linked to three colossal insurers.

When looking at prescription claims managed, OptumRx (22%), Caremark (24%), and Express Scripts (25%) dominated the market in 2017. The pending mergers could propel Cigna and Aetna to surpass UnitedHealthcare in PBM market share, providing the number of claims processed by each of the companies remains about the same in the future.



As for Humana, at the end of March, The Wall Street Journal reported that massive retailer Walmart Inc. is “in preliminary talks” to purchase the insurer. Such a deal would be similar in nature to CVS Health’s acquisition of Aetna, Rite Aid Corp’s 2015 acquisition of PBM EnvisionRx Plus, and Albertsons Cos. proposed acquisition of Rite Aid Corp.

Humana and Walmart already have a co-branded drug plan together, so it wouldn’t be a surprise if they chose to further their existing partnership. Creating a stronger bond with Walmart could get Humana more customers. Additionally, combining with Humana would give Walmart another way to stay competitive with Amazon. Speculation that the online retail behemoth will expand into prescription drug sales may have influenced many of the health care related merger proposals we’re seeing today.

Looking to the Future
The CVS-Aetna, Cigna-Express Scripts, Albertsons-Rite Aid, and potential Walmart-Humana mergers will all need to be reviewed and approved by the Antitrust Division of the Department of Justice for them to go through. If they do, insurers should have more control over drug pricing, but it’s not clear as to whether shoppers will see decreased provider options or increased savings from insurers.

In early March, UnitedHealthcare committed to passing rebate savings on drugs to its fully insured group health members on an individual basis at the point of sale beginning in 2019. Aetna has also said it will pass negotiated drug discounts on to about three million of its members next year. Others could follow suit, but that’s anybody’s guess.

Lawmakers in the federal and state governments are also examining PBMs and introducing regulation attempting to reform some of their more questionable practices.

https://agentsurvivalguide.com/top-insurers-move-to-bring-pbm-partners-in-house