Anthem Inc. said it would launch its own pharmacy-benefit manager, dealing a blow to partner Express Scripts Holding Co. and further reshuffling a sector under growing pressure to reduce costs and bolster transparency.
The U.S.'s second-largest insurer said its pharmacy-benefit manager, to be called IngenioRx, will be serviced by CVS Health Corp. when it launches in 2020 after the conclusion of its current contract with Express Scripts. Express Scripts warned in April that Anthem, its biggest customer, was unlikely to renew their pact once it expires at the end of 2019.
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Pharmacy-benefit managers -- middlemen in health care that help select which drugs are covered for patients and negotiate discounts with drugmakers -- have drawn increasing scrutiny over whether and how they wring savings from the health-care system. Some drug companies have pointed fingers at the firms, arguing they are responsible for the rising list price of many drugs because they can make more money by negotiating steeper discounts and rebates.
The PBMs say they pass along the discounts they negotiate to their clients.
Anthem has sued Express Scripts for allegedly overcharging on prescription drugs over several years. Express has denied the allegations and made its own counterclaims. The litigation hasn't yet come to trial.
In its lawsuit, Anthem alleged Express Scripts was getting an "obscene profit windfall" from overcharging the insurer.
Express Scripts said in a statement Wednesday that Anthem's announcement was "disappointing" and "we know that no other PBM will offer Anthem the combination of savings, member and client stability, and clinical expertise that Express Scripts represents." Anthem's business had been worth around $17.1 billion in annual revenue to Express Scripts.
Anthem Chief Executive Joseph R. Swedish said the insurer wanted to increase savings and take more control over pharmacy-benefit functions. "Drug costs, and the escalation of drug costs, is top of mind for everyone in our industry," as well as clients, he said. Pharmacy "can be a key ingredient to better managing the total cost of care." Anthem said it decided that it would be more efficient, and less expensive, to work with CVS instead of attempting to build its own PBM from scratch.
Anthem's decision takes it back toward a setup it had before its contract with Express Scripts, which took over Anthem's pharmacy services in 2009 when it bought Anthem's in-house PBM for about $4.68 billion.
The company said IngenioRx would seek business from employers as well as insurers, particularly its fellow Blue Cross Blue Shield companies.
Anthem said it expected the new PBM to "achieve greater than $4 billion in gross savings annually," starting in 2021 when the new setup is set to be fully phased in. In a call with analysts, the company said the figure represented what it projected to be reduced pharmaceutical spending under its new contract with CVS.
Anthem said roughly 20% of the savings would accrue to the company, representing pretax operating gain, while the rest would be passed along to clients.
This latest deal could prove a harbinger, prompting other big payers that now outsource drug-benefit management to take more control, said Pratap Khedkar, managing principal of ZS Associates, a health-care consulting firm. "Other big payers may decide I want my own PBM" so they can control drug-price negotiations and capture more of the discounts for themselves, he said.
UnitedHealth Group Inc., which is the parent of the biggest U.S. health insurer, UnitedHealthcare, also owns a large PBM, OptumRx. Other insurers have already been moving to exert more influence over the pharmacy benefit, even when they are using an outside company to administer it.
Anthem's decision is a win for CVS, which said Anthem's five-year contract includes services such as claims processing and prescription fulfillment. Neither company disclosed details of the pact.
CVS Chief Executive Larry Merlo said in a statement, "We look forward to working with Anthem and IngenioRx to provide services to help ensure coordinated, holistic care for their PBM members."
Size can be a huge benefit in negotiating pricing with pharmaceutical companies. Express Scripts recently announced its own deal to buy private medical-benefits manager eviCore healthcare for $3.6 billion. Two years ago, OptumRx closed its acquisition of Catamaran Corp.
--Jonathan D. Rockoff contributed to this article.
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(END) Dow Jones Newswires
October 18, 2017 15:33 ET (19:33 GMT)