Anthem Sues Express Scripts for $3 Billion
March 29, 2016
There could be a big shake up in the Pharmacy Benefits Manager market this year. Anthem Inc., one of the largest insurance providers, is suing Express Scripts, their PBM, for breach of contract. Anthem’s claim is that Express Scripts was not passing along enough of their savings. The lawsuit pegs this amount at $3 billion last year. This how PBMs work, they negotiate savings on drug costs and pass those savings on to their clients, while keeping a share for their effort. But there have been rumblings about the size of the profits PBMs have been making. With this lawsuit, Anthem has left the realm of private grumbling and gone fully nuclear.
PBMs have made a lot of money negotiating deals with friendly terms, but they operate without any transparency. In the film The Departed, Mark Walberg’s character is a state cop and has a good line about federal law enforcement: “My theory on Feds is that they’re like mushrooms, feed ’em shit and keep ’em in the dark.” That is exactly how PBMs have treated their clients. But it seems Anthem has gotten tired of the menu. This lawsuit has the potential to rewrite the script.
There is an incredible lack of transparency in the healthcare market. This creates enormous inefficiencies and have allowed some companies to extract enormous profits. As middlemen who negotiate deals between health providers and drug manufacturers, PBM’s are in a position to exact enormous tolls on that bridge of exchange. The lack of transparency allows them to operate. The STAT had this to say:
“In its lawsuit, Anthem claims emphatically that Express Scripts has not been transparent because a third-party consultant conducted an audit and found the insurer was overpaying Express Scripts by about $3 billion annually.”
The audit allegedly cut through the fog and exposed large savings that Express Scripts was not sharing with Anthem. What was unusual was that they felt it necessary to disrupt their contract, that lasts through 2019, and publicly expose a poorly kept secret about how PBMs make money.
“‘The lawsuit challenges a fundamental aspect of PBM-insurer relationships: the value of a PBM’s negotiating power’ with drug makers. The dispute could ’embolden other (Express Scripts) clients to do the same’ thing and claim they are not receiving rebates to which they are entitled.”
It could embolden every other payer in the market to wonder what the “benefit” they are actually receiving from deals with their Pharmacy Benefit Managers. The STAT offered an interesting analysis that Anthem’s lawsuit is actually a move intended to help facilitate their merger with Cigna, because Cigna has its own in-house pharmacy benefits manager.
“Anthem likely wants to bring its PBM function back in-house as part of a combined Anthem-Cigna company,” said Adam Fein of Pembroke Consulting, who tracks drug distribution. “Perhaps Anthem’s dispute with Express Scripts is in part a way to convince the FTC to approve the Anthem-Cigna merger because it would increase competition in the PBM market.”
Everyone would benefit from an increase in competition in the marketplace. If this lawsuit affects the way the market works it could benefit everyone. While switching to an in-house PBM would not increase transparency for the rest of the market, the disruption and public battle may shake up the current business model. And disruption is good.
Anthem is claiming $3 billion in savings lost. The scale of the high costs of prescription drugs leaves it open for a lot more money to be saved. RxREVU addresses high prescription costs at the point of care by delivering the patient cost, adherence, and clinical protocols, enabling more cost-effective decision making where it matters most, the exam room.