Smaller PBMs and Insourcing Are Finding a Place in a Market Dominated by Major Players

Many midsize health plans contract with the large PBMs that dominate the market and are owned by their rivals, such as CVS Health and Cigna, noted Javier Gonzalez, Pharm.D., chief growth officer at Abarca, a PBM based in Aventura, Florida, and San Juan, Puerto Rico, this morning at the second day of the Annual National Conference of the Pharmacy Benefit Management Institute® in Orlando, Florida.

Javier Gonzalez

Is that wise? Now midsize plans are “starting to think about their competitive landscape,” Gonzalez said. By contracting with the PBMs, “they are putting revenue dollars in their competitors.” PBMs owned by CVS Health, UnitedHealthcare and Cigna control almost 80% of the market, and the five largest PBMs together hold about 90% of the market. But venture capital and private equity investors are supporting new PBMs that rely heavily on technology, noted Gonzalez.

Some midsize insurers plans are thinking of what other alternatives might be available to them and are making requests for proposals from smaller PBMs. “They have enough scale to potentially make different types of investments,” Gonzalez said. Working with smaller PBMs “gives health plans a chance to unbundle services,” he says.

Midsize plans might opt to work with independent PBMs, might build or buy their own PBMs, or might insource certain PBM functions, using either their own resources or obtaining certain services from independent PBMs. “It creates an opportunity for (smaller) plans to not be so dependent on these large health plan conglomerates,” he said. Gonzalez praised the large PBMs — “the big PBMS do a great job” — he also said that “at the end of the day, it is really about health plans having more control over their own destiny.”

Plans are looking for such things as more control over their business; a lower total cost of care; a better member experience and engagement; improved network, rebate and clinical outcomes; and better, more timely analytics, he said.

Insourcing PBM functions gives plans the opportunity to “control more of the data so they can do a better job of leveraging that which they can actually control,” he said. Gonzalez said plans don’t need to bring in all the services at once: “It doesn’t have to be an all-you-can-eat out of the gate.” Companies are offering modular platforms that allow for a selective approach to bringing PBM services inhouse. He also advised health plans to keep control of services like help centers that involve direct contact with members. “Don’t lose that opportunity — you’ve got to build your brand as a health plan,” said Gonzalez

Health plans can start by identifying functions that could be improved by in-sourcing using their own resources or that of another PBM or technology partner, Gonzalez said, and by understanding the technology needed to in-source functions successfully. Among the components that could be insourced are rebate aggregation, the claims adjudication platform; and rebate and formulary management, he added. “What’s really going to matter is improving that overall outcome for the member and improving that consumer experience,” Gonzalez concluded.