Will UnitedHealthcare’s Direct-to-Consumer Pharma Rebates Curb Rising Costs?

UnitedHealthcare will pass on pharmacy discounts directly to some consumers, signaling the next wave of disruption in healthcare, according to industry experts.

The Minnetonka, MN-based insurer’s new program will apply to more than 7 million people enrolled in UnitedHealthcare fully insured commercial group benefit plans.

Sarich

“There’s a whole lot of disruption going on in healthcare land. If you take a step back, you realize what a change agent the CVS-Aetna was, pushing ripples of disruption far beyond its immediate world. It has, thus far, propelled several market-based reforms throughout the healthcare industry,” says John Sarich, vice president of strategy at VUE Software, a firm that specializes in innovating and automating business processes for the insurance industry. “This is yet another.”

Overall this is going in the direction of getting the ultimate beneficiaries of health insurance, the members themselves, greater control over what and where they choose to spend money on as it relates to their own health, according to Maulik Bhagat, managing director in the healthcare practice of AArete, a global consultancy specializing in data-informed performance improvement.

“They can now choose to be on high-deductible plans to have lower ongoing out-of-pocket costs, while also knowing that in the event they need an episode of care that requires high cost drugs, they will be able to benefit from the rebates directly, as opposed to earlier where all of this was kept by the payer,” Bhagat says.  

Bhagat

“This will also make payers think differently in their own contracts, rebates and pricing with the PBMs and manufacturers, since potentially they could now be competing over price to get customers (members)-price being the premiums along with any such discounts, rebates, etc. that they can pass on to the member,” Bhagat says. “One can even envisage this transitioning over to other aspects of supplies outside of pharmacy, such as DME supplies, transplants, etc.” 

Drug rebates are generally not a huge percentage of the individual consumer drug cost, according to Daniel B. Vukmer. chief strategy officer, USF Health, and CEO, Tampa Bay Health Alliance, LLC.

“The value of the rebates to PBMs is really only realized when dealing with a large volume of the rebated drugs,” says Vukmer. “Although we don’t know for certain, I believe that the individual prescription rebates would not be so significant as to offset the rising costs associated with consumer-driven plans or significantly increase access to expensive drugs. Ultimately, however, it’s a good thing for consumers but just not likely a panacea for rising healthcare and drug costs.”

Vukmer

The PBM business model was historically based on a lack of transparency, “a curtain behind which PBMs could make arbitrage plays with ever-changing drug prices and demand rebates from manufacturers in return for upgraded formulary positions,” explains Vukmer. “About 15 years ago, health plans and self-funded employers who contracted with PBMs began requiring the PBMs to return all rebates they received. That is not a new trend. In other words, PBMs were already doing this for self-funded plans where the employers required it. Applying the same principal to fully insured plans is not a stretch.”

Jeremy Schafer, senior vice president at Precision for Value, believes that UnitedHealthcare’s move may be due to the controversy in the market of rebates not being transparent and not being passed on to patients.

"The move indicates an increasing shift toward transparency for all stakeholders. Whether United Healthcare is successful or not, managed care organizations and pharmaceutical manufacturers will likely continue to feel the pressure for more transparency by patients, providers, and the government," says Schafer.

Schafer

In addition, the move makes UnitedHealthcare more transparent and allows patients to more actively share in rebate savings, according to Schafer. "However, since the majority of the rebate value is still retained by United Healthcare, it may allow the company to keep its premiums competitive," he says.  

Market forces moving into healthcare

“This disruptive event is around how UnitedHealthcare is opting to throw money at the problem of healthcare costs and the attendant rationing of pharmaceuticals,” says Sarich. “In UnitedHealthcare’s case, as they haven’t detailed where or which consumers, or for which drugs they will issue rebates, the upfront disruption is mainly at a PR level. Others will scramble to compete, but meantime, it’s hard to tell whether this is a competitive move on UnitedHealthcare’s part to retain market share, or something else.”

With CVS-Aetna, Sarich says that there is a horizontal play where the deal is designed to totally change how healthcare is delivered and create a major accountable care organization. As for Cigna and Express Scripts, he says, there’s an effort to take out costs by combining pharmacy and medical insurance.

“With Cigna and Express Scripts eloping it looks like the available suitors are disappearing faster than snow in August,” Sarich says. “Think of Cigna and Express Scripts as two insurance companies merging. That said, I’m not yet seeing where the synergy created will alter market forces very much, albeit that’s the theory behind it. One has to ask, ‘Who will benefit?’ to see what put this one in motion. It looks to me like it is tinkering at the margins with some significant pharma price reductions on popular drugs. There are certainly some fat margins enjoyed by both Cigna and Express Scripts, but it’s hard to see that this would bring any real deep cuts in drug prices.”

Meanwhile, grocery operator Albertsons Cos. is merging with drugstore chain Rite Aid Corp. “This is mirror of the CVS/Aetna deal,” says Sarich. “It looks to me like there are two ways to go: be like Aetna and CVS and effect real change in healthcare delivery. Or, be like United Healthcare and go after market share and pharma’s fat margins.” 

For more on the CVS-Aetna and Cigna-Express Scripts deals, read “Potential CVS-Aetna Merger: Key Takeaways for Health Execs," and “Potential CVS-Aetna Merger: Top 6 Industry Implications,” and “Cigna-Express Scripts Deal: 5 Takeaways for Health Execs.”