The Internets were ablaze earlier this week as Reuters broke the news that Anthem is looking for a way to end their long-term pharmacy benefit agreement with Express Scripts (ESI). Given the strategic importance of the Anthem business to Express Scripts (14% of ESI revenue), this was for once, a development with implications to match the headlines. Of course, the news isn't a huge surprise given the simmering tensions that surfaced earlier this year. At one point, George Paz was forced to address the issue but politely declined, by saying he had no interest in airing any dirty laundry. Clearly, Anthem doesn't share that sentiment.
The litigation Anthem filed on March 21st with the US district court in New York airs plenty of the said dirty laundry. The filing goes well beyond the details of the contract re-pricing dispute between the two companies. There is an entire section dedicated to the several ways in which ESI breached the material terms of its PBM agreement with Anthem. The breaches are on face value numerous and persistent, and according to Anthem resulted in the loss of at least one contract with a large self-insured employer group.
Here's a sampling of a few of the Anthem allegations. In a review of 382 cases, ESI
- applied the wrong PA criteria in 10% of the cases
- incorrectly approved the drug in 13% of the cases where the right PA criteria was applied, and
- approved the drug for a 1-year period in 2% of cases where the PA criteria allowed only for a 3-month approval
Additionally, ESI in many cases:
- incorrectly determined that the patient had previously failed alternate therapy, and
- incorrectly approved high-cost drugs based on faulty interpretation of benefit design
The collective impact (according to Anthem) was the following:
- $100M in increased cost to Anthem from incorrect approval of high-cost medication
- $58M in increased cost to Anthem due to faulty interpretation of benefit design
- 37,500 members being overcharged on their co-pays
Anthem blames glitches with ESI's redesigned claims processing and reporting system for almost all of these issues. With this lawsuit, the relationship between the two companies seems to have neared a point of no return. Should Anthem break its relationship with ESI, the following scenarios are in play:
- Anthem switches to OptumRx, leverages Cigna's pre-existing relationship with the PBM
- Anthem switches to CVS or one of the smaller PBMs such as the RiteAid PBM unit
As specialty drugs become more expensive and PAs become the predominant way payers managed drug costs, a PBM's ability to accurately and consistently apply the intended PA policies would be critical to cost management. In the long run, this dynamic may prompt Anthem and many of the other large plans to follow United in building out their own PBM business. All said and done, it is clear that PBM members are demanding more flexibility and cost savings thereby setting up the PBM market for yet another series of shake-ups after a long period of consolidation.
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