Wednesday, February 23, 2011

PBM and Drug Benefit Trends from PBMI

Last week, I delivered the keynote address at the Pharmacy Benefit Management Institute (PBMI) Drug Benefit conference. The attendees came from health plans, self-funded employers, and PBMs.

Eugene Goldenberg, an analyst at BB&T Capital Markets, was also there and highlighted three themes:
  • Drug manufacturer co-payment coupon programs are raising eyebrows across the industry.
  • Restricted networks chatter is picking up steam.
  • Behavioral economics is going mobile.
I enjoyed his observations, so I’m sharing Eugene’s full comments below. You can add your own thoughts by posting a comment below.

The following text appeared in “PBMs: Key Takeaways From 16th Annual PBMI Drug Benefit Conference,” a February 18, 2011, research note written by Eugene Goldenberg of BB&T Capital Markets.

Drug manufacturer co-payment coupon programs are raising eyebrows across
the industry.

With $70B–$75B of brand name drugs expected to lose patent protection over the next five years, it’s no wonder that big pharma is exploring new and creative ways to hold on to the consumers using their drugs. One of the recent strategies are coupons or prepaid debit cards that consumers can use to toward their co-pays. By eliminating some of the burden of co-pays big pharma is hoping to keep patients on their drugs as opposed to potentially switching to cheaper generic alternatives. The issue stems from the fact that consumers shoulder only a minor portion of the total drug cost (mostly in the form of a copayment) with private insurance or the government picking up the majority of the tab.

Hence, the benefit of the coupons accrues directly to the consumer with the rest of system continuing to bear the brunt of rising drug costs. The issue of co-payment coupons and its legality is currently being vehemently contested by the rest of the industry, particularly PBMs, which derive a large part of their profits from generics. We do not believe this strategy by the drug manufacturers to be sustainable and expect it to fizzle out over the next 12–24 months.

Restricted networks chatter is picking up steam.

While restricted pharmacy networks are certainly not new to the industry, the continually challenging economic environment has put increased pressure on payors to rein in their drug costs. Our conversations with industry consultants have shown that the savings from moving to a restricted network are very real and are in fact picking up steam.

The success of restricted networks was first brought to light in a big way with Caterpillar’s direct contract with Walgreen and more recently with Humana’s (NYSE:HUM) Part D partnership with Walmart (NYSE:WMT). While restricted networks are certainly not for everyone, the savings are real and have to be weighed against patient choice. We believe this will remain a moving target with decisions varying across payors, but the argument of needing 60K+ pharmacies vs. 20K–30K is likely to become more difficult to justify, in our opinion.

Behavioral economics is going mobile.

The Big Three PBMs all have different strategies in driving increased adherence and engagement among its members. While Express Scripts (NASDAQ:ESRX) has been the pioneer with its behavioral economics approach, we are now beginning to see other players making a similar push into this arena.

Catalyst Health Solutions (NASDAQ:CHSI) is looking beyond the traditional human-intensive methods of medication therapy management and is now in the early stages of rolling out its own digital medicine solution combining social norming with loss aversion via personalized avatars for mobile devices. CatalystRx Mobile is currently being piloted with a few select clients and is expected to go live in late 2011/early 2012.

P.S. Click here to view the very funny, full-size Trend Forecast.


  1. Decreasing access to decrease cost will achieve only minimal reduction in overall health care cost, assuming cost of dispensing is the only parameter taken into consideration.

    Secondly this is only a one time savings similar to what occurred when PBMs first step on to the stage. What will be the encore to this one time COD cost reduction?

    I do agree that a limited access network design is the road to take. However, the access should be based on quality and total health care cost reduction, a “Centers of Excellence” (COE) network. A network of drug distribution that states it will make prescriptions passing through their portals perform to make the clients healthy and more productive workers.

    Not Access, Not price, but performance: performance that yields healthy employees is the only way to lower overall health cost both drug and medical to the payers here in the USA.

  2. Rick HartensteinFebruary 23, 2011

    Adam, can you explain more about the use of Behavioral Economics, specifically, what activities are they using. ?? p.s. I have read two of Dr. Ariely's books and he is hilarious as well as very informative.

  3. Hi Rick,

    Express Scripts has a really good site explaining their "consumerology" (behavioral economics) approach to drug benefits. Dr. Ariely is on their advisory board. Visit


  4. With the Patent Cliff pending, I think Copay cards will increase not decrease. Due to the mechanics of the cards, it is very difficult for PBMs to limit or prevent their use. Pharmacist and physicians may not love them but they will continue to dispense/process them to keep patients happy. I am not sure any regulatory body will prevent their use. Medicare and Medicaid already prohibit them but they march on. I do not see FTC, FDA, Supreme Court or Congress acting on them. Your thoughts?

  5. I think copay cards will fizzle. HP's/PBMs can still deploy countermeasures such as PA's & Step-Therapy edits that will block the adjudication of claims for these drugs if they want.
    The alternative would be for these organizations to negotiate formulary access with PhARMA for couponed drugs to either off-set or eliminate the excess costs they'd experience.
    This has the stink of a short-term tactic all over it... not a long-term strategy.