Centene and its PBM partner promise disruption, but analysts are skeptical
"Disruption" and "unparalleled savings" are some of the buzzwords touted by upstart pharmacy benefit manager RxAdvance as it attempts to enter a market dominated by giants like CVS and UnitedHealth Group.
As traditional PBMs draw the ire of regulators and other skeptics, Centene is partnered with the new venture and moving away from CVS. But the relative newcomer faces stiff competition and some remain skeptical about whether it can deliver on its claims.
The privately-held 6-year-old Massachusetts-based RxAdvance markets itself as a more transparent PBM and claims it can find more savings than traditional PBMs.
Its CEO said the company is making money but said it could not disclose the company's financial performance or its initial results from its work with Centene.
"There are significant savings but we are unable to disclose it [to] the public because of restrictions," RxAdvance CEO Ravi Ika told Healthcare Dive when asked about early results, costs savings and details about the risk-based arrangement set up in the Centene contract.
RxAdvance has backing of some big name business executives like John Sculley of Apple fame, who sits on the company's board. Oscar Salazar, co-founder of Uber, previously sat on the board.
But industry experts question what sets RxAdvance apart from traditional players.
"No idea — I haven't been able to penetrate the Silicon Valley hype bubble either," Adam Fein, president of Pembroke Consulting, who runs the website Drug Channels, told Healthcare Dive.
But Centene is betting big on the small player, moving its business from industry giant CVS Caremark. CVS notified investors last month that Centene was taking its business elsewhere.
Centene's total pharmaceutical spend is around $10 billion, "of which billions is at risk” to CVS, Eric Coldwell, an analyst with Baird, told Healthcare Dive.
The process of moving to RxAdvance's platform is expected to last until 2020.
Taking on more risk
PBMs typically work on behalf of health plans and employers to negotiate rebates or discounts with drug manufacturers. Those rebates can influence whether a drug is placed on a preferred tier, promoting greater uptake to patients. Extracting the biggest discounts works particularly well when PBMs can pit two similar drugs against one another that are vying for a preferred tier status.
"[PBMs] pull patients together from different health plans and use their size and the volume of drugs that go through them as a negotiating leverage," Chris Sloan of consulting firm Avalere told Healthcare Dive.
Traditionally, PBMs are paid a percentage of the savings or the rebates they are able to secure, he said.
But instead of getting paid for services, there has been movement — just like in the rest of the industry — to set up PBM contracts that reward for better outcomes. And many health plans and PBMs are already working to do things differently in that space, Sloan said.
RxAdvance says that's what sets it apart from its peers. It claims it's able to take on more risk-based contracts and has a better technology platform accessible to payers and providers throughout the continuum of care.
"PBMs only provide transactional services, and do so for fairly decent margin, without taking any medical or financial risks," RxAdvance said in a statement.
Political pressure building
As patients bear a greater share of prescription drug costs due in part to high-deductible plans, PBMs have faced mounting scrutiny over their role in soaring drug prices.
President Donald Trump's administration wants to do away with the current rebate system for government plans — not commercial — by removing safe harbor protections for drug rebates. The proposed change would legally allow fixed-fee arrangements between PBMs and drugmakers and discounts to help patients at the counter. Analysts say this would alter drug negotiations within the Medicare program, and would ultimately have a ripple effect on commercial plans.
That proposal comes after blockbuster mergers — including CVS' acquisition of Aetna — have dramatically changed the PBM landscape. Now, the nation's top PBMs are all hitched to an insurance provider. The nation's largest insurer, UnitedHealth, already has its own PBM in-house, OptumRx. CVS was a relatively early mover when it bought Caremark in 2006.
In recent years, some PBMs have started to disclose how much of the rebate dollars — or savings — get passed back to the client.
But because the employer or health plan client sits between the PBM and consumer, it's hard to know how much (if any) of the rebate gets passed on to the actual consumer.
Express Scripts, which was recently acquired by Cigna for $67 billion, says its health plan and employer clients decide how much of the rebate they want back. About half of their clients opt for 100% pass through, said Brian Henry, a spokesman for Cigna.
On average, Express Scripts passes through 95% of the rebates to its clients. CVS says in 2018 it passed through 98% of the rebates it negotiated to clients, according to spokeswoman Christine Cramer. CVS also announced late last year that it will offer a new program in which clients can choose to collect 100% of the rebates.
RxAdvance says its passes on all the negotiated rebates to its clients.
Last year, Centene announced it had made an initial investment in RxAdvance and would use it as a PBM partner. A few months later, Centene's Mississippi insurance plan, Magnolia Health, was the first in its portfolio to make the switch to RxAdvance.
Since its founding in 2013, RxAdvance says its clients (besides Centene) include Midwest Employee Benefit Funds Coalition and SMART (International Association of Sheet Metal, Air, Rail and Transportation Workers).
Avera Health was a client of RxAdvance but moved to CVS two years ago, Ika said.
Ika's idea to start the PBM came after he found success with a health insurance software vendor called ikaSystems, which was sold to Blue Cross Blue Shield of Michigan for an undisclosed sum in 2015. That system was able to significantly reduce costs, he said.
"The PBM industry is an industry that has long been awaiting innovation, as it is encumbered with huge administrative inefficiencies, obsolete transaction methodologies, legacy systems, limited service offerings, and a lack of a single point of accountability," he said in a letter on the company's website.
But RxAdvance still has to prove it can deliver on its promised savings. "I think at this time it is unclear if this is truly disruptive to incumbents," Leerink analyst Ana Gupte told Healthcare Dive.