CVS and Cigna were among the execs taking the stage in San Francisco at the annual J.P. Morgan Healthcare Conference, speaking on the future of M&A and reflecting on what's sure to be a politically contentious election year.
CVS officials touted the Aetna integration and HealthHUB expansion over the past year as proof the company is on the path to becoming the "most consumer-centric health company" by finding the overlaps between its payer and its retail locations.
Cigna also cited partnerships and said bringing pharmacy benefit manager Express Scripts into the fold has gone better than expected.
As for M&A predictions, Cigna CEO David Cordani said he didn't know whether the time for megamergers had passed, and noted there were differing opinions on that matter. Meanwhile, the company will keep its focus on partnerships like the recently announced co-branded plans with startup Oscar and the collaboration between Express Scripts and the PBM Prime Therapeutics announced in December.
Oscar brings a digital-first mindset, a focus on value-based care and data analytics tools with the aim of tailoring treatments for individual users. "We, philosophically, are aligned with that," Cordani said.
Humana CEO Bruce Broussard on Monday seemed more skeptical about further consolidation in the insurance sector.
"I think within the industry there are only a few consolidations that can be done when you consider the Justice [Department] decisions a few years ago," Broussard said, referring to the two megadeals blocked by the DOJ, Aetna-Humana and Anthem-Cigna.
Broussard said he believes the industry will continue to look for deals that bring together the healthcare services side with firms that take on risk as the industry aims to slow disease progression.
Defending the PBM model
PBMs have been in the hot seat in recent years as the Trump administration introduced, then grudgingly rolled back in July, a sweeping rule that would have banned drugmaker rebates to PBMs in Medicare and Medicaid. The focus came amid renewed focus by patients and policymakers on high drug prices.
CVS CEO Larry Merlo and Cordani defended the PBM model Tuesday.
Cordani said Cigna will focus on bringing more transparency to the process as it continues to incorporate Express Scripts, an acquisition that had just closed when last year's JPM conference was underway.
End consumers specifically, need more information about drug costs so they don't get sticker shock when they're most in need. "We need to drive more consistent transparency at the consumer level to yield the piece of mind that they want," he said.
It's "indisputable" that some consumers ration necessary care, like people dependent on insulin who can't afford the medication, and that reflects a "fundamental failure" for the industry, Cordani said. "All the evidence-based care says that's a bad outcome for the individual, it's a bad outcome for the community and it's a bad outcome for society," he said.
CVS' PBM, Caremark, has lowered prices for its clients, especially in specialty pharmacy, according to Merlo. In 2018, 40% of CVS clients had a lower pharmacy spend over the prior year.
Specialty will continue to be a focus for Caremark in the new year, especially with the expectation for more biosimilars entering the market, CVS executives said. The vast majority of Caremark's clients use its specialty services: more than 90% of its corporate employer clients and 80-85% of state and local governments.
"This has been a very important growth driver and will continue to be moving forward," CVS CFO Eva Boratto said.
Cordani also highlighted the specialty pharmacy segment, saying it has exceeded expectations for Cigna following the Express Scripts integration and presents "massive opportunity, not just for in-kind growth but for innovation, evolution, etc."
But there's more to do to bring value-based care to the PBM model, CVS executives said Tuesday.
"We do think there's an opportunity for PBMs to evolve on this front," Boratto said. Within its payer business, roughly 65% of commercial and Medicare contracts are value-based, but in the PBM "you're essentially at the starting line."
CVS plans to start with its condition-specific management programs, called Transform Care, which is outcomes-based, and combine that with its retail locations, including HealthHUBs, to move toward more integrated, value-based care.
And, though Caremark will continue to offer a menu of pricing models it's seen the vast majority of its clients in the Medicaid space, for example, eschew spread pricing. "We will continue to offer it — it's our client's choice. What we'll want to do is look for new models that meet their needs but allow us to deliver our returns," Boratto said.
Political, long-term challenges
CVS operates in numerous sectors within healthcare. That's good for revenue diversification but bad for avoiding regulatory headwinds.
"There's always going to be environmental, regulatory and political challenges, especially in the healthcare industry," Merlo said Tuesday.
Cordani said Cigna won't be on the sidelines for policy discussions. "We believe we have a responsibility to substantively and constructively engage in policy change, so we're highly interactive in Washington," he said.
Despite debate around "Medicare For All" heading into the election, Humana's Broussard argued that consumers want a private option, pointing to the popularity of Medicare Advantage plans.
"We do believe no matter what would be proposed that a private option will be an important part of that because American society is demanding that," he said.
A closer-to-home issue CVS is facing is the rationale of investing copious resources in chronic disease management programs, individualized care plans and the like for the long-term health of Aetna members, who could easily switch to another carrier if they change jobs or move to a new geography.
"We're thinking about a stop-loss program and bringing it to the market," Karen Lynch, CVS EVP and president of Aetna, said, explaining the payer is looking for a way to mitigate the effects of attrition in the new year. "That's the calculus we're trying to understand — how do you price for that?"
Aetna's plans for HealthHUBs
Following initial success with a targeted pilot, HealthHUB openings are on track. The company closed out 2019 with about 50 open in four markets (Houston, Tampa, Atlanta and Philadelphia) and plans to have 600 up and running by the end of this year — 1,500 by the end of 2021.
"One of the most visible components of our integrated strategy is the rollout of our HealthHUBs," Merlo said Tuesday. The stores, where at least 20% of floor space is dedicated to health and wellness products and services, have yielded higher traffic and margins, according to the company, though it has not yet released quantitative data.
Though Merlo has denied in the past any interest in providing direct primary care, the MinuteClinics in the HealthHUBs can address roughly 80% of what a primary care physician can treat, leading some analysts to speculate CVS could be headed in that direction.
Either way, CVS will rely heavily on its HealthHUBs in the upcoming year, hoping to drive Aetna membership into the stores — and entice patients to switch to Aetna through in-store advertising. "There is a direct link between the ZIP codes associated with Aetna membership and the locations of these HealthHUBs," Merlo said.
CVS is also offering new plan designs, including plans with low or no co-pays, in an effort to get Aetna members into its MinuteClinics. At the end of the year, about 2 million of Aetna's 39 million members will have zero or low co-pay, Aetna's Lynch said.
The payer is also weaving in a hospital-to-home aftercare program called Healing Better, and other programs focused on the management of chronic disease. Its coordinated care program for kidney care has already been added across the entire Aetna book of business, and CVS' home hemodialysis machine — currently in an FDA-approved clinical trial — could be in market as early as the second half of 2021.
Samantha Liss contributed reporting.