Anthem, one of the nation’s major health insurance companies, said on Wednesday that it planned to start its own business to manage prescription drug plans by partnering with CVS Health, the large pharmacy benefit manager and drugstore chain.
The insurer is in the midst of a bitter legal battle with Express Scripts, its current pharmacy benefits manager, over claims that Anthem has been overcharged. The insurer said it will start the new business in 2020 after its contract with Express Scripts expires, estimating the savings from the new arrangement to be about $4 billion a year, the bulk of which it said would flow to customers in the form of lower drug costs.
As pharmaceutical costs soar, pharmacy benefits managers, which serve as intermediaries between drug companies and the prescription plans, are coming under increasing criticism. The deals the managers strike with drug manufacturers are typically secret, making it hard to know what prices the companies are actually charging. The managers have come under fire for not doing enough to control costs.
Joseph R. Swedish, Anthem’s chief executive, said in a telephone interview on Wednesday, “This new partnership allows us to better secure control of the escalating cost” of prescription drugs.
The move also signals a potential shake-up in the industry among stand-alone pharmacy managers, now dominated by large companies like Express Scripts and CVS. Before Anthem’s decision, UnitedHealth Group, another large insurer, already had its own benefits manager, OptumRX. There are also reports that Amazon, fresh from its acquisition of Whole Foods, is interested in entering the business by acquiring another rival and that would ramp up the competition.
Anthem’s decision is a significant blow to Express Scripts. The Anthem contract represents nearly a fifth of the company’s revenues, and the decision by Anthem to start a rival business sets up more competition for its services.
Anthem operates for-profit Blue Cross insurance plans to employers in several states, but it also offers managed care plans in government programs like Medicare and Medicaid. Anthem executives said they planned to use the new company to expand its overall business, adding that they would offer the pharmacy benefit management services to other health plans and employers that are not Anthem customers.
Describing the business model as overly complicated and lacking sufficient transparency, Mr. Swedish said the new company, called IngenioRx, “will resolve consumer frustration.”
In explaining why Anthem, which had sold its pharmacy benefits business several years ago, decided to get back into the sector, Mr. Swedish said the industry “landscape has radically changed.”
”We feel we need to pivot” to better engage customers about their use of prescription drugs and to persuade employers that “they are getting the best price possible in a very dynamic pharmaceutical marketplace,” he said.
Anthem emphasized the new business will also be better able to manage the health of its existing insurance customers. By more closely monitoring its members’ use of prescription drugs, Anthem says it can lower overall costs by making sure customers get the care they need and reducing expensive hospital admissions as a result.