WellPoint Sells PBM As Unemployment Rises

WellPoint's sale of its pharmacy benefit manager (PBM) unit to St. Louis-based Express Scripts for $4.7 billion appears to be the result of a financial-driven decision. While the giant Blues holding company expects earnings growth in 2009, it also anticipates that its membership will drop by a million members because of increasing unemployment and the associated loss of employer-provided health insurance. Meanwhile, the healthcare reforms being debated in Congress could increase financial pressures on private insurance companies. WellPoint is also the target of a class-action suit alleging that it held down out-of-network payments to physicians by using flawed data from United subsidiary Ingenix. A settlement of a similar AMA suit against Aetna in January cost that company $350 million.

WellPoint's NextRx subsidiary manages employer drug benefits for about 25 million people and processes more than 265 million prescriptions per year. The agreement to acquire NextRx, which followed intensive bidding by other PBMs, will increase Express Scripts' volume by about 50 percent and secure its position as one of the top three PBMs, along with CVS Caremark and Medco Health Solutions. The deal also gives Express Scripts a 10-year contract with WellPoint, one of the nation's largest health insurers.

Express Scripts is paying WellPoint an undisclosed amount of cash plus up to $1.4 billion in common stock, and is also expected to get a future tax benefit. The sale is set to close in the second half of 2009.

Under the terms of the deal, WellPoint and Express Scripts will work closely together with regard to NextRx's customers. WellPoint will retain control of medical policy, formulary, and disease management, and the companies will conduct pharmacy management and data analytics together.

What this shows is that WellPoint has always viewed its PBM as more than just a source of income. Access to pharmacy data is a key requirement for disease management, which some plans regard as both a competitive differentiator and a way to hold down medical costs.

But PBMs don't necessarily improve the quality of care. For example, PBMs have been known to change formularies at the drop of a hat in order to pump up their rebates from pharmaceutical companies that want their drugs included. This characteristic of their business disconcerts physicians, who are having enough trouble dealing with the plans' prior authorization requirements on many brand-name drugs. When drugs are dropped from a PBM formulary--often for reasons that have nothing to do with their clinical value--it's harder for doctors to prescribe the best medications for their patients.

If Aetna and United sell their PBMs, as some analysts expect, it will be interesting to see whether they're snapped up by the leading PBMs. If so, we could see a consolidation in this business that might exceed that of the insurance industry itself. That would give the PBMs more bargaining clout with the pharmaceutical companies--but it's unclear whether they'll use that to benefit patients or aggrandize themselves.