Saturday, March 07, 2009

About Wellpoint's PBM Auction

So Wellpoint is auctioning off its in-house pharmacy benefits management company. The likely purchaser will be one of the big PBM’s whose larger volume will presumably result in lower pharmacy costs for employer plan sponsors.

This article from WSJ Health Blog quotes Citigroup analyst Charles Boorady who believes that insurers would better manage health costs and quality “if they focused on the 85 percent of health care costs that are doctors and hospitals and leave the 15 percent that’s drugs to companies that are already much better at it.”

Boorady is a very smart guy and I think what he says is true as far as it goes - - but I think he is overlooking or discounting a larger point.

Specifically, is health benefits management more effective when pharmacy data are integrated into the management model along with medical data? There’s growing evidence that the answer is yes. To the extent that’s true, an in-house PBM and an in-house medical management capacity are synergistic and neither is as effective standing alone.

To state another way, a PBM may be able to manage its 15% of total health care costs better than an insurer, but the PBM cannot directly manage the other 85% of total health care costs costs at all. The insurer can manage both - if it operates a PBM. That's a good reason for an insurer to have both medical and pharmacy management capacity.

An example is Aetna, which not only has a subsidiary PBM but also owns ActiveHealth whose business is disease management. ActiveHealth asserts that its medical results are noticeably better when it has immediate access to pharmacy records along with medical records.

Ironically, when ActiveHealth was a start-up it received substantial assistance and direction from Empire Blue Cross (today a component of Wellpoint). In retrospect, I think Empire’s failure to acquire ActiveHealth was a strategic error. Anyway, it appears that Wellpoint’s PBM today has more value to another PBM than to Wellpoint - which is probably one of the reasons it’s being auctioned off.
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