Earlier this month, UnitedHealthcare, a UnitedHealth Group company, announced it will expand pharmacy discounts to more than seven million people enrolled in UnitedHealthcare fully insured commercial group benefit plans. These new discounts will take effect beginning Jan. 1, 2019, and will apply savings from pharmacy manufacturer rebates at the time of purchase. According to the company, this will help to ensure people are paying the lowest amount possible under their plan.
“People use their pharmacy benefit more frequently than any other type of benefit, which means pharmacy provides the greatest opportunity for us to understand and meet their needs,” Dan Schumacher, President and Chief Operating Officer of UnitedHealthcare, said in a statement. “We believe our efforts to enhance value for our customers will not only benefit our members, but the healthcare system as a whole.”
To learn more about how this change could affect pharma as well as other payers, PM360 spoke with Jeremy Schafer, SVP at Precision for Value.
PM360: Can you briefly explain how the recently announced rebates from UnitedHealthcare work and what makes them different from what the company had been doing?
Jeremy Schafer: Next year, United is launching a new benefit for seven million fully insured members. Basically, it is a benefit in which United is assuming the risk as it will allow members to share in the rebate savings.
Normally, if a patient has co-insurance, when they pick up a prescription they pay a percentage of the drug price and that price is reflective of the discounted rate of the pharmacy, which is generally close to the wholesale acquisition cost (WAC) of the drug. What this new United change will do: Now when the patient pays, they will pay reflective of the drug cost net of the rebate, so basically with the rebate included.
For example, if you think about a patient that has a 10% co-insurance and is on a $500 per month drug with a $100 rebate, with the old benefit, the patient would have paid roughly $50 in co-insurance or 10% of $500. But under this new benefit, the rebate is included, so the new price of the drug would be $400 because it would be the original $500 price minus the $100 rebate. And then the patient pays 10% of that, so about $40. The patient does see some savings—depending on how much of a rebate the drug offers and how much the drug costs—but most of the value is still retained by the health plan.
In early reactions, some members are concerned that this ultimately could affect their premiums or deductibles. Is there any indication that could happen as a result of this change?
Yes, there is a potential that it will raise premium costs for all members. With the way this works, the patient is taking up less cost share than they would normally. United is, by default, paying more for the prescriptions than normal because usually the patient would pick some of that up.
With that money now being paid by United, in order to maintain the margins that their investors expect, they may need to make up that revenue somewhere else and that could come through premium increases. That’s why I think a lot of payers and pharmacy benefit managers (PBMs) generally haven’t been big on this strategy in the past. The value of rebates traditionally has been in part to keep premiums low.
Following the announcement, PBMs such as Express Scripts and CVS Caremark said that this option to have the rebate applied at point of sale is available to their members, but most choose not to and instead use the rebates to offer savings across all members on deductibles and premiums as you mentioned. So, do you see any other payers or PBMs changing their strategy now that United is, or will it mostly just be limited to them?
It’ll depend on how successful United is with this. If they’re able to keep their premiums competitive, but they’re also able to gain more positive media visibility for this, and as well, more praise from members—or be able to recruit more members because of it—then you might see some of the others follow suit and try to implement something similar. But if United’s premiums end up going up and it starts to cost them membership and business, then I don’t think you’ll see as many copying it.
For me, this is particularly concerning because this type of benefit design only incentivizes if someone is sick. For instance, if I have diabetes, I am more inclined to potentially join United because it might reduce my cost. Whereas, if I’m an otherwise perfectly healthy individual or somebody who’s just on generics, this is providing no benefit to me at all. Then I may opt for a plan that’s not doing this and has lower premiums. However, the nice thing United has going for it is that it’s so huge—it can really diversify and spread its risk. But there is the potential that you might have what they call “adverse selection” because of this.
Alex M. Azar II, the Secretary of Health and Human Services, came out in favor of United’s move. Even before this, the Trump Administration had been considering something similar for Medicare. Do you see Medicare ever implementing something like this?
They are going to need to spend more time crunching the numbers when it comes to Medicare. The issue that they’ll have with Medicare is that the impact would be so broad—and you would have an awful lot of rebate value no longer going back to Medicare.
You could think of it almost like a giant employer in a way, because part of the reason that a lot of employers haven’t wanted to take this on is because they want to keep their premiums competitive. Well, Medicare Part D has been traditionally very popular among seniors, which for the government is a pretty important voting bloc.
So, there is probably too much risk due to what would happen if you start to see steady price or premium increases occur after you put a program like this in place. They could still end up doing it, but I wouldn’t be surprised if it’s something that on further analysis, ends up on the cutting room floor.
One of the positives that Azar and others mentioned about this move is that it increases transparency in terms of where these rebates are actually being applied. Even if other payers or PBMs don’t make this exact change, do you think they will make any changes in trying to be more transparent and explain how rebates or other savings are being applied or how they are benefiting their members?
That’s certainly a route that some of them in the marketplace could take just to increase their own transparency and try to say more around what the true cost of these drugs are and what kind of discounts they’re getting. Now, the issue that a lot of PBMs have run into is that many of these rebate agreements are confidential between the manufacturer and the PBMs.
So, how much can you really reveal without showing drug companies’ hand to their competitors, especially in really competitive drug classes such as rheumatoid arthritis, diabetes, or COPD, where there is a lot of contracting going on? That’s the thing that PBMs will have to try to navigate around—how to do that confidentially.
That’s something that pharma may not have thought of when they were pushing for this increased transparency. They’re really putting that risk on the confidential nature of their agreements with payers.
How else could this potentially impact pharma?
It definitely damages their talking points around rebates and how PBMs are behind some of the high and/or rising drug prices. Because now you are going to have the biggest payer of them all saying, “Hey, this is what we are doing. We’re actually passing this value on, and guess what? For a lot of patients, it’s not making that big a difference.”
In fact, for some categories, it will be revealed that some of these drugs that have the very highest prices also have the very lowest rebates. So, when you think of patients who are really struggling to get by, they are the ones who are on drugs such as oral oncolytics for cancer. Well, those drugs tend to have a very high price point, but almost virtually no rebate. In those cases, patients’ cost will be virtually unaffected.
Manufacturers may also want to consider their own contracting strategy and approach. For example, if they know that their rebate numbers are truly going to reduce out-of-pocket costs for affected members, then they may want to contract separately for that part of the business. In other words, do you go more aggressively there versus other parts of the payer’s business?
Because typically if patients can’t afford their cost share, then that cost will end up going right back to the manufacturer anyway, if the patient uses the patient assistance program made available through the manufacturer. So, manufacturers may have an incentive to go higher on discounts for that section of the payer’s business, knowing it may reduce some of their costs on the other end.
Do you have any final piece of advice for those in pharma in regards to how this change could affect them?
One of the only other things they really need to think about is how this impacts their contracting strategy. What kind of information is going to be revealed? What is going to stay hidden and how does that impact both their competitive position but also their perception in the marketplace? That’s a dynamic they have to keep an eye on as well.