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Health Insurers Debate Whether Bigger is Better

Les Masterson, for HealthLeaders Media, April 15, 2009

Express Scripts' purchase of WellPoint's pharmacy benefit management business, NextRx, will create the nation's second largest PBM. It's a headline that is reverberating across the industry. But, for health plans, the deal goes beyond the PBM side of things—and signals a refocusing for the nation's largest insurer.

By dumping its PBM, WellPoint will zero in on its core business and Express Scripts will provide the insurer's PBM services for the next 10 years.

The chief executives of the two companies, predictably, are promoting the sale as a partnership that will help both entities. It will give WellPoint the benefit of Express Scripts' trend management tools, including generics, home delivery, and specialty pharmacy, allowing the insurer to concentrate on integrating health benefits. This combination will save money and deliver significant value to shareholders, according WellPoint. The deal will also move Express Scripts into the second spot in managed prescriptions, beyond only Medco Health Solutions.

Though WellPoint is selling its PBM, this isn't necessarily a signal for other plans to follow suit. George Van Antwerp, vice president of solutions strategy at Silverlink Communications, Inc., in Burlington, MA, says health plans can reap benefits in owning their own PBM if they manage them properly and do such things as integrate data and lower medical cost ratio. Large insurers Aetna and UnitedHealth continue to provide PBM services in-house, but one wonders if WellPoint's decision will cause them to rethink their offerings.

The WellPoint decision comes as no surprise. In this difficult economic environment with employers dropping health coverage, insurers are reviewing their programs to see what can be outsourced. One such program is disease management. Blue Cross Blue Shield of Minnesota severed ties with DM company Healthways and began offering in-house DM programs in January. Insurers that are insourcing DM programs trumpet benefits such as having more control over their members, the ability to provide faster outreach to at-risk and chronic disease members, and a greater opportunity to collaborate with physicians.

Whether to insource or outsource DM services is not clear cut, according to the HeatlhLeaders Media Industry Survey 2009. In the health plan section of the survey, half of the respondents said they plan to insource all DM and wellness programs within three years. One-quarter said they planned to outsource some DM and wellness programs in that timeframe.

As health plans debate these issues internally, the decision whether to outsource or insource services is certainly influenced by external pressures from employers. Businesses want health plans to help them reduce health costs and improve employee health. They are also demanding ROI information to make sure their programs are working.

For health insurers exploring whether to bring services in-house or move them to an outside vendor, here are questions to ask yourself:

  • What is our core business? For example, is it plan administration, claims payments, and member outreach? If so, do we want to re-focus our attention on those areas?
  • What programs do we offer that could be provided more effectively by a third party?
  • Will dropping our in-house PBM mean that we will lose a valuable revenue stream? Will cutting in-house PBM staff and services balance lost revenue?
  • Does tracking members via pharmacy claims data and reaching out to members for health coaching actually improve member outcomes and reduce costs in the long run?
  • Would a third-party DM company that specializes in chronic disease effectively reach our member population or is in-house a better model?
  • Would moving PBM services to a standalone PBM reduce drug costs due to the third-party vendor's ability to negotiate lower prices? Is our PBM effectively maximizing its mail order business or would a third-party PBM perform those functions better?

Health plans are understandably concerned about their present and future. Layoffs and employer benefit cuts are causing much consternation in health plans. Add to that potential healthcare reforms that could soon create public competition for health plans and it's clear why private insurers are looking for ways to streamline services and reduce costs.

In the near future, these private insurers may have to go head-to-head against a lower-cost public option. In order to prepare for that day and survive in the current climate, health plans need to perform this soul-searching now.


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Les Masterson is an editor for HealthLeaders Media.

Follow Les Masterson on Twitter.