Health care critics often want to eliminate the middleman. “If only we could get rid of…” they say, before they snarl at a PBM or a health insurer with abysmal social-media profiles. Even Atul Gawande sees middlemen as a problem. Days after he was named CEO of the Amazon et al. health venture, he talked about cutting administrative costs and taking “some of the middlemen out of the system.”
Despite these calls, still more and more middlemen are entering the picture. Like many that came before them (and the many that will come after), they claim they can bring down costs—their middlemanness notwithstanding.
For years, consultants and PBMs have done this work, but critics say their models are flawed because many of them benefit from higher costs or they get discounts or rebates from pharmaceutical companies that are not based on the most effective drugs for individual patients and that keep many drug prices high.
By negotiating only with independent pharmacies not affiliated with PBMs, Vivio Health, one of the new middlemen, says it can get employers the lowest cost for health care’s current bête noire: specialty drug prices. The company gets paid on a per-member-per-month rate so it has no financial incentive to jigger the formulary just for rebates.
Pramod John, Vivio’s founder and CEO, believes that the supply chain for specialty pharmaceuticals is mostly dysfunctional. By exploiting that dysfunction, he says, Vivio can offer something employers might not get otherwise: lower prices on specialty medications. “Discounts are available for specialty drugs, but few benefit self-insured employers,” says John, a former vice president at McKesson.
Other companies challenging the hegemony of the PBMs include Integrity Pharmaceutical Advisors in North Charleston, S.C., and Roundstone Management, a health insurance underwriter in Lakewood, Ohio. Michael Schroeder, Roundstone’s president, says the company recently saved one of its employer clients $40,000 on a specialty drug for a cancer patient. When a client’s employee was getting a high-priced specialty drug through a PBM, Roundstone sought a more competitive price. “We asked other PBMs to price that same drug and the savings were significant,” Schroeder explains. The employer switched to a different PBM that offered more transparent contracting terms.
Here is the pitch from John: Insurers’ administrative-service only (ASO) contracts require employers to use the ASOs’ contracted PBMs. That means employers are often locked into the contracts PBMs have with pharmaceutical companies. By negotiating directly with independent pharmacies, Vivio can, on average, reduce specialty drug costs for its employer clients by 20% to 30%. In addition, Vivio uses its model to authorize the best drug for each patient based on clinical utility and cost effectiveness.
Vivio has no prior authorization process. Instead, it uses what it calls a cooperative therapy planning process with physicians that is based on clinical trial data to define patient outcomes, John says. At the point of care, physicians can decide which therapy is best but Vivio, as the specialty drug buyer, covers only the medications it recommends.
Vivio collects a fee of $5 per employee per month. John says the company’s four clients saved $40.36 per employee in the first quarter of this year.
Nicole Thurman, vice president for talent management at CHG Healthcare, a staffing company in Salt Lake City, works for one of those clients. While reviewing claims data one day last year, Thurman noticed an unusually high rate of spending for one employee— $172,000—for less than one month. “I thought it was an error,” she says. After she called Cigna, who has CHG’s ASO contract, she learned it was not an error but a specialty medication for one member, and the cost would add up to $2.1 million after a year.
“My heart sank because knowing that there are more and more specialty drugs being approved and put to market everyday, there was no way we could afford spending at that rate,” Thurman says. “One or two more of those bills would be catastrophic.”
Thurman declined to name the drug but says Vivio negotiated a much lower rate, producing substantial savings. While insurers provide a valued service by processing claims and setting up and maintaining networks of providers, managing specialty drugs is “not in their wheelhouse,” Thurman says.