What Should Prescriptions Cost?

In the prescription benefit world, there seems to be surprise that Anthem filed an unprecedented lawsuit against Express Scripts, stating that Anthem has been overcharged by more than $3 billion annually over the existing 10-year contract term. The eye-popping damages claim was certain to garner headlines as was the fact that, after months of discussions, a major health insurance company followed through on its threat of legal action against a major pharmacy benefits manager (PBM). What people should really be talking about, however, are these two key questions: 1. How did Anthem, a sophisticated health insurance company, get into this situation with a PBM? 2. Is my employer, which is not a sophisticated health insurance company, in the same boat as Anthem? Right now, everyone is starting to question what their prescriptions really cost. It appears Anthem may be in a position to argue over a number of issues, including ill-defined contract terms (such as “competitive benchmark pricing”) that its legal team apparently agreed to when it executed its PBM contract. One phrase within the 100-plus page contract the two companies intended to govern their 10-year agreement could potentially become center stage in this lawsuit. Anthem’s CEO has repeatedly used the word “overcharged," which is a relatively vague term that would need to be more clearly defined and argued should this case ever go to trial (which I don’t believe it will). Neither company wants to air the details more publicly than it already has. A more sensible path—to agree to disagree and craft a financial arrangement to resolve the issue—will most likely prevail. Ironically, 2015-year end industry reporting shows that growth in drug spending is comparable to the other parts of the healthcare system. In fact, for many employers, increased prescription volume was a larger factor in cost escalation than actual drug price increases. This increased volume is a good sign, because increased pharmaceutical spending generally decreases overall medical spending. Employers that are willing to tightly manage their prescription drug program should be able to achieve spending increases of no more than 3.3% and as little as 0%. However, without the implementation of a system to guarantee what you purchased and what you continue to pay, you will find yourself in Anthem’s boat -- with even less leverage.