Earlier this month, rumors of a possible sale of Humana Inc.’s PBM division began swirling after TheStreet.com said the insurer was evaluating strategic options for Humana Pharmacy Solutions and suggested that the PBM could be gobbled up for as much as $7 billion by Catamaran Corp., CVS Caremark Corp. or Express Scripts Holding Co. But while speaking at a recent health care conference, Humana President and CEO Bruce Broussard appeared to favor an outsourcing arrangement to create a more efficient in-house PBM rather than an outright sale. If Humana pursues the former, industry observers say there’s little room left for strategic partnerships.
“We have a bias on the PBM to own it,” Broussard stated during a June 11 presentation at the 35th Annual Goldman Sachs Global Healthcare Conference. “It’s an integral part of our delivery model.” Broussard clarified that the business — which pulls in about $18 billion in annual revenues — operates mostly in the Medicare sector, although the PBM does have some commercial clients that are integrated with the medical carrier. Deutsche Bank Securities Inc. estimates that Humana has about a 3% PBM market share.
“We are internally trying to figure out: Is it better to purchase on another platform? Is it better to fulfill on another platform? Are there opportunities for us to leverage other people’s purchasing?” he continued. “So we’re going through that process and we’ve gone through it over the last few years, but it’s just more intense this year as we just think about all the different avenues we have as an organization.”
Humana Considers PBM Options
“Humana believes analysts may misunderstand the economics of possible financial benefits from a sale of its PBM business, notably with respect to the different economics around the Part D business,” observed Matthew Borsch, an equity research analyst with Goldman Sachs, in a June 12 follow-up note. “Related to this, Humana highlighted the nature of this special relationship with [Wal-Mart Stores, Inc.] as one of several key reasons it plans to keep the PBM business within the company.”
Humana in 2010 began a successful partnership with Walmart to offer a low-premium, preferred network Medicare Prescription Drug Plan (PDP). With more than 1.7 million enrollees in 2014, the Humana Preferred Rx Plan is the third-largest PDP. In 2012, Humana and Walmart teamed up again to offer a limited network to self-insured employers (DBN 4/20/12, p. 1), and earlier this year, the companies expanded their partnership to develop three new Humana Health & Well-being Centers that provide an array of health care resources and services in Walmart locations.
Arthur Shinn, Pharm.D. founder and president of Managed Pharmacy Consultants, LLC, likens the Humana situation to when Cigna Corp. on several occasions floated the idea of selling its PBM unit (DBN 3/9/12, p. 4)before it eventually teamed up with Catamaran to handle certain operational components of Cigna Pharmacy Management (DBN 6/21/13, p. 1). “I would have been very surprised had Cigna not gone with Catamaran; it would not have made sense for them to do otherwise,” Shinn remarks, referring to Cigna’s January 2012 acquisition of Medicare operator HealthSpring, Inc., which was an existing Catamaran client (DBN 1/27/12, p. 1).
“I think that Humana will follow the footsteps of Cigna, aligning themselves with some kind of PBM, keep their PBM internal and support that with some resources that the other PBMs have,” predicts Shinn. “Now, the big question is what viable PBM is out there that’s not already aligned with one of Humana’s competitors?”
Prior to the Cigna/Catamaran alliance, Aetna Inc. in 2012 entered into a long-term “co-sourcing” partnership with CVS Caremark, and WellPoint, Inc. in 2009 opted for an outsourced arrangement with Express Scripts (and sold its NextRx PBM subsidiary to Express Scripts for $4.7 billion). Meanwhile, UnitedHealth Group brought its pharmacy business in-house after its contract with Medco Health Solutions, Inc. (now part of Express Scripts) expired at the end of 2012.
Adam Fein, Ph.D., president of Pembroke Consulting, Inc. agrees that Humana’s biggest challenge will be finding the “right partner, given the industry’s many overlapping and conflicting relationships.” He tells DBN, “I expect Humana will follow the Cigna/Aetna model and selectively outsource certain functions. This should have limited impact on its narrow network offerings or Part D plans.”
“From my perspective and my experience being in this field, I don’t see that Humana’s PBM is of value as a separate entity,” adds Shinn, who says he does not generally advise employer clients to carve in their PBM benefits with their medical carrier. “Only when the pharmacy benefit is carved out do you have the opportunity to work with the PBM and meet with them, look at their formulary, make financial decisions, look at different programs they have — you can’t do that when you’re dealing with a carved-in situation.”
Before he led Mercer’s pharmacy consulting practice, Shinn explains that he was the executive vice president and general manager at Managed Prescription Services, a St. Louis PBM that was eventually bought, then sold by Humana because owning the PBM was viewed as a conflict of interest. “I see Humana’s PBM having value to Humana internally, but I don’t really see that they have a lot of non-Humana business,” he observes. “Cigna really did not have a lot of non-Cigna business; they weren’t really the PBM for some of the self-insured employers. Cigna’s PBM really supported Cigna’s medical insured business and that’s what Humana is doing.”
When asked if Humana intends to sell its PBM, spokesperson Tom Noland told DBN: “As a matter of routine, Humana regularly evaluates all its businesses to be sure they are operating with maximum effectiveness. The ongoing evaluation of Humana Pharmacy Solutions is part of this process, which is expected to take a number of months.”
Date: July 15, 2014