1、North America Equity Research29 May 2019 Pharmacy Benefit ManagementTakeaways from Our Latest Proprietary PBM SurveyHealthcare Technology&DistributionLisa C.Gill AC(1-212)622-Bloomberg JPMA GILL Michael Minchak,CFA(1-212)622-Anne E.Samuel(1-212)622-Managed Care/FacilitiesGary P Taylor(1-212)622-Anth
2、ony Makdessi(1-212)622-J.P.Morgan Securities LLCSee page 35 for analyst certification and important disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affec
3、t the objectivity of this report.Investors should consider this report as only a single factor in making their investment We have conducted our 25thproprietary survey of HR executives at large employers across the U.S.,helping us to gain a better understanding of the current thoughts on key themes a
4、nd trends related to pharmacy benefits.These responses build on extensive industry knowledge gleaned from various companies,consultants and customers,as well as prior survey work conducted twice annually since 2007,allowing us to evaluate key trends over time.We highlight key takeaways below and dis
5、cuss in greater detail in the report.We will host a call at 11am ET today,which will include a brief discussion of the findings and a roundtable discussion with benefit manager participants(contact your JPM salesperson for details).In terms of broader implications,the overall survey presents a chall
6、enging dichotomy between 92%overall satisfaction but 61%citing PBMs as“part of the problem”with some fairly unflattering free-form responses.The PBM model continues to evolve,with a greater focus on integrated health insurer/PBM models that manage overall healthcare costs.While the regulatory enviro
7、nment or market-driven changes could impact the business model over the near to medium term,there still do appear to be opportunities around plan design elements that can help to drive improving profitability.CVS Health/Rx Channel(Lisa Gill)CVS continues to show high satisfaction rates and scored we
8、ll around perceived transparency.While still early on in terms of promoting the integrated offering,we would expect this to be more of a focus in the selling season next year,while the integration does not appear very concerning to customers.Specialty remains an important focus for plan sponsors(CVS
9、 is the largest player),while a willingness of customers to implement preferred or narrow networks could drive incremental benefit to the companys retail business over time.OptumRX/Express Scripts/Ingenio(Gary Taylor)Both OptumRX and Express satisfaction rates have generally trended weaker in recent
10、 years,seemingly inconsistent with the claimed high retention and 2020 selling season momentum in our recent mngt meetings.It is encouraging to see majority belief in the potential of the integrated medical/pharma model(Optum has been on that strategy the longest),and perhaps not surprising that ANT
11、Ms new IngenioRX claims fairly small mindshare at this early juncture.Our survey focused on several key areas,including:1)the environment around rebates(still relatively low penetration around point-of-sale rebates,and broad customer interest in manufacturers moving to a net price model);2)verticall
12、y integrated models(a majority of respondents believe integrated models can drive overall healthcare savings);3)transparency(cited by respondents as one of the biggest concerns around the current PBM pricing model);4)views on PBMs role as part of the problem or the solution(given intense ongoing scr
13、utiny around drug pricing and the role of“middlemen,”a majority view them as part of the problem;5)satisfaction rates(which remain high despite views on the business model);6)primary sources of potential disruption in the next five years(the regulatory environment and specialty the most frequently c
14、ited responses);and 7)opportunities around plan design(e.g.,mail,specialty,formulary management,retail networks).2North America Equity Research29 May 2019Lisa C.Gill(1-212)622- BackgroundWe have conducted our 25thproprietary survey of HR executives at large employers across the U.S.,helping us to ga
15、in a better understanding of the current thoughts around key themes and trends related to pharmacy benefits.Surveys were fielded electronically by 49 respondents that are responsible for making benefit decisions for leading U.S.companies(response rates varied slightly by question).In aggregate,the r
16、espondent companies comprised 1.0 million U.S.-based beneficiaries and had aggregate annual drug spend of roughly$1.6 billion.The responses from this survey build on extensive industry knowledge we have gleaned from various companies,consultants,and customers,as well as prior survey work conducted t
17、wice annually since 2007(which we believe provides for an interesting comparison and allows us to evaluate trends over time).Broader ImplicationsThe overall survey presents a challenging dichotomy between 92%overall satisfaction but 61%citing PBMs as“part of the problem”with some fairly unflattering
18、 free-form responses.The PBM model continues to evolve,with a greater focus on integrated health insurer/PBM models that manage overall healthcare costs.While the regulatory environment or market-driven changes could impact the business model over the next few years,there still do appear to be oppor
19、tunities around plan design elements that can help to drive improving profitability.CVS Health/Rx Channel(Lisa Gill)CVS continues to show high satisfaction rates and scored well around perceived transparency.While still early on in terms of promoting the integrated offering,we would expect this to b
20、e more of a focus in the selling season next year,while the integration does not appear very concerning to customers.Specialty remains an important focus for plan sponsors(CVS is the largest player),while a willingness of customers to implement preferred or narrow networks could drive incremental be
21、nefit to the companys retail business over time.OptumRX/Express Scripts/Ingenio(Gary Taylor)Both OptumRX and Express satisfaction rates have generally trended weaker in recent years,seemingly inconsistent with the claimed high retention and 2020 selling season momentum in our recent mngt meetings.It
22、 is encouraging to see majority belief in the potential of the integrated medical/pharma model(Optum has been on that strategy the longest),and perhaps not surprising that ANTMs new IngenioRX claims fairly small mindshare at this early juncture.ConclusionsOur survey focused on several key areas,incl
23、uding:1)the environment around rebates;2)vertically integrated models;3)transparency;4)views on PBMs role as part of the problem or the solution;5)satisfaction rates;6)the primary sources of potential disruption in the next five years;and 7)opportunities around benefit plan design.Below we provide s
24、everal of the key takeaways.3North America Equity Research29 May 2019Lisa C.Gill(1-212)622- Rebates remain a key topic of interest.We note that 24%of respondents indicated that they would be most interested in changing terms around rebates the next time their contract comes up for renewal or goes ou
25、t to bid,which was slightly below the recent average.46%of respondents indicated that their contracts allow the PBM to retain a portion of manufacturer rebates as part of the pricing structure.Point-of-sale rebates have relatively low penetration(21%of respondents indicated they have it,consistent w
26、ith our December-2018 survey),although among those that dont currently have it,34%indicated that it was something that they plan to implement in the future,while 66%do not currently plan to implement it,with many indicating a preference to receiving rebate dollars directly for the plan to use as it
27、deems appropriate.Interestingly,respondents,on average,cited a 36%probability that all brand manufacturers shift to a net price model within 5 years,and 76%of respondents are in favor of a shift to that model).Vertically integrated models dont appear likely to drive a significant shift to carve-in r
28、elationships in the near term.Among the respondents that use CVS Caremark and Express Scripts,only a small minority of respondents noted that the transactions could potentially cause them to move their PBM contract away from the incumbent vendor(12%at CVS and 10%at Express Scripts).58%of respondents
29、 believe that integrated health insurer/PBM models have the potential to drive overall healthcare savings.However,only 33%of respondents have seen CVS or Express Scripts pitch the integrated offering in the marketplace(although we note that it remains early).Despite each of the top five PBMs being o
30、wned or affiliated with large health plans,there doesnt appear to be widespread demand to shift to carved-in relationships(28%of respondents pointed to a 0%probability of moving to a carve-in model under their health insurer in the next 3 years,with 44%citing a 1%-25%probability,and only 12%citing a
31、 50%probability).Lack of transparency was cited as one of the biggest concerns around the current PBM pricing model.Other commonly-cited concerns centered around conflict of interest(not driving to the lowest cost drug due to financial incentives and also around PBMs role as a dispenser),the rebate
32、model and additional fees built into contracts.While we point to a small sample size and the potential for selection bias,we note that respondents ranked CVS Caremark and Express Scripts ahead of OptumRx as it pertains to transparency related to contracting and fees,and also noted that CVS Caremark
33、was making the biggest efforts to improve transparency as it relates to contracting and fees.Interestingly,when asked about spread pricing,which has garnered a significant amount of attention recently,especially in the Medicaid market,29%of respondents have contracts that allow for it,while 52%do no
34、t allow it,and 19%dont know or arent sure.A higher percentage of respondents pointed to PBMs as part of the problem as it relates to higher drug costs than in previous surveys(61%in May-2019 vs.50%in December-2018).In our view,this isnt surprising,given the intense ongoing scrutiny around drug prici
35、ng and the role of“middlemen.”When asked why they believe PBMs are a part of the problem,several respondents echoed broader concerns about the PBM pricing model(including lack of transparency and conflict of interest),while others pointed to a lack of independence from manufacturers,misaligned incen
36、tives(PBMs are in business to make money),complex business models and not adding value.As a follow-up,when asked what PBMs could do to more effectively manage drug spend,respondents cited,among other things,pushing harder on manufacturers for better rebates and discounts,greater transparency,and imp
37、roved member education/communications and case management.4North America Equity Research29 May 2019Lisa C.Gill(1-212)622- That said,despite concerns around the PBM business model,satisfaction rates and service levels remain relatively high at the large PBMs.While customers may not be happy around ho
38、w PBMs make money broadly,respondents do tend to be happy with their vendor relationships.Overall,73%of respondents indicated that they were“very satisfied”or“relatively satisfied”with their current PBM,which is above the 67%average in all of our surveys since 2007,and the overall satisfaction level
39、 is the best in over four years.While our sample size is relatively small,we view this as reassuring given some of the rhetoric in the press around the PBM business model.Importantly,we note that 88%of the survey respondents indicated that service levels have remained the same or improved over the p
40、ast few years.Further,we note that 18%of respondents cited a major service-related issue over the past two years,which is generally consistent with the average over the previous six surveys.The regulatory environment and specialty were cited as the two biggest sources of disruption as it relates to
41、prescription drug benefits over the next five years.Specialty utilization and costs were cited by 36%of the respondents,while government reform was cited by 24%of respondents.Interestingly,only 3 of the 42 respondents specifically cited Amazon as a potential disruptor.Interest in the Health Transfor
42、mation Alliance(HTA)still appears relatively low.We note that just 3 of 48 respondents indicated that they were currently a member of HTA(although one of those respondents does not use the HTA solution for pharmacy benefits).71%of respondents that indicated they were aware of HTA,although outside of
43、 current members,only 4 other respondents are considering joining it.Outside of HTA,if other organizations emerge with new initiatives focused on reducing prescription costs,it appears that it would take a relatively sizeable amount of savings for plan sponsors to be willing to shift away from their
44、 current PBM relationship.We still see incremental opportunities around plan design options that could positively impact PBM profitability.With regard to mail,84%of respondents either have mandatory mail or incentives to use mail,and 75%of those that dont would be willing to implement one of those i
45、n the future.43%of respondents have a narrow or preferred retail pharmacy network,while 61%of respondents that do not indicated that they would be willing to implement one in the future.86%of respondents have adopted their PBMs standard formulary,with the majority pointing to little or no disruption
46、.69%of the survey respondents indicated that they currently have a restricted specialty pharmacy network,and of those that do not,71%indicated that they would be willing to implement one in the future.Importantly,we are seeing willingness to use formularies in specialty categories(76%of respondents
47、either have or would be willing to adopt a formulary design that excludes products in certain larger specialty categories where there are therapeutically equivalent products),while 51%of respondents have either already implemented or have discussed moving reimbursement of certain specialty drugs to
48、the pharmacy benefit from the medical benefit.Full Survey ResultsRespondent BackgroundOur sample set of 49 employers was national in scope and in aggregate represented a total of 1.0 million U.S.-based beneficiaries,or roughly 20,660 per respondent,on average.Total aggregate annual drug spend was$1.
49、6 billion.The respondents indicated an average drug spend of approximately$115 per member per month 5North America Equity Research29 May 2019Lisa C.Gill(1-212)622- (PMPM),although we note a relatively wide range given the variation in the size of the group,member composition,etc.Respondents further
50、indicated that drug spend per employee(PMPM),on average,increased 5%on a year-over-year basis(with traditional drugs increasing nearly 2%and specialty drugs increasing nearly 13%).Current PBM Vendors and Satisfaction RatesWe note that 88%of the survey respondents that answered the question indicated