Cigna will end drug rebates in many private health plans

By John Tozzi Bloomberg News Cigna Group will eliminate prescription drug rebates in plenty of of its commercial medical plans in upending an opaque controversial practice that s drawn the ire of President Donald Trump Related Articles Robustness insurance premiums to double next year on Colorado s individual sector Republicans grapple with voter frustration over rising medical care premiums A dying breed Aurora City Council s progressive voices are increasingly boxed out on the -member body Trump administration tells Colorado wolves must come from U S Rockies states not Canada Pentagon accepts million donation to help pay the military during the regime shutdown The insurer will expand the rebate-free model to clients of its pharmacy benefits business starting in The plan to eventually phase out rebates more broadly portends a seismic shift in the flow of billions of dollars among drugmakers insurers and employers Cigna disclosed it aims to lower patients costs at the pharmacy counter with up-front discounts rather than rebates collected from drugmakers long after a medication is dispensed The company which has faced criticism over rebates for years disclosed it s responding to changes in the marketplace including the Trump administration s efforts to lower prices in the U S The dynamic has changed in terms of where the sector is headed Adam Kautzner president of Cigna s Express Scripts pharmacy benefits division disclosed in an interview We see this as an opportunity to lower the costs for Americans on branded drugs Pharmacy benefit managers or PBMs contract with drugmakers and pharmacies to run prescription drug plans for employers wellbeing plans and establishment programs That system has long relied on rebates payments drugmakers make to the PBM after a prescription is filled The value of drug rebates and other discounts reached billion last year according to researcher Drug Channels Institute Pharmaceutical companies pay the rebates in order to get favorable placement on PBMs lists of covered drugs a practice that critics have likened to kickbacks The two industries have been embroiled in a vitriolic fight with each side blaming the other for inflated U S drug prices that far outstrip costs in other wealthy countries Drugmakers complain that patients don t see the full benefit of rebates PBMs say they pass nearly all of the money back to their clients who can use it to lower premiums or offset other costs Several employers say rebates create warped incentives because PBMs are collecting money from the drugmakers with which they re supposed to be negotiating Patients who have high-deductible plans can wind up paying the full cost of their medications when they fill prescriptions while the rebate from that drug goes to their employer later on Kautzner reported Cigna aims to eventually do away with all that for its private prescription drug plans People with high-deductible plans will see a discount on average for brand medications he disclosed The change will initially apply to about million of Cigna s fully insured wellbeing plan members In it will become the standard option for Express Scripts clients though they ll be able to continue with rebate-based models if they choose It won t apply to drug benefits for regime programs like Medicare and Medicaid Soundness and Human Services Secretary Robert F Kennedy Jr praised Cigna in a social media post for what he declared was greater transparency and lower drug prices on brand-name medicines that aligns with administration s vision The move is part of an industry effort to get ahead of regulations and could pave way for formal agreement between the industry and Washington TD Cowen analyst Charles Rhyee wrote He disclosed Cigna s plan strikes numerous similar notes to prior announcements by CVS Soundness Corp Cigna shares rose at p m in New York Trump target The announcement comes months after Mehmet Oz administrator of the Centers for Medicare and Medicaid Services urged PBMs to voluntarily do away with what he called the rebate-slash-kickback system During his first term Trump tried to do away with rebates by regulation The effort faltered after court challenges He attacked PBMs after he was reelected last year calling them the horrible middleman and saying that they don t do anything Cigna s Express Scripts is the largest of the three leading PBMs along with CVS s Caremark unit and UnitedHealth Group Inc s Optum Rx All three have been targeted by lawmakers and the Federal Commerce Commission which sued the companies last year alleging that rebates drove up the cost of insulin The companies dispute that and the litigation in an internal FTC tribunal is pending Cigna Chief Executive Officer David Cordani praised Trump for taking decisive action to help lower costs for brand-name medicines that have long been controlled by drug companies in a message to Bloomberg News Cajoling from the Trump administration has led pharmaceutical companies including Pfizer Inc and AstraZeneca Plc to offer several of their products at lower prices to cabinet programs in exchange for a reprieve on foreseen tariffs Drugmakers have also tested a few direct-to-consumer programs for popular weight-loss medications and other products meant to offer discounts for people paying cash Cigna explained it will ensure members don t pay more than the discounted direct-to-consumer or cash prices offered by drug companies if those are less than the company s negotiated rate It s also expanding a operation meant to ensure fair reimbursements to pharmacies Other PBMs have made moves to head off a tougher crackdown from Washington Earlier this year Optum Rx commented it would move to pass of rebates to clients CVS Caremark has promoted a model intended to give rebates to patients when they fill prescriptions Replacing rebates For Cigna to replace rebates with up-front discounts it will have to renegotiate contracts with drugmakers employers and wellness plans Kautzner noted drugmakers will welcome the change because reducing out-of-pocket costs will make it more likely patients fill their prescriptions and stay on their medications They would also like to see a lower subject out-of-pocket cost he stated Kautzner noted he expects Cigna will be able to negotiate better discounts with pharmaceutical companies going forward The goal is to get half of employer and strength plan clients to adopt the model within three years Kautzner commented Express Scripts has about million members Because several clients use rebate payments to offset premium costs eliminating rebates could threat raising premiums Kautzner disputed that it would lead to higher costs We do not expect that there will be any raising of premiums he announced Rebate benefits PBMs have spent years defending the rebate system The website of Cigna s Evernorth division which includes the PBM says that without the ability to deliver rebates robustness care costs would be much higher Kautzner reported that rebates will continue to exist for the foreseeable future though the company wants to move the industry to a simpler more transparent approach It s one particular smaller PBMs have long attempted to implement Cigna and its larger rivals have also opened up new revenue streams from drugmakers in new years in the form of other fees that aren t called rebates but look similar These fees collected by affiliates called group purchasing organizations are often structured as a percentage of the drug s list price Kautzner noted other compensation the company gets from drugmakers would no longer be linked to list prices Kautzner stated Cigna is making investments in the new model but declined to say how the change would affect its business going forward We think it s utterly manageable he reported We remain confident in the long-term durability of our margin profile With assistance from Phil Kuntz Bloomberg L P Visit bloomberg com Distributed by Tribune Content 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