Cigna Group is taking a page from billionaire Mark Cuban’s playbook to sell medicines for a set markup, the latest sign that companies that manage drug benefits are responding to pressure from upstart competitors.
Next year Cigna’s Express Scripts subsidiary will offer employers and health plans the option to pay pharmacies up to 15% above their wholesale costs, plus an extra fee for dispensing the medicines. Employers now typically pay pharmacies based on an average discount, which can result in them paying more for drugs than a pharmacy charges.
Companies that manage pharmacy benefits have long been accused of inflating health-care costs, and Cuban blamed the industry for high prices when he launched his own drug company about two years ago. The premise of the Mark Cuban Cost Plus Drug Company was that it would sell medications at a set markup on the pharmacy’s cost — a straightforward approach that was rare at the time.
Cigna is a dominant player in the industry with more than 98 million pharmacy customers. The company expects most pharmacies will opt to join its new network because they will get better payment rates, said Adam Kautzner, president of Express Scripts.
Proceeds from the 15% markup will be shared between Express Scripts and the pharmacy. The model resembles what Cuban’s company offers.
The new pricing will be available for all types of prescriptions: brand and generic, including through Cigna’s mail-order and specialty pharmacies. Kautzner wouldn’t comment on whether Express Scripts has talked to the Cuban pharmacy about working together but said the pricing would be “highly competitive” with others in the market.
Cigna says it’s being more transparent, but it doesn’t go so far as to say it will lead to lower drug prices. For some employers and health plans, the new network may save money, while others may get better deals from existing plans, Kautzner said. Cigna said patients’ out-of-pocket costs will be similar.
The drug-benefits industry is in a time of turbulence. Earlier this year, Blue Shield of California shifted some of its business from CVS Health Corp.’s pharmacy benefit manager to a handful of companies, including Cuban’s, in a bid to save up to $500 million a year. Meanwhile, the Federal Trade Commission is investigating the business practices of pharmacy benefits managers and Congress is considering new rules for the industry.
Employers and regulators are also increasingly questioning whether the industry’s complexity hides ways companies drive up costs for patients, and pharmacies say drug plans often don’t pay enough to cover costs.
Express Scripts is the second-largest US pharmacy benefit manager, behind CVS’s Caremark. Cigna’s shares have dropped 11% so far this year, compared with a 15% gain in the S&P 500 Index.
