Editor’s Note: We’re trying something new this week. So much is changing in health care delivery that we think it’s important to stop and take stock of the most significant events shaping the landscape. We received some positive feedback on our year-end review, so we decided to try the same approach on a quarterly basis. If you find this to be useful—or instead, if it’s repetitive—feel free to send your thoughts to jm@darwinhealth.net.

For the first quarter of the year, the most significant events included CMS announcements, McKesson’s acquisition of two oncology groups and a Canadian pharmacy chain, Novartis’ value-based contracting with Cigna and Aetna, Anthem’s public battle with Express Scripts, and an expanded collaboration between Walgreens and OptumRx. We summarize below.

CMS Activity

In January, CMS announced the providers participating in two new ACO models, the Next Generation ACO and the ACO Investment Model (AIM). The Next Generation ACO is designed for existing or new ACOs who are able to take on significantly higher risk than previously available. The model will also allow for greater shared savings opportunity, and tests the assumption that with more financial upside it will attract providers that are experienced in coordinating managing risk. CMS said 21 participants were part of the program.

The ACO Investment Model includes two 2015 starts and 39 starts for 2016. AIM is intended to meet the needs of rural and underserved beneficiaries where startup costs were previously prohibitive, covering nearly 400,000 beneficiaries nationwide. 

In February, CMS suspended new enrollment in Cigna Corp.’s Medicare Advantage health insurance and prescription drug plans, citing “widespread and systemic” failures that kept patients from obtaining medical services and prescription drugs. 

CMS had previously sent Cigna a sanctions notice stating that Cigna had not properly managed appeals and grievances filed by patients who had been denied coverage for medical services and drugs. Among other violations, the letter also noted problems with Cigna’s formulary and said the insurer had failed to properly handle requests for prior authorization and exceptions. CMS said in the letter that Cigna’s deficiencies created “a serious threat to enrollees’ health and safety.”

In March, we learned that CMS plans to test new Medicare Part B payment strategies through a proposed model designed to improve how physicians and outpatient departments are compensated for prescription drugs. 

CMS noted that existing payment methodology can penalize providers for prescribing less-expensive drugs even when, based on the evidence, those drugs are as effective as or more effective than higher-cost drugs. Medicare Part B currently pays physicians a drug’s average sales price plus a 6 percent add-on. In a proposed change that could go into effect later this year, the add-on would be lowered to 2.5 percent and a flat fee payment of $16.80 per drug per day would be included. The flat fee payment would be updated at the beginning of each year based on the consumer price index. 

The model also includes several value-based pricing strategies that would not go into effect until the first of next year at the earliest. One strategy is to discount or eliminate patient cost-sharing to give Medicare beneficiaries better access to effective drugs. Another strategy involves indications-based pricing, in which payments for a given drug are based on its clinical effectiveness for different indications. 

Novartis executes value-based contract for Entresto

Cigna announced that it had reached an outcomes-based agreement with Novartis for Entresto, a treatment for heart failure. “The pay-for-performance agreement ties the financial terms to how well the drug improves the relative health of Cigna's customers,” the company said. “The primary metric is reduction in the proportion of customers with heart failure hospitalizations.” A Novartis spokesperson later confirmed that Novartis had reached a similar deal with Aetna.

In a January 27 conference call with investors, Novartis’ pharmaceuticals division head David Epstein said that Novartis had agreed to a base price and a modest rebate, which would vary based on hospital admissions for heart failure and savings to the plan. The benchmark is set by Entresto’s labeling, in which clinical trials revealed it reduced risk of death by 24 percent and hospitalization by 21 percent as compared with enalapril.

So far, value-based contracting between pharma and payers has been rare. Most recently, in Nov. 2015, Amgen secured a value-based agreement with Harvard-Pilgrim for its PCSK9 cholesterol therapy Repatha, gaining preferential positioning on the insurer’s formulary in exchange for discounts and potential rebates based on how well the drug performed. Prior to Amgen, the last value based agreement was in 2011 between Cigna and EMD Serono in multiple sclerosis.

McKesson Corp. diversifying through acquisition

On March 2, McKesson Corp. announced a definitive agreement to acquire Rexall Health from Katz Group for $3 billion CAD. Rexall Health has 470 retail pharmacies, primarily in Ontario and Western Canada. McKesson is expected to keep the Rexall brand in Canada.

“The acquisition of Rexall Health supports McKesson’s commitment to drive value in the industry by improving healthcare solutions delivered in the pharmacy,” said McKesson chairman and CEO John H. Hammergren. “It enhances our ability to provide best-in-class pharmacy care through an expanded retail footprint for patients across Canada.” 

About two weeks earlier, McKesson signed definitive agreements to acquire Manhattan Beach, Calif.-based Vantage Oncology, a radiation and medical oncology provider, and Cary, N.C.-based Biologics, a specialty pharmacy focused on oncology products. The combined transactions are valued at a total of $1.2 billion.

According to the Street Insider, Biologics’ “high-touch specialty pharmacy model provides controlled dispensing channels, including rapid and traceable pharmaceutical delivery solutions, increased analytics, and services for oncology patients, providing seamless care management.”

Walgreens and Optum Rx expand collaboration

Walgreens and OptumRx announced a new pharmacy collaboration. The program will permit eligible OptumRx members to fill their 90-day maintenance prescriptions at the same copay level whether they use OptumRx’s home delivery service or go to a Walgreens drugstore. It will also give members round-the-clock access to a pharmacist.

OptumRx CEO Mark Thierer told The Wall Street Journal that in exchange for preferential retail pharmacy positioning, Walgreens agreed to accept lower reimbursement for drugs from OptumRx. In addition, the collaboration will enhance Walgreens and OptumRx’s ability to share health data and analytics. The businesses hope the program will improve drug adherence rates and health outcomes while lowering total health care costs. 

The program will be available to commercial clients at the beginning of 2017. Companies and health plans who opt-in to the program will receive an insurance card co-branded with the OptumRx and Walgreens logos.

OptumRx is the pharmacy benefit management unit of UnitedHealth Group Inc.

Anthem Sues Express Scripts

Claiming that it is overpaying for prescription drugs, health insurer Anthem Inc. filed a lawsuit in March against Express Scripts Holding Co. seeking approximately $15 billion and the right to terminate its contract with the pharmacy benefit manager (PBM), should it decide to take that step. The two companies have been in dispute for a year as Anthem continues to seek an increased share of the rebates Express Scripts receives from pharmaceutical companies. Express Scripts said the lawsuit “is without merit.”

When Anthem sold its in-house pharmacy benefits business to Express Scripts in 2009, the insurer agreed to use Express Scripts for 10 years. The contract between the two companies calls for periodic pricing reviews, the last of which occurred in 2012. A review was to be conducted in December, but Anthem stated in its lawsuit that Express Scripts “has deliberately delayed the repricing for months” and “refused to negotiate, let alone in good faith, over Anthem’s pricing proposals.” 

In January, Anthem CEO Joseph Swedish told investors at the J.P. Morgan Healthcare Conference that Anthem “is entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion.” The $15 billion in damages Anthem is seeking is the amount the company estimates it will overpay for the remainder of the contract plus a transitional period thereafter.

Anthem, the second largest insurer in the U.S., is Express Scripts’ largest client. Losing Anthem’s business would topple Express Scripts from its position as the nation’s largest PBM.

Latest ACO Partnerships

There were 25 new ACO commercial agreements inked in the first quarter, in addition to 100 new ACOs added to the Medicare Shared Savings Program. We provide a summary of transactions in the table below.

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