This article first appeared in Forbes.com
August 31, 2023
The landscape of the healthcare industry in the United States is experiencing significant changes as insurers adapt to evolving regulations and market dynamics. Specifically, pharmacy benefit managers (PBMs) have come under increased scrutiny by the Department of Justice (DOJ), potentially impacting their profits due to new regulations.
As a result of this increased attention, I see health insurers increasingly moving into the healthcare space to mitigate the impact and explore new revenue streams. I’d like to examine the factors driving this transition, the implications for the healthcare landscape and the potential benefits and challenges for business leaders and stakeholders.
The Role Of Pharmacy Benefit Managers (PBMs)
For those who are not aware, PBMs act as intermediaries between pharmaceutical companies, health insurers and pharmacies, managing prescription benefits and negotiating drug prices on behalf of health plans. However, PBMs have faced criticism for their lack of transparency and potential conflicts of interest, which has led to increased regulatory attention.
Impact Of DOJ Investigations And New Regulations
As earlier mentioned, the DOJ has been investigating PBMs for potential anti-competitive practices, leading to concerns about their profit margins and future business models. As a result, new regulations (paywall) aimed at increasing transparency and fostering fair competition within the PBM sector are under consideration.
Rebates and spread pricing that artificially inflate prescription drug costs, not to mention unnecessary out-of-pocket costs for members, are two of the more problematic issues within the industry. Future regulations could have significant implications for the financial viability of PBMs. It is important for business leaders to understand that PBMs are often owned by or under the same controlled group of companies as health insurers.
Health Insurers’ Transition Into The Healthcare Space
The shift of health insurers diversifying their portfolios by moving into healthcare involves strategic initiatives such as mergers, acquisitions and partnerships with healthcare providers. By vertically integrating into healthcare, many see insurers as aiming to gain more control over the entire healthcare value chain.
An example of this is the United Group of Companies (UGC). UGC is comprised of United Healthcare and the Optum Group of companies: Optum Rx, Optum Health and Optum Insights. Optum Health grew 13.3% year over year, exceeding all other divisions.
Vertical Integration And Potential Benefits
Through vertical integration, health insurers can streamline operations, enhance care coordination and reduce administrative costs. By managing healthcare delivery alongside insurance coverage, insurers can leverage data to identify cost-effective treatments, implement preventive care measures and target high-risk patients more efficiently. This approach aligns with the broader shift toward value-based care, where payment incentives are linked to patient outcomes.
However, vertical integration also means health insurers will control more pieces of the supply chain; a focus on profits over people could artificially drive claims and premiums higher rather than providing greater value.
In order to combat the potential for misaligned incentives to negatively impact the cost and quality of healthcare, business leaders can take the following steps with respect to their health plan.
- Take an active role in evaluating partnerships.
- Embrace new regulations pertaining to patients’ rights and transparency.
- Form a committee within their organization tasked with better understanding the needs of members.
- Invest in educating members on ways to navigate the healthcare system to ensure the best outcomes.
- Recognize that the “pay more, get less” results are not accidental.
- Dedicate more time to the evaluation process; don’t accept that costs must always go up.
Improved Access To Care And Enhanced Patient Experience
Despite these concerns, I see the entry of health insurers into the healthcare space as having the potential to improve patient’s access to essential services. Vertical integration can result in more patient-centric care models, focusing on preventive care, chronic disease management and timely interventions. According to McKinsey & Company, this approach can reduce fragmentation in care and improve patient outcomes.
The operative word is “can” reduce and improve. There are real concerns that I believe business leaders should be abreast of.
Challenges And Regulatory Concerns
Many critics worry that increased vertical integration may result in anti-competitive practices, restricted provider choice and limited access to care for patients outside integrated networks. Because of this, I think policymakers, regulatory authorities and even the average business leader should carefully monitor these developments to help ensure competition and consumer protection.
By being aware of what is happening and taking a more active role, you can make sure that the health outcomes for those covered in your company’s policy are centered as insurers merge into the health space.
Potential Impact On Healthcare Costs
I believe that striking a balance between cost containment and fair reimbursement is essential for a sustainable healthcare system. One way to strike a balance is by focusing on the Quadruple Aim of Healthcare, which are:
- Enhancing the patient’s experience.
- Reducing costs.
- Improving healthcare outcomes.
- Improving the clinician’s experience.
If business leaders keep these four tenets in mind when making any sort of plan change, I am certain that they can serve their organizations and members better.
The DOJ’s investigations into PBMs and the potential for new regulations have prompted health insurers to explore new revenue streams and reduce dependence on PBM profits. Vertical integration into the healthcare space offers health insurers the opportunity to streamline operations, improve care coordination and deliver patient-centric services. However, it also presents challenges related to competition, cost containment and patient access to care.
As the healthcare industry continues to evolve, I believe that collaborative efforts among stakeholders will be vital in shaping a more accessible, affordable and patient-focused healthcare system.
Lou Bernardi | Founder | BritePath
Benefit Optimization Officer | Health Rosetta Advisor | Forbes Business Council Member