UNH UnitedHealth Group Inc

By Joseph Walker 

A U.S. alliance formed last year by more than three dozen companies, including American Express Co., Johnson & Johnson and Macy's Inc., is announcing its first plans aimed at lowering the companies' health-care spending.

The blueprint includes group contracts to purchase prescription drugs through units of CVS Health Corp. and UnitedHealth Group Inc.; the creation of specialized doctor networks; and a deal to use International Business Machines Corp.'s Watson software to analyze their health-care data.

The nonprofit group, called the Health Transformation Alliance, says combining the negotiating heft of its 38 members allows it to win lower prices than any individual company could alone.

Each company must still decide whether to participate in the prescription-drug contracts, after comparing the alliance-negotiated deals with their existing prescription arrangements, according to the alliance.

The alliance expects at least 20 members to participate, and estimates they will save a combined $600 million over three years compared with their current drug-benefit contracts, says HTA Chief Executive Robert Andrews, a former Democratic congressman who helped write and pass President Barack Obama's Affordable Care Act. The savings would represent 14% to 15% of total drug spending, on median, for the employers.

HTA member companies provide health insurance to a combined six million employees, the vast majority of them in the U.S., the alliance says.

The effort is picking up at a time of growing employer concern and congressional debate over rising health-care costs, which represent about 18% of the U.S.'s gross domestic product. In 2016, health-care spending by private businesses jumped 6.1% to $676 billion, compared with an average increase of 4.5% in government and household spending on health-care, according to recent estimates by the Centers for Medicare and Medicaid Services.

"This is the group that's paying the bill," says Kyu Rhee, chief health officer at IBM, an alliance member. "We're not waiting for the public sector to come up with the solution -- we have the skills and expertise to do this ourselves."

Prescription-drug spending is of particular concern. Companies hire middlemen called pharmacy-benefit managers, or PBMs, to negotiate discounts and rebates on drug prices from pharmaceutical companies and retail pharmacies. PBMs also try to keep costs down by steering patients to lower-cost treatments, such as generics or brand-name drugs with the largest rebates.

But PBMs often keep a portion of the discounts they negotiate with drugmakers, without always divulging how much they're keeping. The contract terms PBMs cut with employers can vary widely. By giving all of their business to just two PBMs -- UnitedHealth's OptumRx or CVS's Caremark -- the employers in the alliance will pay less and receive more consistent prices from PBMs, said L. Kevin Cox, chief human resources officer at American Express. "Everybody thinks they get a good deal, but it's not true," Mr. Cox says.

Mr. Cox said employers would also gain more transparency into the actual cost of drugs they purchase, because the contracts include guaranteed rebates and the right to audit their PBMs. However, it isn't clear how novel those arrangements are because many PBM contracts with large employers already include those features, says Craig Oberg, a pharmacy-benefits consultant at the Burchfield Group.

The companies also hope to use the alliance to more directly manage their employees' health care, including by determining the best drugs and physicians to treat costly diseases and conditions.

Starting next year, the alliance will contract with doctors and other health-care providers in Phoenix, Chicago and Dallas-Fort Worth to care for employees with diabetes, hip and knee replacements, and lower back pain. The alliance aims to structure the contracts, which will be negotiated and administered by insurers Cigna Corp. and UnitedHealth, to pay doctors based on how well they meet certain targets, such as quick recovery times, rather than for each procedure and test they perform.

The alliance says it will also use IBM's Watson software to help member companies choose the drugs and doctors that provide the best value. Starting this year, IBM will feed about four years of data from each company, including pharmacy and insurance claims, and electronic health records, into the Watson software, which will then make recommendations based on which drugs and doctors resulted in the best health-care outcomes for patients. The alliance also aims to have Watson predict which employees are likely to develop diseases like diabetes, and to recommend treatment that can possibly prevent the disease.

Write to Joseph Walker at joseph.walker@wsj.com

(END) Dow Jones Newswires

March 06, 2017 16:33 ET (21:33 GMT)

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