A new, 40-company cooperative, representing perhaps the most aggressive attempt to date to curb health-care costs through concerted action, appears to be off to a solid start.

The Health Transformation Alliance (HTA) has negotiated contracts with two pharmacy benefits managers (PBMs), CVS Health and OptumRX, that will provide alliance members with rebates and discounts on drugs, according to Rob Andrews, the group’s CEO.

For 2018, the two PBMs have guaranteed pricing that will effectively reduce members’ drug costs by a median of 15% compared with their 2017 expense, says Andrews, who served 23 years in Congress as a Democratic representative from New Jersey.

About half of the alliance members — all of which are self-insured — will begin using one of the two new contracts starting next January. Each company will have different pricing based on its claims history, ranging from a low of about 8% savings in 2018 to a high of 23%. However, it was the prospect of locking in a huge chunk of business from multiple large companies that induced the PBMs to sign the contracts.

“These savings are largely derived from volume,” says Andrews. “The PBMs are narrowing their profit margins.”

The volume of savings on drugs will easily top companies’ cost of membership, according to Andrews. Members pay an initial $500,000 to join the nonprofit group, a median of $100,000 a year for access to a massive warehouse of health-care data (more on that below), and a per-person, per-month fee. The median 15% savings on drugs is net of the latter.

Rob Andrews

But, Andrews notes, “volume savings have a way of evaporating over time.” That’s why HTA sent out requests for proposal that demanded other considerations from PBMs designed to provide continuing value to group members.

First, the contracts provide the group with robust rights to audit the performance of the drug programs. “We can choose the auditor, and by and large we can choose the time and scope of the audit,” Andrews says. “And we’re not much limited as to how many audits we can do. We’ll really be able to figure out if the deal we were promised is the deal we are getting — and believe it or not, that’s quite atypical in the PBM industry.”

Second, the contracts give HTA a seat on the PBMs’ pharmacy and therapeutics (P&T) committees, which decide what drugs will appear on their drug formularies.

“Our working hypothesis here is that PBMs incent the use of certain drugs more on the basis of their revenue flow than on what’s right for patients,” says Andrews. “We’re not making an accusation, we’re not saying it’s unethical or illegal. But that’s the economic incentive structure, and we want to change it.”

Eye on the Future

The pharma deals are among several initiatives HTA has going. The group has also inked deals with United Healthcare for access to value-based medical-provider networks in Chicago and Phoenix and with Cigna for the same type of network in Dallas. All three contracts take effect next January as well

While the favorable drug pricing is available to alliance members on a nationwide basis, there are good reasons why the cooperative will start with a limited rollout of its medical solution.

Unlike pharmaceuticals, medical services are provided by local or regional entities. Pricing varies widely, even from provider to provider within a region. Also, some areas are ahead of others in the pace of their development toward new, value-based health-care delivery models.

HTA chose the three cities based on three factors: (1) how many people alliance members have there; (2) the range or variation in cost and quality among local providers, so that employees can be steered away from providers that are overcharging or underperforming; and (3) the extent to which the city is “leaning into” a value-based approach faster and further than others, says Andrews.

“We want to encourage the replacement of fee-for-service medicine with fee-for-value medicine,” he says. “We want to negotiate deals with hospitals and health systems that say, we’re not going to pay you on how many days we fill your bed or how many procedures you do. We want to pay you on the difference between the expected outcome for the population we’re giving you, and the outcome you actually produce, and the savings that the health improvement actually produces.”

Commenting on the selection of Chicago, Dallas, and Phoenix, Andrews draws an analogy with Blockbuster, the video-rental chain that was going gangbusters 15 years ago but subsequently rendered obsolete by NetFlix’s disruptive business model. “I think the forward-leaning health systems understand that they are Blockbusters, and the day is coming when the market will be moving to a different model,” he says.

But even the most advanced medical providers in those cities are in the early stages of reinventing their delivery models. A quantifiable payoff from HTA’s medical solutions is “much more in the distance” than is the case with the drug contracts, says Andrews.

But he notes that companies will have no choice but to join forces in order to meaningfully move the needle on health costs.

“Consolidation is the hallmark of the modern medical market,” he says. “Five insurance carriers have 85% of the covered lives in the country. Three PBMs that have 87% of the [drug market]. It’s hard to find a medical market where a couple of hospitals don’t have a huge concentration of the power. So, if employers don’t consolidate as well, it is inevitable that they are going to be on the wrong end of a cost shift that is not very good for them.”

Data Is Dominant

Despite the win with the PBMs and the hope for a future marked by more value-based medical-services delivery, the biggest positive impact HTA will have for its member companies will be the data access they will be afforded, according to Andrews.

The data warehouse, called the HTA Data & Analytics Solutions Platform, is populated with information from Truven Health Analytics, the country’s largest repository of health data. IBM, a member data partner of HTA, last year paid $2.6 million to acquire Truven, its fourth and largest acquisition of a health-care company since launching its IBM Watson Health division in 2015. Member companies contribute their own aggregate health-care data to the database as well.

IBM’s Watson computer system provides data analytics designed to vastly improve clinical decision-making by medical professionals. For example, Watson can identify, based on personal characteristics, which employees are likely to have or develop common chronic conditions like type 2 diabetes, and then recommend the best timing for and type of an intervention. Watson also gathers data to distinguish among high-, medium, and low-performing medical providers.

“This is worth a lot,” Andrews says. “It’s like the difference between picking fantasy football players at random and studying their statistics. Much of it is built around understanding the right care for a person, given their genetic profile if they’ve undergone genetic testing, and what their risks are, and which type 2 diabetes patients are most likely to have strokes or heart attacks or become blind. This is a proactive rather than reactive approach to health.”

Of course, other than information on drug prescriptions in the case of self-funded employers, companies by law are not allowed to have patient-specific medical information on employees, except to the extent that employees grant them permission to have it. “This is an HR hand-grenade, and there are all kinds of ethical and privacy issues tied up in it,” Andrews acknowledges.

But medical professionals do generally have access to patient information. So if, say, a high-risk person has an interaction with a company-provided nurse for a blood pressure screening, Andrews says, the nurse “ought to have this information and can say ‘hey, how are you feeling? We have a resource for nutrition education you might be interested in.’ You’ve got to do this carefully, but having that knowledge can be of immense value in helping someone avoid a catastrophic medical event.”

In addition to IBM, the cooperative’s 40 member companies include such major names as American Express, Caterpillar, Corning, Eaton, du Pont, FedEx, Ingersoll Rand, International Paper, Johnson & Johnson, Kaiser Permanente, Marriott, Pitney Bowes, Prudential, Shell Oil, Coca-Cola, The Hartford, Verizon, and Walgreen.

To convince those and the other members to join, HTA engaged with both chief human resources officers and CFOs.

“Here’s the case we made,” says Andrews. “We said, you almost certainly are in an environment where spend is rising much faster than the rate of inflation. You’re not getting more for what you’re spending; you’re probably getting less. And we believe that coming together as a cooperative and changing the incentives that we put in front of providers will change that.”