Non-risk PPO market largely untapped by PBMs

Drug Cost Management Report, Jan, 2003

On average, 81% of PPO membership is enrolled in a pharmacy plan. PPOs are spending an average of $36.90 per member per month on prescription drug benefits for those members enrolled in a pharmacy plan. This represents 10.6 prescriptions per member per year, on average. AIS estimates that PPOs will account for approximately $91 billion in prescription drug spending this year, according to data from AIS's PPO Resource Guide and Directory: 2003.

The newly updated database profiles 552 PPOs, and represents more than 205 million covered lives. PPOs reported current data on their prescription drug benefit utilization, membership and spending. (Specialty PPO networks are included in the database but were not included in analysis for this article.)

Approximately 70% of PPOs are offering some sort of pharmacy network access with their PPO plan. Most of this PPO business is generated through risk-based PPOs (figure 1).

Typically, pharmacy networks are offered via a contract with a PBM. The PPO database provides insight into how PBMs have fared in competing for PPO business.

Approximately 16% of PPOs do not contract directly with a PBM. PPOs owned by Aetna, CIGNA, WellPoint or Anthem rely on their own internal PBM units. Among other PPOs, most contract with an independent PBM.

Figure 2 shows PBMs' share of the PPO market as measured by number of PPOs contracted, and by the membership of those PPOs. Total PPO membership indicates only the potential number of PBM covered lives, because we could not verify how many of each PPO's members were served by the contracted PBM. Overall, PPOs report that 81% of their total membership is enrolled in a pharmacy plan.

AdvancePCS is serving more than 15% of the PPOs in some capacity. Major PPO clients for AdvancePCS include Empire Blue Cross Blue Shield's Deluxe Network, Blue Cross Blue Shield of Illinois' PPO, and Devon Health Services' PPO Network. These PPOs have about 3 million members each.

Medco Health Solutions counts UnitedHealthcare as its largest PPO client. Medco serves UnitedHealthcare on a national basis, including its large PPO networks in Florida, Texas and Illinois. Medco also serves members of Blue Cross and Blue Shield of Florida, Independence Blue Cross Personal Choice PPO, Mid Atlantic Medical Services, Inc. (MAMSI) Alliance PPO, and the PPO networks of Medical Mutual of Ohio. Those networks each have more than a million covered lives.

Approximately 35% of the PPO market has no PBM contracts, according to the survey data, and these are mostly non-risk PPOs.

PPOs that do not assume risk do not have the same savings incentive that risk-based PPOs have to integrate a pharmacy benefit with their PPO plan. Therefore, they have been slower to align with PBMs. However, non-risk PPOs typically provide a wide range of management services for their self-insured employer clients.

Only about a quarter of the PPOs in the non-risk arena have contracts with PBMs--leaving the majority of that market up for grabs. The non-risk market represents a potentially larger market than even the risk-based PPOs. AIS estimates the size of the non-risk PPO market to be almost 300 companies, representing more than 214 million covered lives (figure 3).

Figure 1. Number of PPOs Offering--and Not
Offering--Pharmacy Networks

                        Number of PPOs
                       Offering Pharmacy
Type of PPO Network        Network

NO Non-Risk Networks      125    83
NO Risk Networks            7   228

Source: "AIS's PPO Resource Guide and Directory:
2003," www.AISHealth.com/Products/ppo.html

Note: Non-risk networks include leased networks.

Note: Table made from bar graph.

Figure 2. PPO Market Share of Leading
PBMs, by Number of PPO Contracts, and
by PPO Membership *

                                                     % Market Share by
                                 % Market Share by    Number of PPOs
                                  PPO Membership        Contracted

     Aetna Pharmacy Management          2.17%               9.51%
Anthem Prescription Management          2.25%               1.90%
     CIGNA Pharmacy Management          2.64%               7.88%
                   Caremark Rx          1.87%               4.89%
               Express Scripts          4.90%               7.34%
 WellPoint Pharmacy Management          6.29%               3.53%
        Medco Health Solutions          8.72%              13.59%
                    AdvancePCS         15.12%              12.77%
                          None         34.77%              16.30%

* Indicates potential PPO members only. Not all PPO members are
enrolled in Rx plans.

Source: "AIS's PPO Resource Guide and Directory: 2003,"
www.AISHealth.com/Products/ppo.html

Note: Table made from bar graph.

Figure 3. Estimated Size of PPO Market

PPO Network Type    Number of PPOs   Covered Lives

Non-Risk Networks   294              214,472,412
Risk Networks       258              86,126,076
Total PPO Market    552              300,598,488

Source: "AIS's PPO Resource Guide and Directory: 2003,"