CalPERS Taps UnitedHealth To Run Its Prescription Drug Business

The California Public Employees’ Retirement System has picked a unit of UnitedHealth Group to run its pharmacy business, hoping the nation’s largest health insurer can help contain the soaring cost of prescription drugs.

Now CalPERS will turn its attention to setting health insurance rates for 2017.

The CalPERS board voted unanimously Wednesday to follow its staff’s recommendation to award a five-year contract to OptumRx, the pharmacy-benefit division of UnitedHealth.

Optum beat out two other industry giants, Express Scripts and CVS Health, which is the current pharmacy-benefit manager for CalPERS.

“We placed a lot of emphasis in this solicitation on the company’s ability to deal with the increasingly high cost of prescription drugs, and OptumRx presented a very strong proposal,” said Priya Mathur, chairwoman of the CalPERS pension and health benefits committee.

Like many employers and public agencies, CalPERS has faced financial pressure from double-digit increases in drug spending, driven in large part by high prices for certain specialty medications.

Overall, CalPERS, a public agency, spends about $1.8 billion annually on medications for its 1.4 million state and local government employees, retirees and their family members. Some HMO plans offered through CalPERS handle their own pharmacy claims, so this contract will cover only about 486,000 of CalPERS’ enrollees.

Optum was the lowest bidder for the contract, which starts Jan. 1. The company’s bid totaled $4.88 billion for the five-year cost of prescription drugs, including rebates and the company’s administrative fees. The bid amounted to $191.82 per member per month.

CVS bid $4.90 billion for the next five years, and Express Scripts was $4.95 billion, state records show.

UnitedHealth didn’t have an immediate comment Wednesday.

CalPERS said it expects to pay Optum $16.9 million in administrative fees for 2017 under the new contract. The agency didn’t provide figures for additional years.

CVS will collect an estimated $14 million in such fees this year under the current pharmacy-benefit contract, according to the agency.

Optum’s estimated cost for prescription drugs will now be factored into proposed health plan rates for 2017. CalPERS is scheduled to announce next year’s premium increases at its meeting next month.

Almost half the increase for 2016 was tied to rising drug costs. HMO premiums rose 7.2 percent this year and rates for PPO policies shot up 10.8 percent, on average.

The agency’s rate increases are closely watched across the country as a bellwether for what big employers and their workers might be experiencing.

The CalPERS move from CVS to Optum will also mean changes for some patients because each prescription-benefit manager has its own list of preferred medications, known as a formulary.

Dr. Richard Sun, a medical consultant at CalPERS, said about 27,000 CalPERS members should experience a positive change going from CVS to Optum because they will have lower copayments or gain access to a drug that was previously excluded.

But he said about 60,000 members may be negatively affected by the new formulary. There is an appeals process for patients who disagree with a coverage decision.

“On the whole, there are pluses and minuses on changing the formulary,” he said.

Doug McKeever, the deputy executive officer for benefit programs at CalPERS, said one way a pharmacy-benefit manager lowers costs is by narrowing the list of drugs for a chronic condition from about a dozen to three or four.

“We will do our best to ensure information is available to our members on what the formulary is and what the differences are,” McKeever told board members.

Two large health insurers, Anthem Blue Cross and Blue Shield of California, expressed initial interest in the pharmacy contract but later dropped out of the bidding.

Both insurers offer health plans through CalPERS.