Amid Congressional PBM scrutiny, CVS/Aetna CFO assures investors of continued profits, even at expense of employers and taxpayers
When I began handling financial communications for Cigna, I learned quickly that C-Suite executives often say things to investors and Wall Street financial analysts they wouldn’t dare say out loud to reporters or politicians.
Occasionally, though, reporters and politicians catch wind of an executive’s candid remarks at an investor conference. Whenever that happens, you can be certain the company’s lobbyists and PR people pivot to damage control.
I imagined that scenario playing out a few days ago at CVS headquarters after the company's chief financial officer, Shawn Guertin, told investors at the 2023 Bernstein Annual Strategic Decisions Conference not to worry about Congress, where both Democrats and Republicans have taken aim at insurers’ pharmacy benefit managers (PBMs). Guertin signaled that if lawmakers force those drug supply chain middlemen to change their business practices, insurers will just find other ways to protect their PBMs’ profit margin.
Members of Congress on both sides of Capitol Hill have set their sights on PBMs, which have bulked up to Goliath size in recent years and are now bigger and more profitable than insurers’ health plan businesses.
CVS’s PBM, Caremark, now contributes more to CVS’s total revenues than either Aetna, the big insurance company it bought in 2018, or the company’s 10,000 retail stores. Last year Caremark also became the company’s most profitable division, contributing $7.4 billion to CVS’s total operating income of $17.5 billion.
Caremark is one of the three PBMs owned by big insurance companies. The others are Cigna’s Express Scripts and UnitedHealth’s Optum RX. Together they control 80% of the PBM market, which is one of the reasons the FTC has launched an investigation into the companies.
The annual Bernstein Private Wealth Management conference is a big deal for the company’s well-heeled customers. According to its website, the firm, founded in 1967 by Sanford C. Bernstein, “advises high net worth clients on planning for–and living with–the complexities that come with wealth.”
On the first day of this year's conference, Bernstein's Lance Wilkes, a "buy-side" analyst (as opposed to a "sell-side" analyst) did a Q&A with Guertin. Buy-side analysts work for companies like Bernstein that manage money for wealthy investors. Sell-side analysts, on the other hand, work for big investment banks like Goldman Sachs. Together, they comprise one of corporate America’s most important stakeholder groups.
The sell-side analysts get to quiz companies’ CEOs and CFOs on conference calls when the companies announce their quarterly earnings. Buy-side analysts dial in, but they can’t ask questions. So firms like Bernstein hold big events to give their analysts a chance to lob what are usually soft-ball questions to executives like Guertin.
At Bernstein’s 39th annual conference that started on May 31, Wilkes asked Guertin if investors should be concerned that Congress has set its sights on PBMs.
Just a month earlier, Senate HELP Committee leaders Bernie Sanders (I-Vermont) and Bill Cassidy (R-Louisiana) announced that they had reached a deal to "reform pharmacy benefit managers and expand the availability of low-cost generic drugs."
And just a week before Bernstein’s conference, the GOP-led House Oversight Committee said PBMs “prioritize their pocketbooks over patient care.” During a May 23 hearing, a Georgia oncologist painted a vivid picture of “the PBM hell my patients and I live in every day,” a hell of treatment delays and denials and constantly rising drug costs.
At the Bernstein conference, Wilkes asked Guertin how “the earnings power” of the company’s PBM would be affected if Congress forced PBMs to be more patient- and doctor-friendly. The various bills lawmakers are considering would ban common industry practices, like charging their employer and government customers more than they pay pharmacies for a drug and pocketing the difference. That “spread,” as it’s called, is a big contributor to PBMs’ profits.
Guretin replied, in typical corporate-speak:
So I say that because there's other ways that we -- in the economic model that we can adjust to if one of those things changes. And the other important part of this, if some of these things change, it could lead to higher costs for employers and health plans, and that's what they need to be cognizant of.
Kudos to STAT’s Bob Herman for translating that into English. Guertin was saying that his company “would find ways to maintain its level of profit if those reforms to things like drug rebates went into effect.” CVS would do just fine. Their customers? Not so much.
Folks, this is how private insurance companies roll. The Patient Protection and Affordable Care Act, which Congress passed in 2010, was, as the name implied, supposed to protect patients from egregious insurance industry practices. It prohibited insurers from canceling the policies of patients when they got sick and refusing to sell coverage to people with pre-existing conditions. But insurance companies had profit margins they had to protect. If they didn’t, their wealthy investors would run for the exits and dump their stock.
So insurers began delaying or denying coverage for more and more treatments and medications, and they shifted more and more of the cost of care to patients in the form of increasingly unaffordable out-of-pocket requirements. That’s a big reason why 100 million Americans are now saddled with medical debt that many of them will never pay off.
Since the Affordable Care Act was passed, big for-profit insurers have only grown bigger, more powerful, and more profitable. And CVS, Cigna, and UnitedHealth now have enormous PBMs to help them do the dirty work necessary for them to meet the expectations of their wealthy investors.
Members of Congress need to know that and do what they can to prevent insurance companies from making life even more of a hell for us and our doctors–and laughing all the way to the bank.