Companies are starting to work with transparent pharmacy benefit managers

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  • Pharmaceutical industry intermediaries called drug benefit managers are struggling for overcharging customers.
  • It pushes companies towards companies that promise transparency and say they operate differently.
  • But breaking through is difficult for alternative PBMs that aren’t as valued by powerful consultants.
  • See more stories on the Insider business page.

Pharmacy benefit managers face a new wave of scrutiny from states into the covert ways they generate profits.

It helps boost business in small businesses and venture-backed startups that say they operate differently.

PBMs are intermediaries that manage prescription drug benefits for health plans and companies that provide health benefits to their employees. About 157 million people benefit from health coverage thanks to their work.

PBMs say they are saving companies money by negotiating discounts with drug manufacturers, but official audits in Ohio, Delaware, Florida, and other states have discussed how some PBMs mark up drug prices and pocket the difference.

Several states are investigating the billing practices of PBMs, The Wall Street Journal reported in May. In June, insurer Centene settled lawsuits in two states without admitting fault and said it had set aside more than $ 1 billion to settle similar disputes in other states. CVS Health also revealed in a quarterly filing in March that its PBM was at the center of several investigations and prosecutions. A CVS spokesperson told Insider that the company is disclosing disputes regardless of their merit.

Employers and other PBM clients have long been kept in the dark about the benefits of PBMs – and confidential and highly complex contracts have made it nearly impossible for them to know if they are getting a good deal.

But as employers struggle to pay for rising drug costs, they are increasingly questioning traditional PBMs and looking for alternative companies that promise to pass on all discounts and other costs without taking a margin, according to consultants and other health experts.

“Employers are very interested in transparency. Their biggest frustration is the opacity of the supply chain and not really understanding whether everything is going or not,” said Brian Marcotte, former CEO of the Business Group on Health, which advises the startup PBM. With Me Health.

Alternative PBMs like WithMe, Capital Rx and Navitus Health Solutions who say they make money solely from administrative fees say their businesses are growing as employers seek transparent options to help control costs.

Still, it’s not easy to gain a foothold in an industry controlled by three PBM giants – CVS, Cigna’s Express Scripts and OptumRx from UnitedHealth Group – and experts say transparency doesn’t necessarily mean lower costs.

Business is booming for some PBMs that promise transparency

Traditional PBMs take advantage of “price-pricing,” when they charge health plans more than they pay pharmacies to dispense drugs.

They also negotiate rebates in the form of rebates from drug manufacturers in exchange for listing a drug on a formulary or list of covered drugs. Expensive drugs offer higher discounts, but could increase costs for employers and workers in the long run, experts said.

A growing number of small businesses have given up on these tactics and said they pass all discounts and other costs on to drugs, making money just by charging administrative fees.

Business is booming for one of these so-called pass-through PBMs, Navitus. The Wisconsin-based company manages drug benefits for the 300,000 Costco employees and their families.

A photo of David Fields, CEO of Navitus.

David Fields, President and CEO of Pharmacy Benefits Manager Navitus.

Navitus


Despite the COVID-19 pandemic, 2020 was the biggest year of Navitus customer growth in its 20-year history. The company serves more than 7 million people and has enrolled an additional 1 million people for the coming months, whereas five years ago it served 5 million people. It plans to reach 15 million customers in the next five years.

“Most of our clients have become disillusioned with the Big Three and realize that there is now a different way of doing it that can lead to different results,” Navitus CEO David Fields told Insider.

Employers’ drug costs drop an average of 15% after switching to Navitus because the company isn’t taking a spread or looking for steep discounts, Fields said.

Fields said the company’s relationship with Costco, which bought a minority stake in PBM in 2020, gave it credibility. Today, more and more large employers who previously thought Navitus was too small to work with are turning to him for help managing drug costs, he said.

Startups That Manage Pharmaceutical Benefits Attract New Customers and Investors

Capital Rx, a New York-based startup launched in 2018, has grown its client base by 400% in 2020 and plans to move closer to that level of growth this year again, CEO AJ Loiacono said. The PBM plans to serve more than one million people in more than 200 employers by January 2022.

Capital Rx has raised $ 69 million from investors like Transformation Capital and Edison Partners. The company, which charges a fixed administrative fee to customers, is based on the concept that prescription drugs should have a fixed price that everyone pays – just like over-the-counter drugs like Tylenol – and that a PBM should not determine or score up to the price.

Loiacono said that all Capital Rx clients got the same drug prices, based on the federal government list of the actual prices that retail pharmacies pay for drugs. Customers can see the prices paid at pharmacies, while pharmacies can see what customers are charged, Loiacono said.

It’s different from the way things work in traditional PBMs. Their agreements with the companies do not contain specific drugs, but descriptions of types of drugs, like generic and branded drugs, that can easily be handled, Loiacono said. Companies pay these PBMs the “average wholesale price” of the drugs minus a discount, but this does not reflect actual drug prices, he said.

Capital Rx is echoing with employers who question not only traditional PBMs, but also the consultants who put them on bad contracts, Loiacono said.

“What people suddenly understand is that the fortunes of PBMs and carriers are extended to certain brokers and consultants,” he said.

WithMe Health, launched in November, focuses on managing and supporting patients in order to reduce costs for employers.

The PBM wants to make sure that patients are taking the right drugs and the cheapest versions available. He says he’s using data, technology, and a pharmacist-led team to do this. Traditional PBMs have focused less on efficient patient management and more on rates and discounts, said Joe Murad, CEO of WithMe.

Murad said WithMe charges a fixed monthly fee per person – that way his advice is not influenced by the desire for more transactions and higher discounts, but by what is in the patient’s best interest.

WithMe has raised $ 48.5 million from venture capital firms like OMERS Ventures. Navitus has also invested and partnered with the company.

The young startup serves more than 25 employers as a PBM, and it’s “growing dramatically,” Murad said. Because employers want choice and it’s hard to oppose entrenched PBMs, WithMe said, its drug referral services can build on a traditional PBM model.

Pass-through PBMs compete with industry giants who have close relationships with consultants

Getting an employer to switch to a smaller alternative PBM can be a tough sell. Employers rely on consultants, and consultants haven’t always appreciated transparent PBMs, Marcotte said. Consultants place a lot of weight on discounts and discounts and less on things like medication management, he said.

Several sources also said that moving to a transparent PBM model doesn’t necessarily mean employers will save money on drug costs.

“Even though the big guys take the margin, they’re also big, so their scale allows them to negotiate prices at a lower level,” said David Dross, pharmacy benefits consultant at Mercer.

This has prevented some employers from trying alternative PBMs. Still, Dross said his practice is seeing more and more employers, especially in the western United States, switching to pass-through PBMs not because they think they’re going to save a lot of money. , but because they are “philosophically opposed to the idea of ​​spread pricing.”

Magda Rusinowski, vice president of Business Group on Health, said employers want transparency so they can get a better idea of ​​what is behind the high costs of their pharmacies. While this desire prompts employers to consider alternative PBMs, it also puts pressure on traditional PBMs to become more transparent, she said.

Centene, for example, who settled lawsuits in Ohio and Mississippi over its PBM earlier this month, said it had eliminated pricing from spreads and restructured its business to be more transparent.

But Linda Cahn, a PBM expert who helps employers write airtight PBM contracts, said that while many companies claim to pass on all discounts, few actually do. Some exploit loopholes in contracts to circumvent their promises; they could choose to pass on their more expensive tariffs while also spreading out their cheapest tariffs, she said.

Michael Yang, managing partner of OMERS Ventures and board member of WithMe, said the industry still has a long way to go before transparent PBMs become mainstream. But he is optimistic.

“The big three have ridiculous market power,” he said. “I’m not here to tell you that every employer is ditching the big three and moving to a transparent pass-through model. These are the brave, and it’s little and far right now, but it’s absolutely the future. . “

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