Although the pharmacy benefit manager market has long been controlled by three large, established players, many smaller PBMs are seeing a spike in interest. But the newer entrants will continue to face stiff competition this year as they seek more business.
Smaller PBMs that advertise themselves as transparent have gained traction over the last few years as health insurers, employers and government entities look to deviate from the traditional spread pricing model. Many of these companies have said 2024 was their largest selling year, with an increasing number of large customers showing interest.
Related: 'Transparent' CVS, Express Scripts, OptumRx PBMs draw interest
“Companies that had never even spoken to us prior to this past year now are talking to us and are including us as a finalist,” said David Fields, president and CEO of Navitus Health Solutions, which serves employers with up to 500,000 workers and dependents. Navitus will manage pharmacy benefits for about 18 million people in 2025.
More than 70% of employers worked with CVS Health’s CVS Caremark, Cigna’s Express Scripts and UnitedHealth Group’s OptumRx in 2024, and about half of companies are considering changing partners in the next one to three years as they look for more transparent contracts, according to a survey the National Alliance of Healthcare Purchaser Coalitions published in October.
“Employers and other payers are asking the question of whether the traditional model is best,” said Rob Andrews, CEO of the Health Transformation Alliance, a coalition of about 70 corporations, including Kaiser Permanente, American Express and Foot Locker, aiming to improve healthcare affordability.
The change has been spurred by rising healthcare costs, employers doubling down on fiduciary duties, and intensifying political and regulatory scrutiny of the three dominating and vertically integrated PBMs. Together, CVS Caremark, Express Scripts and OptumRx hold nearly 60% of the pharmacy benefits market based on their control over rebate negotiations, retail network management and claims adjudication, according to the American Medical Association.
“There's a level of unease and mistrust, and I think this is predicated by ... this shadow that kind of hangs over the PBM industry,” said AJ Loiacono, CEO of Capital Rx, which has reported its largest selling year for contracts going live in 2025. The PBM works with employers with up to 200,000 employees and manages pharmacy benefits for more than 3 million people overall.
Smaller PBMs face significant obstacles, however. Any changes to pharmacy benefits, including more restricted drug formularies that smaller PBMs tend to offer, can frustrate members. Some companies have expressed consternation about whether smaller PBMs can effectively manage benefits for massive employers. The larger PBMs typically put forward attractive rebates and greater access to branded drugs, and they have said their size grants them the buying power to obtain medications at lower prices for clients. To retain customers and meet demands, CVS Caremark, Express Scripts and OptumRx have also been rolling out their own renditions of transparent models.
“I don't see significant market share erosion in the short run for sure," said Geoffrey Joyce, health policy director at the University of Southern California Schaeffer Center.
Still, smaller PBMs are looking to bring in customers by giving them more control over formularies, providing access to data, and utilizing a fully pass-through model for negotiated savings. They’re also promising employers lower per-member per-month costs, said Alan Pannier, senior vice president of product strategy at SmithRx, a PBM that serves about 1 million people. It is on track to have its largest sales year for contracts beginning in 2025.
“Even for these small employers that we're able to come in and save them 30% to 50% on their pharmacy spend, it's meaningful,” Pannier said.
For Purdue University, control over the drug formulary to provide more lower-cost options was a motivating factor behind switching from CVS Caremark to AffirmedRx, said Candace Shaffer, associate vice president of benefits and payroll at Purdue. AffirmedRx will manage pharmacy benefits for Purdue's 25,000 employees and dependents starting this month.
In 2025, many of the smaller PBMs are aiming to capture more clients to bolster their negotiating power with pharmacies and drug manufacturers, Navitus' Fields said. Sometimes, this means collaborating with larger companies.
Navitus, which is owned by St. Louis-based SSM Health and Costco Wholesale Corporation, is one of several companies Blue Shield of California is partnering with for the insurer’s new pharmacy model, which fully launches this month. Blue Shield of California is relying less on CVS Caremark and partnering with various companies, including Navitus, Amazon Pharmacy and Prime Therapeutics, to administer drug benefits. Navitus will manage the retail pharmacy network.
“I wanted us to be inside and part of the process,” Fields said.
