Pharmacy benefit managers operating in the shadows of conglomerates that dominate the industry believe now may be their moment to make inroads in the lucrative market.
Companies such as AffirmedRx, Liviniti, MedOne Pharmacy Benefit Solutions, Navitus Health Solutions, RxPreferred Benefits and SmithRx are employing a twofold strategy. Part one pitches potential customers on a more transparent business model. Part two is lobbying Congress to pass legislation that would rein in CVS Health subsidiary CVS Caremark, UnitedHealth Group subsidiary OptumRx and Cigna subsidiary Express Scripts and open the PBM business to more competition.
These upstart PBMs face considerable obstacles to both approaches.
According to the publication Drug Channels, CVS Caremark, OptumRx and Express Scripts control almost 80% of the market, and all three are corporate siblings to huge health insurance companies that are entwined throughout the healthcare system. And while Congress appears poised to send President Joe Biden a bipartisan PBM bill to sign this year, lawmakers have a lot to accomplish in the weeks that remain—including preventing a government shutdown that could begin Friday—and may run out of time on the PBM measure.
The business plan
In the marketplaces, smaller PBMs pitch themselves as affordable, efficient, transparent alternatives to the big three. They describe themselves as open books that disclose data and charge flat fees that don’t give them incentives to push payers or employers toward higher-cost and branded drugs.
“PBMs were created really as a technology transaction to simplify the process between a pharmacy and an insurer. That's what it should really get back down to,” said Alan Pannier, senior vice president of product strategy for SmithRx.
SmithRx, which launched in 2016, advertises itself as a pass-through, transparent option that uses technology to make it easier for employers to switch PBMs. The PBM provides its more than 3,000 small-to-mid-sized self-insured clients better access to data and helps connect patients to less expensive medicines, Pannier said. According to him, SmithRx clients spend 20%to 40% less on pharmaceuticals when they switch from a large PBM.
Persuading employers and insurers to embrace the transparent business model nevertheless is an “uphill battle,” Pannier said.
Smaller PBMs such as SmithRx sell to benefits brokers that typically evaluate PBMs based on average wholesale price discounts and rebate guarantees, which Pannier said don't correlate to lower drug spending. “Oftentimes, through that spreadsheet or analysis setup, we often look like we're in fourth or fifth position, even though if you were to truly look at what our spend would be compared to the traditional PBMs, ours would be less,” he said.
Still, these companies have won clients as insurers and employers demonstrate openness to different kinds of PBMs. Navitus inked deals with UCare in September and Geisinger Health Plan in July that will kick in Jan. 1, for example. Navitus started out nearly two decades ago to serve the Wisconsin state employee health plan and now has contracts with other government entities, employers and health insurers.
“We're not an experiment," said Robyn Crosson, vice president of government relations at Navitus. "We've got a vast level of experience, and we're proof that it can work.”
The political plan
The Pharmaceutical Care Management Association has been the mouthpiece of the pharmacy benefit manager industry in Washington for almost 50 years. But, as is typically the case with trade groups, the biggest members tend to set the agenda. CVS Health, OptumRx and Express Scripts all belong to the organization, along with companies such as Humana Pharmacy Solutions and Blue Cross and Blue Shield-affiliated Prime Therapeutics.
Hence Transparency-Rx, a coalition comprising AffirmedRx, Liviniti, MedOne Pharmacy Benefit Solutions, Navitus, RxPreferred Benefits and SmithRx that debuted in September.
“There are a lot of voices out there about PBMs, but there was truly a lack of voice of a PBM that practices the transparent pass-through model and believes in that as a way to kind of fix the brokenness in the current drug pricing system,” said LeAnn Boyd, CEO and co-founder of Liviniti, formerly called Southern Scripts.
While the Pharmaceutical Care Management Association vigorously opposes the legislation working its way through Congress, Transparency-Rx has offered its support in hopes that constraints on their massive competitors will create opportunities for smaller rivals. Transparency-Rx rolled out a digital advertising campaign in the Washington region to promote policies that would require PBMs to share negotiated drug rebates and discounts, limit spread pricing, and de-link PBM compensation from list prices.
“If transparents don't begin speaking up for themselves and advocating for themselves, then the market control that exists for what's essentially three companies is likely to get worse, not better,” Transparency-Rx Managing Director Joseph Shields said.