Smaller and midsize pharmacy benefit managers are taking on Optum Rx, CVS Caremark and Express Scripts. They say they have better technology and are more transparent about their pricing.
By almost any measure, the PBM business is one dominated by the major players. In 2021, CVS Caremark led the industry, controlling 34% of total adjusted claims, followed by Express Scripts (25%) and Optum Rx (21%). Together, these three PBMs control about 80% of the total PBM market, according to the Health Industries Research Center, which provides market research and analysis in the managed care and pharmaceutical industries. Rounding out the roster of the larger players are Humana’s in-house PBM with 8% of market share, Prime Therapeutics with 6% and MedImpact with 4%.
But beyond the big three PBMs is a swarm of some 60 smaller, up-and-coming PBMs. Even if they are operating in a small slice of the pie relative to the towering dominance of the big three, the PBM pie is growing rapidly. The global PBM market is projected to increase from $495 billion in 2022 to $740 billion by 2029 (a 50% jump), according to a Fortune Business Insights projection. The increasing numbers of expensive specialty drugs is fueling that growth; specialty medicines now account for 55% of the medication spend, which is up from 28% in 2011, according to IQVIA.
Some of the smaller PBMs are niche players, specializing in a particular area such as workers’ compensation or hospice care. However, others say they are aiming to disrupt the PBM sector and challenge the big three with new ways of managing the use and cost of drugs. Their sales pitches make claims about better technology, improved customer experience, smarter utilization management and, again and again, transparency about pricing.
“Rather than size, the business model a smaller PBM deploys is a factor of differentiation,” says David Fields, president and CEO of Navitus Health Solutions, one of the more prominent smaller PBMs. Navitus is co-owned by Costco Wholesale Corp. and SSM Health, a Catholic healthcare system in the Midwest.
Price is one of those of differences. Fields says Navitus has sought opportunities to work with companies such as CivicaScript, the retail subsidiary of Civica Inc., a nonprofit supplier and manufacturer of generic drugs to hospitals. Navitus is one of the founding members of CivicaScript, along with EmsanaRx, another one of the upstart PBMs.
The smaller PBMs also tout newer, nimbler technology and better databases as one of the major advantages they have over the big three. “Fundamentally, part of what’s broken is that they are working on a 30-year-old technology stack,” says Greg Baker, CEO of EmsanaRx, which operates as public benefits corporation and was set up by the Purchaser Business Group on Health. “The old stalwarts are having to put millions and millions into these IT departments just to keep the beast running.”
Matthew Gibbs, president of Capital Rx, says something similar: “Express Scripts sits on the old Medco claims platforms, which are hugely inefficient. Decades of coding and mistakes over the years means it takes an army of people to manage this technology.” Gibbs says Capital Rx and newer PBM entrants are using technology as a way of creating cost efficiencies. “We may not have the best rebates, but my cost to administer those is fractional compared with the big three.”
Capital Rx, which launched in 2017 and is one of the largest of the new PBMs, rolled out JUDI last year. On its website, the company touts JUDI the “future of pharmacy benefits administration” that unifies claims adjudication, prior authorization, patient communications and other functions on one platform.
Another newer PBM is WithMe Health, which was founded in 2018. The company is employing technology that it claims will play an even greater role in how utilization management tools are designed and administered. WithMe Health says its technology brings together data — including pharmacy claims, medical claims, patient-reported outcomes, health lab data and social determinants of health — and analytics to identify targeted interventions and better tailor utilization management. The PBM employs “medication guides” (pharmacists and pharmacy technicians) to advise patients about their medication choices.
“A good portion of the savings that we deliver to employer groups is because we’re looking at utilization through a lens that enables us to see if patients are on the right medications,” says Joe Murad, president and CEO of WithMe Health. “We’re trying to be very clear around using cloud-based, modern architecture in front of those members and enable a level of engagement that legacy healthcare organizations don’t have.”
The newcomers are entering a business that has an increasingly vocal chorus of critics, ranging from consumer groups to independent pharmacies to pharmaceutical companies. The Pharmaceutical Care Management Association, the lobbying group for PBMs, maintains that PBMs are a counterweight to the pricing power of the pharmaceutical companies, using their buying power to lower drug costs for payers and patients, and that for every dollar spent on PBM services, payers save $10.
However, the bigger PBMs have come under a barrage of criticism from both outside and inside the industry, from the up-and-comers. Much of it revolves around pricing tactics such as spread pricing, whereby the PBM collects the difference between what it charges a payer for a prescription — including state Medicaid programs — and what it pays out to the pharmacy. The sheer size of the big three is an issue, as is vertical integration. For example, CVS Health operates an insurer (Aetna) and its well-known retail pharmacy chain, as well as CVS Caremark, the PBM subsidiary. Cigna Corp. owns Express Scripts, and UnitedHealth Group, the parent company of UnitedHealthcare, owns Optum Rx.
Gibbs and Murad contend that the profit incentives of the large PBMs are no longer aligned with the interests of their payer clients and patients because of the vertical integration of PBMs with health insurers, pharmacies and specialty pharmacies. “If you own retail pharmacies, if you own a health insurance carrier, if you own a disease management firm, if you own a medical pharmacy — all that has changed the rules of how we compete,” says Gibbs.