Some employers and health systems in North Carolina are looking to change how they manage prescription drug benefits for their employees.
More employers are considering alternative pharmacy benefit managers — or PBMs — to run the drug benefits in their employees’ health insurance plan. For the past few years, the market has been dominated by three big pharmacy benefit managers: CVS Caremark, Optum Rx and Express Scripts, which together processed nearly 80 percent of all prescription claims in the U.S. in 2024.
But with those mammoth PBMs facing increased scrutiny from lawmakers, some clients are switching to smaller pharmacy benefits startups that bill themselves as more transparent than the “big three.”
One example is billionaire Mark Cuban’s Cost Plus Drug Company, which launched in 2022 and advertises more transparent and affordable drug pricing. Another is Rightway, which signed on to manage Tyson Foods’ prescription drug benefit in early 2024.
In North Carolina, UNC Health created its own pharmacy benefit manager for its employees in 2019.
Durham-based Senior PharmAssist, which helps low-income older adults access medications, contracts with a company called LucyRx as their PBM. Executive Director Gina Upchurch said the contract is transparent and they pay a per-transaction fee, which allows the organization to choose which drugs their participants have access to, as well as make sure they’re reimbursing pharmacies fairly.
“We wanted one that would be transparent with us about what we're paying for and that we could control,” she said.
Smaller PBMs like Utah-based Scripius have received an uptick in interest over the past couple years, according to the company’s Chief Commercial Officer Eric Cannon.
Despite these evolutions in the market, many employers are wary of disrupting their employees’ coverage.
Traditional versus new model
Pharmacy benefit managers are often referred to as “middlemen” in the pharmacy supply chain. Initially, they were created to use bulk buying power to get better deals for customers of insurance companies, who hired the PBMs to manage prescription drug benefits.
But in recent years, PBMs have come under increased scrutiny from advocates, pharmacists and government officials at the state and federal level over concerns of opaque business practices. Instead of driving down list prices for consumers, critics say the biggest PBMs contribute to high drug list prices in part by taking increasingly larger percentages from the deals they make between insurers and drug manufacturers, and higher sticker prices mean bigger profits for the PBMs.
Some critics allege PBMs also pocket those savings for themselves instead of passing them on to the insurance company who could then, theoretically, pass them along to members.
PBMs have also come under fire for increasing consolidation and control over the market. The three largest PBMs are part of even larger health care conglomerates.
The newer, alternative PBMs aim to set themselves apart with promises of greater transparency and by passing 100 percent of the savings they achieve to their customers.
These new entries into the market don’t have the same incentive as large PBMs to steer patients to higher-cost drugs to maximize rebates, said Jon Rankin, CEO of the North Carolina Business Coalition on Health, an employer group advocating for improved health care delivery in the state. Smaller PBMs are more transparent and can focus on driving customers to lower-cost drugs that achieve the same outcomes, he said.
Connor Rose, lobbyist for industry group Pharmaceutical Care Management Association, which represents PBMs, pushed back on claims that PBMs contribute to increasing prescription drug costs as “patently false.” Without PBMs, Rose said, drug costs would increase.
“Drug companies alone set and raise drug prices, however, Big Pharma would like nothing more than for people to ignore this obvious fact,” Rose told NC Health News.
The emergence of new PBMs in the market demonstrates “the competitive nature of the industry,” Rose said, and employers/payors and patients can benefit as a result.
How a NC organization uses a small PBM
Since starting Senior PharmAssist over 30 years ago, Upchurch said she’s worked with smaller, transparent PBMs. That allows local clinicians to choose which drugs Senior PharmAssist participants can access based on how effective, safe and cost-effective they are for older adults. That wouldn’t be possible with many PBMs that usually assemble their formularies based on deals they receive from drug manufacturers through rebates and fees, she said.
Senior PharmAssist also doesn’t limit which local pharmacies their participants can use to purchase their medications; large PBMs tend to steer their customers to the pharmacies within their network, often with joint ownership. For example, CVS Caremark often provides deeper discounts if the customer shops at a CVS pharmacy outlet.
And while many PBMs may be incentivized to steer patients to more expensive drugs, LucyRx is paid a set amount per claim from Senior PharmAssist — so the price of the drug doesn’t matter.
“There's no [financial] incentive for us to have people take certain medicines over others,” Upchurch said.
The PBM also pulls together all the drug claims each month so Upchurch doesn’t get various bills from different pharmacies. And if one participant goes to two different pharmacies, the second retail pharmacist would be alerted if there’s a drug interaction between the medications obtained at the two different locations. Upchurch said this supports the safer use of medications.
Upchurch also said it’s easier for her to work with a small PBM because Medicare pays for the drug first, and if Medicare doesn’t cover the whole cost, Senior PharmAssist can help with the balance.
All of the Senior PharmAssist participants are enrolled in a Medicare prescription drug plan; either a standalone plan or as part of a Medicare Advantage plan. It can be harder for companies who pay for their employees’ health insurance to do something similar, Upchurch said.
Changing market trends
More than half of employers nationally are considering changing their PBM in the next couple years, according to a sample survey of 188 large employers from the National Alliance of Healthcare Purchaser Coalitions in 2024. Almost three-quarters of employers had contracts with one of the “big three” PBMs.
Almost all of those employers identified drug prices as a significant threat to affordability.
The North Carolina Business Coalition on Health has been trying to educate employers about PBMs, Rankin said. Four N.C. employers have already switched to more transparent PBMs, he said. Most of the companies in the coalition are large and cover all of their employees’ insurance costs.
Employers are growing frustrated with the huge increase in health care costs over the last couple years, especially on the pharmaceutical side, Rankin said. Some employers that were historically able to give their employees zero-dollar monthly premiums are having to consider increasing that for the first time, he said.
That’s causing some of them to look at other options.
Robert Andrews is CEO of the Health Transformation Alliance, a national member-owned cooperative of employers that advocates for better health care. Andrews said for his members, rising costs aren’t the main reason for interest in other PBMs, as costs are increasing for alternative PBMs as well.
Instead, they’re watching a bevy of lawsuits brought against employers for failing to fulfill their fiduciary duty by contracting with large PBMs, he said. Employees of Wells Fargo sued the company last year over prescription drug costs.
“You've got a better defense, if you get sued, if you are aware of this conflict and trying to do something about it,” he said.
Andrews and Rankin said the lack of transparency in the PBM market is a major concern.
Some companies still wary
Many companies are still hesitant to switch PBMs because they’ve grown to rely on rebate checks — which sometimes total in the millions — that they receive from the large PBMs, Rankin said. The biggest PBMs have power to generate such savings on costly drugs and supposedly pass those to the employer.
But Rankin has been trying to educate employers about where those checks come from. The large PBMs are steering their employees to expensive drugs instead of lower-cost alternatives to achieve those rebates, he said. This enhances the PBM’s bottom lines, even as they deliver rebate checks.
Andrews said his member companies understand that rebate checks are a “shell game.” While it’s important to save money, the biggest barrier to switching PBMs is potential disruption to their employees, he said. Human resources leaders’ main goal is recruitment and retention, as it costs more to replace someone than keep them.
The big three PBMs have pretty reliable customer service, so companies are reluctant to switch to a newer, untested alternative.
“The question that HR leads are asking is not, ‘Can I save some money?’ The question is: ‘If I can save some money, is it going to be offset by poor service and disruption that will irritate my employees and make this a place where people don't want to work?’” he said.
Still, there’s hope for smaller PBMs, he said, if enough employers find that their service is just as good and like the increased transparency.
‘The prescription pie’
North Carolina passed regulations aimed at making PBMs more transparent and fair to independent pharmacies in July. Upchurch said LucyRx told her they won’t have to change anything — they already follow the new guidelines about reimbursement and transparency.
Upchurch said more people are realizing the “shenanigans” that have driven discontent with many PBMs.
Still, she pointed out that while PBMs are easy to scapegoat, they can, and often do, perform a necessary function. For real change in the pharmaceutical industry, though, regulators will have to deal with the other middlemen in the market, such as drug wholesalers and group purchasing organizations, she said.
Only focusing on PBMs misses other parts of “the prescription pie,” she said.
“It really needs to be about the money flow and busting up some of these affiliations where people are steering and, quite frankly, holding captive the pharmacist and the beneficiary,” she said.
This article first appeared on North Carolina Health News and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.