Competition in the PBM Marketplace

Show Notes

When it comes to lowering prescription drug costs, competition is key throughout the prescription drug supply chain.  If you’ve listened to some in Washington, you might be led to believe that there is very little competition in the PBM marketplace. On this episode, we talk with Jason Borschow, President and CEO of Abarca and Mike Ellis, CEO of Maxor who say that is simply not the case. Competition is very healthy in the industry

What is The Pharmacy Benefit?

JC Scott, President & CEO of the Pharmaceutical Care Management Association, discusses the latest trends, public policy developments, and political challenges impacting drug pricing and healthcare.

You'll hear the nation's top thought leaders, policy experts, and political analysts on topics like how employers, unions, and others use Pharmacy Benefit Managers (PBMs) to drive value for their members in the face of growing healthcare costs. You'll also learn about advancements in gene therapy, biologics, other cutting edge therapies, and the patient benefits and cost challenges that come with them.

The Pharmacy Benefit will also analyze the latest news from inside the industry and give you an educated perspective on where things currently stand and where we think they're headed.

JC Scott (00:08):
Welcome to the Pharmacy Benefit, a podcast that highlights the role of PBMs in serving millions of patients and consumers throughout the country. I'm JC Scott. When it comes to lowering prescription drug costs, competition is key throughout the drug supply chain. If you've listened to some in Washington over the past few weeks, you might be led to believe there is very little competition in the PBM marketplace. Today, we're going to break down that perception and talk about what's really going on. For those unfamiliar with the statistics, there are more than 70 full-service PBMs operating today with new entrants coming into the market regularly. We've seen about 10% growth in the number of competitors over just the last three years. That means that for those sponsoring drug benefits for patients, they have a diversity of opportunity to contract with the PBM that best meets their needs. To better understand these dynamics, today we're talking with the leaders of two innovative companies about the PBM marketplace and what their businesses do to survive and thrive.

JC Scott (01:07):
Jason Borschow is the founder and CEO of Abarca. Founded in 2006 in Puerto Rico, Abarca now has more than 600 employees and serves more than five million people. Jason started his career at Borschow Drug, which was founded by his grandfather in 1951 and acquired by Cardinal Health in 2008. Mike Ellis is the CEO of Maxor. He has more than 34 years of healthcare industry experience, with a strong emphasis in the PBM sector, specialty and infusion pharmacy, health system pharmacies, and 340B operations. His previous roles include senior executive pharmacy and PBM positions at Walgreens, CVS Caremark, and Advanced PCS. He's also a past president of the National Association of Specialty Pharmacy. Mike, Jason, thank you for joining me on the pharmacy benefit.

Jason Borschow (01:55):
Thanks for having us.

Mike Ellis (01:57):
We appreciate it JC.

JC Scott (01:59):
Here in DC, at least, there's been a lot of focus, especially from the Federal Trade Commission on competition in the PBM marketplace. The view of some is that there's not enough real competition or choice for health plan sponsors. And I'm just curious as a starting foundational point for our conversation, what are your thoughts when you hear that? What does it mean to you for a marketplace to be competitive?

Mike Ellis (02:21):
That is the essence of political rhetoric. And I think pharma's done a nice job of twisting our story because since I've been in the business, every RFP has a ton of competition. We've continued to through, innovation and quite frankly partnerships with our clients, our members and our clients to drive down the cost of drugs. And it's a well-known fact that we're actually in a deflation mode on generics and brands. Do we have issues on the costs of some of the new specialty drugs? You bet. But most of that rhetoric is around the out-of-pocket cost. And certainly I have some thoughts on how we could attack that, but the marketplace is extraordinarily competitive on literally every single RFP, whether it's us very small few hundred lives to one that's well over hundreds of thousands of lives, we continue to see not only competition from the large companies, but from the mid-market PBMs, like Maxor, and Jason, certainly we see him often.

JC Scott (03:32):
I assume when you say that you mean you see him in a very positive way out there on the market field.

Mike Ellis (03:38):
Oh, absolutely. He is one of the great competitors. Have tremendous respect for Jason and what he's done with Abarca. When you think of innovation, they're one of the companies that comes to mind first and foremost.

JC Scott (03:52):
Jason, what's your perspective? I mean, you can certainly also say nice things about Mike, but what's your perspective on what it means to have a competitive marketplace?

Jason Borschow (04:00):
Absolutely. Well, thank you for that, Mike. And I'll start with saying nice things about Mike. What he's done with Maxor in the time that he's been there is nothing short transformational. It's went from pharmacy service businesses with a very unknown PBM to really being a, I would say, a national player in the mid-market. We've gone head-to-head with Maxor on a couple opportunities, and we've lost. And so they have a good team and they've really served a lot of their clients well and invested well in that business. To your broader question, I mean, I've been in the PBM industry for 15 years, it's extremely competitive. It's probably more competitive now than it was then. There's continued to be consolidation. And I think that the challenge is is that even though three companies are known as the big three and through consolidation and continued growth, they seem like they have a lot of market power.

Jason Borschow (04:54):
I don't think that makes the industry uncompetitive. I think the big three are violently competitive between each other. And at the same time, I think that the next generation of PBMs, the rising stars and the next 3, 4, 5, 6, 7 PBMs outside of the big three, actually create a lot of competition. So I think that health plan sponsors, state governments, employers, unions, they have a lot of options. I think that the challenge in the PBM industry is that the business model is so complex and opaque, that many of the customers don't really understand how to determine value in a way that it makes it easy to compare the different options that they have. The continual inflation and the list prices that we're seeing. The continued rise in rebates. And how those translate into the benefits, and Mike mentioned the challenge with the out-of-pocket impact.

Jason Borschow (05:51):
We see this trend with patient assistance, co-pay assistance, alternative payment, whatever you want to call it, where the pharmaceutical companies are kind of paying rebates to the members through the back door to avoid formularies. That creates a lot of dislocations where you're really not comparing apples to apples, and the consulting community that advises payers and plan sponsors, I think they're in the midst of a transformation in how they advise their clients so that everything doesn't come at the end of the day to who has the biggest rebate or the biggest discount, but really what's the best partner to manage costs and member experience and member outcomes over time. And we're seeing good evolution in that regard. So kind of in summary, I think that there's very healthy competition, and there needs to be a change in how PBM value is measured.

JC Scott (06:43):
So Jason, I'll stay with you and then ask Mike to follow-up on this question, but a lot to unpack in what you just said. I want to talk a little bit about just how each of you from an individual company perspective in that environment distinguish yourselves from the big three, or other competitors in the marketplace. And here at PCMA, we believe there's plenty of room in the market for any number of different types of PBMs. So without necessarily criticizing competitors, what's your strategy for how you stand out, how you offer something different to customers? Jason, to your point, how you articulate value.

Jason Borschow (07:20):
Look, we have a lot of respect for our competitors. I think that we have a very different approach to many. For us it starts with the customer experience. We're very focused on what we call creating PBM happiness. The PBMs are known for being somewhat rigid and finding ways to say no, why it can't happen versus well, why not? How could we make that happen? And it starts with having a culture, a powerfully positive and responsive corporate culture, where everybody in the organization creates that feeling of possibility with the entities that you're working with. I think that that's where the beginning of our differentiation starts. Secondly, from a business model perspective, we call it a higher standard. We like to offer both transparency and accountability. Some of the other parties in the industry say, well, if you have transparency, you can't guarantee savings, you can't guarantee outcomes outside of what was the traditional spread-based PBM model.

Jason Borschow (08:22):
And we say that's nonsense. You can absolutely have transparency and accountability where you're guaranteed financial outcomes in a way that's transparent to the clients. And so that's a key differentiator and we have a model called Assura, which takes additional risk in how we deliver that. Finally, it's about technology. In this day and age, the healthcare industry is still way behind every other consumer experience. And you're built on chassis from late 80s and the early 90s. And it's very difficult to deliver quick results, high level of integration and good user experience with old technology. And so we leverage our Darwin platform to make that differentiation.

JC Scott (09:03):
So I'm hearing a lot about better use of technology, transparency, but all of it comes down, it sounds like Jason to the customer experience and customer service that you're putting forward. And I'm going to use the phrase, PBM happiness going forward in any number of forums. So thank you for that.

Jason Borschow (09:21):
That's okay. We'll charge you a royalty.

JC Scott (09:24):
Perfect. Mike, how about from the Maxor perspective? How do you distinguish from others in the playing field?

Mike Ellis (09:31):
Maxor's been around since 1926, so been around a long time, so we've got to be doing something right. And quite frankly, our people are what built our company. Each individual employee has a voice in what we do. We're built on a foundation of clinical expertise and high service. Certainly recognized as a service leader in our industry year over year. You mentioned the price versus value. In these RFPs, you have to be competitive. You don't have to be the lowest cost provider for sure. But if you're competitive and can create value, you'll get into the door and into what we call the BAFO or the best and final round. Then you differentiate yourself with some of the different service models, certainly your clinical expertise. And then some of the technology. In many, many ways, the PBM industry really is a tech industry that just happens to dispense pills.

Mike Ellis (10:31):
As you know, I think people know on this call, pharmacy is by far the most frequently used benefit. So service and clinical expertise is critical. That was accentuated during the recent pandemic where quite frankly, pharmacy took a front and center role, was recognized by virtually all the powers in DC as a tool to help us get out of the pandemic. And in my point of view, albeit biased, the pharmacists in this country did a magnificent job of getting us out of this pandemic. Our clients and our members are always looking for opportunities to lower net cost. And you got to be flexible. It may be meaning using third parties. You got to be quick and nimble.

Mike Ellis (11:23):
Jason mentioned one of the attributes of a mid-market PBM for instance, is our nimbleness. We're very innovative. We implement quickly, we're extraordinarily flexible to meet the various needs that are changing frequently on some of the mid-market employer groups that are out there. You look at different parts of the benefit, specialty for instance, is one that you may have to do something very creative to help the plan sponsor drive down those costs. And certainly folks like our two companies fit that need to where we can react quickly to the needs of the marketplace.

JC Scott (12:06):
And Mike, you talked a little bit about clinical expertise and just to follow-up on that, when you bring that to bear for customers, is that in terms of helping manage the experience for the patients that they're representing, for the beneficiaries that they're representing?

Mike Ellis (12:22):
It is. Ultimately you've got to meet that member on their terms. You know, our world has changed over the last decade, and the corner drug store is not where pharmacy is happening any longer. It may be online. It may be through an app. It may be through some of the social programs that are out there, but you have to meet them on their terms. And at the end of the day, pharmacy is a component of total cost to care. And if we're doing our job right, we'll bring a very competitive acquisition price to both the plan sponsor and the member on brand, generic and specialty. But what we really do is provide services around adherence and compliance. And if we keep them compliant, if we keep them adherent, we will have a key part in driving down total cost of care. And that's where I think we all have to keep our eye on the ball and that's where we create true value in the healthcare ecosystem.

JC Scott (13:28):
So, Jason, Mike touched a little bit on how there's been an evolution in what consumers are demanding and what consumers want out of this experience. I have to assume that you're seeing an evolution in what customers want, and what they prioritize today may not be what they were asking of you guys just a couple of years ago. What do you see as sort of the driving points for customers and what they're looking for from PBMs today?

Jason Borschow (13:54):
So, in our business, the direct customer is generally a payer. A plan sponsor, whether it's a employer, a small middle market, a large employer, or a labor group, it could be a government program, could be a state government, could be a health insurance company. We have lots of different kinds of customers. At the end of the day, we're always serving patients and members, but we're doing it in partnership with, and on behalf of a payer. I've seen the three pillars that I changed before, payers are looking for the use of smarter technology platforms. They're looking for a better experience working with a partner and kind of a higher standard when it comes to financial transparency and accountability. I don't think that's changed significantly. I think that what has changed recently is that with the advent of technology in the world and social media, the expectations of the ability to be responsive and to make things happen fast or now has really changed. Where before, someone was willing to wait two or three months for a functionality or a change, and now they want you to turn it around in two or three weeks.

Jason Borschow (15:07):
I think that in addition, to kind of riff off of what Mike was saying, we're seeing that payers of all types are really adopting that consumer-focused offering, whether it's through apps, whether it's through creative services, whether it's through partnerships with third parties, where you're using APIs, application programming interfaces to seamlessly connect your operations with other parties. Whether they're pharmacy home delivery, whether it's COVID testing, diagnostics, you name it, being able to quickly spin up programs, not necessarily built by the payer or by the PBM, but with best in class partners, that kind of willingness to integrate and play nicely with others is something that is expected to happen much faster in service of the consumer. Leveraging apps and other kinds of tools and experiences so that the consumer can really control their behavior and have a modern consumer experience, it's not customary in the healthcare world, but more and more we're getting there.

JC Scott (16:15):
So, Jason, I'm going to stick with you for one more question and then ask Mike to respond to it as well, but then taking what you just said in terms of the evolution you've seen and the new types of things that plan sponsors and consumers are looking for today, fast forward five to 10 years down the road, what does the industry look like at that point? Just what does the future hold as you follow that evolution?

Jason Borschow (16:37):
Well, I have some pretty strong views about this. I don't know if your folks have shared that with you, and I don't know if they're appropriate for this podcast, but those who know me say that I'm not too shy. So I guess I'll just go out and share them. We think that in the next five to seven years, the PBM industry is going to transform completely. One of the things I think that the smaller PBMs can learn from the larger PBMs is that the larger PBMs have kind of leaned into vertical integration. There's been a big debate over the past 10, 15 years of whether it's good for PBMs to own pharmacies, and/or be owned or own health insurers and health plans. I think that from our perspective, the idea of having that vertically integrated consumer experience is critical and important.

Jason Borschow (17:27):
We don't believe that the same entity needs to own it, but we believe that the PBM is the infrastructure and the engine that connects all those pieces. And so we're all in to a concept that we call Virtual Vertical Integration, where we enable that seamless operating as one between the payer, the PBM and the provider of care, whether it's pharmacy, whether it's a doctor. Where it's almost as if we were one entity, even though we don't need to be owned and have all the conflicts of interest that might come of that, whether perceived or real. Secondly, I think that we think that the relationships between PBMs and payers are going to continue to evolve to be more about value and risk sharing over time. Think about it like a joint P and L rather than a more transactional basis around how much do I pay you to process a prescription, or what discount are you're going to guarantee me, what rebate you're going to guarantee me? It's holistically. How are we investing in healthcare together over time?

Jason Borschow (18:28):
And how do we measure success and outcomes based on consumer happiness, consumer satisfaction, consumer health over time, and really leveraging the power of risk adjustment, and risk-bearing models to create that alignment. So we really think that those two things are going to kind of come hand in hand. Finally, I think that there's a lot of antiquated business practices that still have a strong hold in healthcare, specifically health insurance. We think that many prior authorization programs and even formulary management programs are blunt instruments that create a significant amount of consumer and provider disruption in happiness, with very questionable value in terms of people's healthcare and cost savings. And so by leveraging technologies in machine learning and artificial intelligence, we see a world where we no longer really have PAs and PAs don't need to wait hours or days, approval and denial of benefits and determinations and appeals could be done in seconds or in minutes.

Jason Borschow (19:31):
We see that the PBM is going to be critical in enabling that seamless healthcare experience where we become the entities of yes. Yes, it's covered. Yes this is how I take care of your health. Not, no, you can't have this drug and you need to jump through these 20 hoops in order to get it approved. With the perception that the big bad insurance company is just trying to deny my care to save money. The PBMs will be a critical catalyst in that transformation of really what consumer-focused healthcare is.

JC Scott (20:01):
Jason, you were right. It's clear you do have a lot of big thoughts around that topic. And we could spend a lot of time unpacking. And I do reflect on some of what you said there, that the PBM can be the catalyst. And there's so many other players in the marketplace that we have to motivate along, whether it's providers and their adoption of some of the approaches that we want to take at the front end, whether it's the regulators and others who are going to help make the technology across different platforms work together in the right ways. A lot of work ahead of us based on the vision you laid out. But Mike, how do you see it? I mean, you're with a company, I think you said 1926, that Maxor entered the field. You've been in this space for 34 years. You've watched and been a part of evolution during that time. Where do you see the five to 10 year future going?

Mike Ellis (20:47):
Yeah. I love what Jason said and echo many of his thoughts. We're going to see, just take a minute and imagine if your medical benefit worked like your pharmacy benefit. What a wonderful world it would be. But the pharmacy benefit has to continue to evolve as well. We do believe you'll see us leveraging AI with technology. There'll be value-based relationships. One place I probably differ with Jason is I do believe we're going to go back to the old adage all healthcare is local. We have kind of a national players as you mentioned right now, but you've got some very powerful entities at the local and regional level that the change in the echo and overall echo environment of how we treat our patients is changing, and it's changing rapidly. And COVID actually helped speed that up.

Mike Ellis (21:45):
Things like telemedicine, telepharmacy, home diagnostics. You're going to continue to see pharmacy as the conduit to empowering the patients to help them get access to more things like gene therapy, genomics, targeted diagnostics, and the ability, those will actually help us determine whether it's still a PA or not, but you'll have a kind of a proof positive test if you will, that you should go on this therapy or this combination of therapy versus the other. And what will come out of that is a lot of the waste that we see in the system today is gone. I think you'll also empower the patients more and achieve more of the goal of getting the patient involved and ultimately keeping them adherent compliant and a key part of lowering their own to total cost of care.

JC Scott (22:38):
Thanks, Mike. And Mike and Jason, I love to hear both of your optimistic views about where all of this is headed as I channel Jason's thoughts about PBM happiness and how that can translate. But what I take away from the conversation is that competition is alive and well in this marketplace. There's a hunger in the marketplace for that evolution, consumers, plan sponsors, your customers are almost demanding new approaches, and there's a lot of opportunity for companies like yours, other new entrants to get into the game. And that tells me it's a reasonably healthy marketplace, if that is taking place. So thank you so much for this conversation. I think it's been really great.

Mike Ellis (23:18):
Enjoyed it JC, appreciate you hosting us.

Jason Borschow (23:21):
Thank you, JC, and great to be here with you, Mike.

JC Scott (23:24):
And thanks to all of you for listening. I encourage you to subscribe to the Pharmacy Benefit and download all of our podcast episodes. You can do that on Google Podcast, Apple Podcasts, Spotify, or wherever you find your favorite podcast. I'm JC Scott. Thanks for joining me.