Plenty of companies have tried to bring innovation to the pharmacy benefit management industry, but, while many startups rise and fall, few have stuck.
Meanwhile, the industry's top performers have grown increasingly consolidated, with three companies—Optum, Express Scripts and CVS Caremark—processing the overwhelming majority of U.S. prescriptions. Alan Lotvin, M.D., president of Caremark, said it's a tough market for a startup to crack, as the clientele is savvy and has an established rapport with the bigger companies.
Large health plans, employers and companies have established connections with existing PBMs, and they have set expectations of what a PBM can and will bring to the table, Lotvin said. Even with bigger names—such as Amazon—eyeing this market, those existing relationships are huge hurdle for new entrants, he said.
"The question that's always going to be is, 'How do you break into the big leagues?'" he said. "That's a hard barrier to break, and again, scale matters in this business."
RELATED: Startup aims to be a 'no-compromises' PBM, but the market may need convincing
Lotvin spoke as a keynote presenter during HLTH's 2021 conference in Boston.
However, even while the big PBMs have continued to consolidate their empires, these companies have taken a lot of flack in the ongoing debate on how to address the rising cost of prescription drugs. Big pharmas argue, for instance, that standard PBM protocols such as drug rebates obfuscate prices and lead to higher costs at the pharmacy counter.
Critics have also argued that the industry is a "black box" with limited transparency, which makes it difficult to hold them accountable for controversial practices.
Lotvin countered critics by saying that PBMs, especially those the size of Caremark, instead offer a critical counterweight to powerful drug companies with intellectual property rights over breakthrough and leading treatments.
PBMs like Caremark can have the muscle to negotiate with those players directly, while smaller startups may have less leverage to push back on pharmaceutical manufacturers, he said.
"I think without that counterbalance, the drug pricing problem would be a lot worse," Lotvin said.
Plus, the industry is pushing toward greater transparency, he said. At Caremark specifically, 95% of its discounts are passed through to the customer and many of its clients have full visibility into that process, he said.
And while the influence of entrants like Amazon could push the industry toward transparency, Lotvin said that PBMs are hearing those demands from consumers and moving that direction anyway.
"I think the PBMs are being pushed to transparency quite frankly now by our customers," he said. "We tell you what we're doing. We're a for-profit company, we're going to make money, but we'll show you how and why."