Episode 1 – PBM 101: Big Players, Mid-Market Movers and Industry Disruptors

Mike Stull (0:10)

Hi everyone, I’m Mike Stull.

Madison Connor (0:12)

And I’m Madison Connor.

Mike Stull (0:13)

And welcome to our new podcast called Benefits Bites, where we’ll look at those topics in the marketplace that deserve a little bit more attention and try to talk about them in more of a brief type of conversation.

Madison Connor (0:32)

If we think Mike can do that.

Mike Stull (0:34)

Right. I’m going to try my best. I’m not known for my brevity, but I’ll try my best to keep it high level.

So, Madison, what are we going to talk about today?

Madison Connor (0:45)

For our first episode, we wanted to talk about just the lay of the land of the industry, the PBM landscape, as briefly told by Mike. So as we start, let’s start with the big three. Just give us a lay of the land.

What are the industry dynamics impacting the big three? What should we be thinking about when it comes to the big three currently?

Mike Stull (1:06)

Well, I think the first thing to think about is what are employers that utilize the big three? What are they dealing with? And I think there are some general themes in the marketplace in terms of GLP-1s for diabetes, biosimilars for drugs like Humira and Stelara, weight loss drugs.

So back to the GLP-1s. And then all of the legislation, the executive orders. I know Madison is very familiar with that part of it.

So, I’m not even going to try to talk about it in this episode.

Madison Connor (1:43)

Lots cooking there.

Mike Stull (1:44)

But we definitely are getting a lot of questions, not only around what’s happening at the state level, but also from a federal level. So, I was just in a finalist meeting yesterday when I got questions about both tariffs and the most favored nations pricing. So, I mean, it’s on the minds of employers.

It will certainly have an impact if and when it comes to fruition. And so we have to be ready for those. But as we think about the big three PBMs, they control 80% of the marketplace.

They are the ones that have the value. So, when employers think about how do I get the best pricing out there on an aggregate basis, those are the entities that they go to. And typically they will access those big three PBMs in one of a few ways.

So they can go direct to the big three PBM. They can work through a coalition like ours. They can work through their health plan, so a carved in arrangement, or they can work through a mid-market PBM.

And some people may pause and say, well, wait a minute, those are different PBMs. And yes, they are. But at the end of the day, what really makes them, what gives them the table stakes to be in the game, per se, is the rebate contracts that they’re able to access through aggregators that are all run by the big three PBMs. So it’s an interesting dynamic in the marketplace. You have mid-market PBMs that are actively bashing the big three, but also at the same time utilizing their rebate aggregators.

So again, really interesting dynamic that’s out there. Certainly, the big three are under a lot of pressure. A reminder, they’re all publicly traded companies.

They’re all part of these huge conglomerations now. And so, it makes it challenging, right, to get the most pricing value out of them, while at the same time, they’re trying to not only be good suppliers for their customers, but also at the end of the day, they have a responsibility to shareholders. So, they certainly have those responsibilities.

And I would say, as we think about the big three, typically, as I mentioned, solid pricing, solid ability to provide service at scale, but not the fastest moving. And in an environment where we have change all the time, sometimes that slowness ends up being frustrating for employers. So I think that’s the general state of the big three.

Madison Connor (4:50)

Absolutely. And then the same type of question for the mid-market PBMs, what should employers be thinking about? What do you see happening in the industry when it comes to the mid-market players?

Mike Stull (5:00)

Yeah, and I think it’s important to understand that Employers Health has always had a mid-market option dating back to 2013. So that’s when we had had a one PBM relationship up until that time. Some things had happened called formulary exclusions for the first time in the industry at the end of 2011.

So, we decided we want to go out and let’s look for an alternative option. And let’s not pick one of the big three for that option. And so, we selected Catamaran, which ultimately ended up being bought by OptumRx.

So, it was good intentions. We ran with Catamaran for a few years until it was acquired by Optum. Back in 2019, we went back to the marketplace looking to fill that need of a more flexible, more transparent PBM option.

Ended up selecting EnvisionRx, which rebranded itself as Elixir. We launched that January 1st of 2020. So fantastic timing, great, great timing in terms of launching a new product.

And it didn’t, as you can imagine, we didn’t have a lot of traction that first year. And ultimately, it ended up being getting mixed up in the Rite Aid bankruptcy, put it on pause for a while. But we’ve been relaunching with MedImpact, which acquired Elixir.

So that’s something that we’re focused on for 2026 and moving forward. So I say all that because typically Caremark has been, and CVS now has been our longest standing relationship. And sometimes we get associated with just being a collective that uses a big three PBM.

But we’ve had that mid-market option because we understand that there are unique things that each one does that may meet the unique needs of our clients and prospects. So some may look at how do you manage drug mix differently. Some provide more flexibility.

I think the challenge sometimes is if PBMs are too flexible, they don’t end up being consistent. So, there’s a trade-off there sometimes. We know one in particular uses alternative price benchmarks.

So a lot of different ways that these mid-markets try to compete on price because they’re not necessarily going to have the strongest discounts, the strongest rebates, the things that employers have historically judged PBMs on. They don’t necessarily have that. And so they have to make it up somewhere.

Where are they going to make up that savings? It’s typically through one of these other areas. And sometimes that requires more disruption.

And some employers are willing to go for it. And they want to take advantage of opportunities as they present themselves in the marketplace. And so these are good options for them.

Madison Connor (8;26)

And providing a vehicle for them to explore those options is key.

Mike Stull (8:30)

Absolutely.

Madison Connor (8:31)

And lastly, how about the disruptors in the marketplace? And do you see this disruption taking hold?

Mike Stull (8:40)

Yeah, I think the big disruption here recently has been transparency. And so, the Mark Cubans of the world, the good Rxs of the world have made price transparency more front and center. And certainly, I expect that will continue to take hold.

I saw something yesterday where Costco is offering some sort of cost-plus mail order option. So I think we’ll continue to see organizations jump on that train of how do we get to a cost-plus and a more transparent type of arrangement. But drug pricing gets a lot of attention, particularly right now.

And what I’ve seen over 20 years of doing this is that just because we’re frustrated with the current system doesn’t mean that everything that’s new is actually going to be better. And in fact, I would say that what we’ve seen over the years is a lot of new starts that make a big splash. They get a lot of marketing dollars thrown at them and they end up fading away after a couple years.

So, my hope is that, you know, that the lessons that we’re learning around, you know, how can we make sure that, you know, we can hit rebate guarantees that employers want, but also get to low list price biosimilars, right? That was a challenge that we had contractually with a lot of PBMs last year. Rebate credit came along.

Some people don’t like it. I totally get it. But it was a mechanism that allowed us to accelerate the adoption of low list price, no or low rebate biosimilars in the middle of a contract.

So, there are things that are happening. There are good things that I think will allow us to get to where everybody wants to be. So I think my message to the employers out there is, you know, we’re getting there.

I know people would love to just rip the band aid off, start over again. It never happens that way. We always joke that the pharmacy supply chain and the PBM market is like a big balloon, and you squeeze this side, and it comes out somewhere else.

You have commercial plans, you have health plans, you have Medicaid, you have Medicare. There’s so many different pieces and parts and they’re all interconnected. Even if you don’t see it, they’re interconnected.

So, if you do one thing in one segment, it’s going to have some sort of an effect on the rest of the system. So be patient.

Madison Connor (11:42)

And as we move forward, that’s a big goal that we have with this podcast to talk about some of those market dynamics and how they’re impacting different segments of the industry. So stay tuned for more of that as we continue on this journey. And lastly, Mike, to wrap it up, what are the one or two action items, three at a maximum, that you want employers to know about the industry right now?

Mike Stull (12:05)

Well, again, I think, you know, one, it’s definitely changing, and it is complex, sometimes by design, sometimes by necessity. But have a good independent consultant that has competency in the space. Be curious, have an open mind, don’t get, you know, so pigeonholed in a particular ideology that you lose an opportunity to find a good solution for your plan participants and stay informed.

So, I guess that that plays into the curiosity piece, but, you know, pharmacy, again, continues to change. You’ve got to have the right partners that it is a full time job for us to stay on top of what’s happening, but build good relationships and find good partners that aren’t just going to, you know, flash a shiny object in front of you for the short term, but someone that can help you manage your plan over the long run.

Madison Connor (13:16)

Great. Well, thank you so much. I think we did pretty okay on timing there.

So, thank you so much for tuning in for our inaugural episode and we will see you next time.

Mike Stull (13:24)

See you next time.