Tyson Foods Inc., signs at Tyson headquarters in Springdale, Ark.
April L. Brown | AP
Tyson Foods will become one of the first Fortune 100 companies to ditch the nation’s traditional big-pharma benefit managers as it looks to cut spending on high-cost drugs.
After putting his benefits contract up for bid, Tyson resigned CVS Health‘s Caremark and chose the PBM startup Right way to administer drug benefits for its 140,000 employees starting this year, the companies said Wednesday. Rightway guarantees it can save employers 15% on pharmacy costs by using a transparent model where it passes on drug discounts to employers and plan members, while also providing concierge care to help employees find lower-cost alternatives such as generics and biosimilars.
Tyson’s decision adds to an upheaval in the industry as startups promising lower costs and transparency challenge incumbents with the biggest benefits and push them to change their own business models. Tyson made the decision as he saw pharmacy costs skyrocket.
“Increases between 12% and 14% for pharma — and with a spend of $200 million that’s quite a lot. We found that the specialty (pharma) component of our trends … was getting a big year-over-year increase,” said Renu Chhabra , Tyson’s vice president and head of global benefits.
When she tried to get answers about what was driving these trends from the company’s old pharmacy benefit manger, or PBM, Chhabra says she couldn’t get the kind of data she wanted.
“I wanted to look at Humira and I wanted to see what the cost of acquisition was. And then I wanted to understand what Tyson was paying for it; it was very difficult to get to those numbers,” he said. “Part of that was really getting a partner that can help us organize the information, make sure we understand how to manage the specialty and really look at how to get the best net cost.”
A CVS representative told CNBC that while the company will no longer handle Tyson’s overall pharmacy benefits contract, it will continue to provide specialty drug pharmacy services in conjunction with Rightway.
“Our specialty pharmacy services support members who manage high-cost, complex conditions and typically account for more than 50 percent of pharmacy benefit spending in the marketplace,” said CVS Caremark spokesman Phil Blando.
“Historically, we have provided Tyson Foods with significant transparency, including point-of-sale discounts for its members, a customized retail pharmacy network and unique utilization management strategies that have resulted in a steady trend over the past few years. Our most recent total offering would have exceeded 15 percent savings rate claimed by a competitor and reported by a news outlet,” Blando said.
Choosing a transparent startup PBM
Most large employers work with the three biggest PBM players: CVS“Warning signal, of Cigna Evernorth and UnitedHealth Group’s OptumRx. By the end of 2022, these three major PBMs controlled nearly 80% of the U.S. pharmacy benefit market, according to a report by the Health Industries Research Center.
The big players claim they have the scale to save employers the cost of drugs by negotiating big discounts from pharmacists. But they have come under increasing scrutiny from Congress and Federal Trade Commission regulators for a lack of transparency in how they negotiate those rebates and how much of those savings they actually pass on to employers and patients.
Smaller PBMs like Rightway have been touted as more transparent alternatives, without the conflicts of interest that more vertically integrated players have.
“The traditional PBM model operates on a taximeter type approach. The more drugs your members use, the higher costs your members receive, the more money PBMs have made or are making,” said the Rightway co-founder. and CEO Jordan Feldman. “We wanted to reinvent what it meant to be a PBM…we don’t capture margin by not keeping discounts.”
So far, the young challengers to the big PBMs have only won over the small and mid-sized companies. Tyson is Rightway’s number one employer with more than 100,000 employees. Its previous largest customer had 10,000 employees.
University of Southern California economist Karen Van Nuys said if more large employers switch to alternative PBM players, it could improve competition and lower costs.
“If they’re presented with a wider variety of transparent options where they can actually see and compare … across different PBM providers what it’s going to cost them — I think that empowers them all to make better decisions about which provider to use,” said Van Nuys, senior fellow at the USC Schaeffer Center for Health Policy and Economics.
But Lawton Robert Burns, a professor at the University of Pennsylvania’s Wharton School, isn’t convinced that the move toward more price transparency will be a magic bullet that will lower drug prices.
“They’ve engaged in a lot of competitive strategies to try to deal with it. So, they’re responding,” Burns said. “Whether that’s going to make a huge difference or not, I don’t know. All I know is that price transparency, in general, just hasn’t solved a lot of our problems.”
At Tyson, the biggest health issue it hopes to tackle next year with the new PBM is managing diabetes and finding the right balance of coverage for GLP-1, or glucagon-like peptide-1, weight-loss drugs. heavyweights like Wegovy and Zepbound, which have a list price of over $1,000 per month.
“In June we’ll make those decisions about how we want to deal with it, but we have to balance cost with access to care,” Chhabra said. “That’s one of the biggest reasons we chose Rightway as well — because we have a lot more flexibility … to make those joint decisions.”
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