Health

8 HE ALTH • Summer 2020 • By Grant Welker RxAdvance found a $2-billion niche in growing $534-billion pharmacy management industry The BIG little player S outhborough's RxAdvance is a smaller player in an industry dominated by giants like CVS' Caremark or Express Scripts. It was RxAdvance, however, that landed a giant itself this spring: Amazon. The behemoth dominating the online retail world chose RxAdvance to be its pharmacy benefits manager, a decision bringing Amazon's 798,000 employees. Where did they switch from? Express Scripts, part of the $150-billion Cigna corporation. That's not the only big name RxAdvance has lured. Its major inves- tors include the pharmacy chain Walgreens, which has more than 9,000 stores, and the health plan manager Centene, which has more than 15 mil- lion members – triple the number from four years prior – and in 2019 brought in nearly $75 billion in revenue. Both Walgreens and Centene formed a strategic partnership with RxAdvance last fall for what they called a new model for pharmacy management, one that includes a pharmacy chain, phar- macy benefits manager and an insurer, each of which are otherwise indepen- dent. Ravi Ika, the founder and CEO of RxAdvance, talks confidently and mat- ter-of-factly about how the small player – with 200 employees today – is mak- ing waves. "They're coming from larger carri- ers," Ika said of customers and part- ners. How? RxAdvance, which has 2 mil- lion pharmacy patients using its man- agement service, has low administra- tive costs including a largely automated management program, Ika said. A workforce that might be a quarter of the size of another firm with similar membership numbers allows it to have more competitive pricing. Little known but growing industry The pharmacy benefits management, or PBM, industry works as a middle- man of sorts between patients and pro- viders, including private health plans, Medicaid programs, employer groups and accountable care organizations, known as ACOs. Benefit managers like RxAdvance can be a largely invisible part of the process of obtaining and managing a prescrip- tion, but they're necessary, said Dennis Lyons, a senior associate who consults on the pharmacy industry for Gates Healthcare Associates of Middleton. PBMs help handle processing of mil- lions of prescriptions, with infrastruc- ture otherwise built into pharmacies or insurers, Lyons said. They connect large and small pharmacies and insurers oth- erwise having to forge their own con- nections to manage prescription drug coverage. PBMs are important if little known, Lyons said. "What might be most pronounced is the lack of knowledge most have about it," he said of the industry. Once a PBM has developed algo- rithms or other automated steps, Lyons said, the process is very scalable, with transactions largely handled by tech- nology. In RxAdvance's case, its web- based platform is accessible by pre- scribers, members, pharmacists and health plans. Such firms earn revenue in large part by drug rebates or through fees charged to pharmacies, insurers or drugmakers they work with. Ika said RxAdvance doesn't take any rebates or conduct spread pricing, a practice in which PBMs charge a payer more than it reimburses a pharmacy and keeps the rest. PBMs have sometimes come under fire, including in a report last year by the Massachusetts Health Policy Commission, an independent state agency charged with monitoring healthcare spending in the state. A report highlighted what the com- mission said were higher prices charged for generic drugs than those drugs cost in Medicaid or commercial insurance plans. The commission, which called out spread pricing, said those prices exceeded $10 per prescription for a quarter of drugs. The PBM industry has grown to a $534-billion market employing more than 40,000 workers, according to international research firm IBISWorld. The industry grew 13% in the five years ending in 2019, the firm estimates. Lyons expects the industry to keep growing, in large part because of an aging population and higher rates of prescription drug use later in life. "Demographics play an important role," he said. The industry today is dominated by just a few major players. CVS' Caremark division is the larg- est, with 30% market share, according to the pharmaceutical analysis website Drug Channels Institute. Express Scripts and OptumRx add another 23% each. Between those three, three- fourths of the industry is spoken for. Finding a niche RxAdvance doesn't compare in size to those giants but has ambitious plans of its own. In August, the company is slated to move across town in Southborough to an 80,000-square-foot office at 136 Turnpike Road. That space more than doubles the square footage the compa- ny has today, and will accommodate an expected hiring binge to reach 500 workers by next year. The coronavirus pandemic hasn't stopped those plans. "We have not stopped hiring," Ika "They're coming from larger part- ners," RxAdvance Founder and CEO Ravi Ika said of new clients. RxAdvance is renovating 136 Turnpike Road in Southborough for its new headquarters.

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