Hartford Business Journal

14 Hartford Business Journal • November 16, 2020 • www.HartfordBusiness.com By Matt Pilon mpilon@hartfordbusiness.com P rescription drugs are costing employers and their workers plenty of money, and even big com- panies may feel there's not much they can do about it. There are many factors placing employers at a disadvantage when it comes to lowering their pharmacy costs, experts say, including highly profitable drugmakers, powerful middlemen called pharmacy-benefit managers (PBMs) that play a key role in the opaque process of setting drug prices, and increasingly, health insurers, like Greater Hartford's Cigna and Aetna, that have recently merged with those PBMs. A fast-growing Collinsville upstart, led by entrepreneur and former pharmacy-benefits executive Michael Waterbury, is working to change that picture and it's sure to be an uphill climb. RemedyOne manages, audits and negotiates drug rebate programs and designs and optimizes drug benefits to help payers (like an employer or health plan) get a better price on medications. The company has been hard at work the past five years winning business from large employer groups, health plans and middle- market PBMs by offering customiz- able, specialized services, often at a lower price point, since Waterbury says the company is willing to earn a smaller profit margin in order to increase scale and leverage by build- ing its roster of covered lives. The privately held RemedyOne, which anchors a handful of related fledgling companies under a recently named corporate umbrella called Goodroot, has since built its annual revenue to a range of $100 million to $300 million and is profitable, accord- ing to Waterbury, who said much of the top line gets paid out to clients in the form of prescription drug rebates, a common discounting method in the pharmacy industry that's sometimes criticized for its lack of transparency. Waterbury, who led the formerly Avon-based Magellan Health Services' specialty pharmacy unit from 2011 to 2014, has watched as PBMs have grown increasingly powerful in the healthcare world. In many ways, Con- necticut is ground zero for that trend. In two late 2018 deals worth a com- bined $137 billion, CVS Health, whose longtime PBM CVS Caremark has top market share, acquired Hartford- based Aetna, while Bloomfield-based Cigna bought Express Scripts, the nation's second-largest PBM. Both PBMs are major earners, with over $14 billion in 2017 profits. Though the acquisitions cleared federal antitrust review, patient advocates criticized the vertical inte- grations, arguing the deals may lead to higher shareholder profits but not lower-cost health care for consumers. For his part, Waterbury sensed op- portunity. The bigger PBMs get, the more likely they are to offer stan- dard menus of covered prescription drugs, known as drug formularies, to their health plan and employer clients. He said those standard of- ferings are inefficient and may not provide the best possible pricing, particular for smaller employers. "Bigger is not better," Waterbury said of PBMs. While Goodroot mainly targets self-insured employer groups for now, in addition to plan administra- tors and other clients, it one day aspires to launch a fully insured product for smaller employers, who have little opportunity to tweak their plan designs to lower costs. Scaling up Waterbury has grand aspirations of upending an increasingly en- trenched system that drives up the price of health care. However, to put any noticeable dent in that system, Goodroot will need leverage to negotiate with drugmakers and other players. To do that, the 41-employee company must further build its roster of 100- plus clients and approximately 2 million covered patient lives. "When you start to understand the space, it's really all about aggrega- tion," said Erik Wallace, Goodroot's recently hired chief commercial officer. "You need to scale, you need a distribution arm, you need a sales organization to bring this to market." Building those areas is Wallace's task, and he intends to hire six sales people in the near term who will work to ex- pand Goodroot's client base beyond its current concentration in the Northeast. Another goal is to win a large marquee client with a household name. "It's a lot of pressure on me to be able to deliver," Wallace said. Wallace joined Goodroot in early Oc- tober, choosing to leave British medi- cal device maker Smith & Nephew, where he climbed the corporate ladder to vice president of U.S. robotics. Wallace listened to Waterbury's pitch about building a group of com- panies that could lower drug costs at the expense of major industry play- ers, and his first reaction was doubt. Goodroot, while it's grown quickly, isn't big enough for major PBMs and others to feel its presence yet, he told Waterbury at the time. "When they feel the mosquito bite, what are we going to do then?" Wal- lace asked. "They could buy us and shelve us, or kill us with litigation." Waterbury told him that once employers were educated about the ways in which the system leads to inflated drug prices, no insurer or PBM would be able to justify it. He was also inspired that Waterbury was sinking his own money into the venture, which has no other signifi- cant backing to speak of. "Mike's not scared," Wallace said. "We're this tiny little business that emanates out of Collinsville, but we have tremendous potential if we can just get it out to the market." The Goodroot roster While RemedyOne, founded in 2015, is the anchor of Michael Waterbury's efforts to lower the cost of prescription drugs, he and several partners have been forming other related firms in recent years, and they all fall under a corpo- rate parent called Goodroot. Here's the list: AlignRx: Founded in 2017, AlignRx advises benefit consultants, employers and health plans on benefits, rebates, plan design and other pharmacy-related matters. ReVision: Founded in 2018, ReVision aims to be a think tank that fosters greater direct communication between health plans and pharmaceutical companies, with the aim of finding new business models that benefit both sides. Famulus: Founded in 2020, Famulus is focused on phar- macy cash pricing, working with payers and employers to ultimately reduce patient prescription costs. Penstock: Founded in 2020, Penstock provides payment integrity and auditing services, mainly to health plans. Cost Containment Collinsville startup aims to upend the powerful, opaque drug-pricing system Michael Waterbury, CEO of Collinsville-based Goodroot, has nearly four dozen employees working to help employers gain more leverage over their pharmacy-benefit costs. PHOTO | CONTRIBUTED

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