Costco Growing Healthcare Segment-Partners with Navitus-A Direct Fee Pharmacy Benefit Manager.
Bloomberg Businessweek April 26, 2021 pp16-17 |Business|”Costco’s Health-Care Helper” “The warehouse giant is backing an upstart trying to reduce employer drug benefit costs.” “The Bottom Line Pharmacy benefit managers (PBM) typically make money by taking a cut of the drug price savings they negotiate for employers. Navitus says its fee-only model avoids financial conflicts”
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“U.S. spending on retail prescription drugs” more than tripled from 1999 $105b to 2019 $370b. With that level of spending Pharmacy Benefits Manager (PBM) companies like CVS Caremark, Express Scripts and OptumRX sprung up looking to leverage size to achieve lower pricing from drug companies and then pocket some of the savings they otherwise pass on to employer groups they enroll. PBMs may also manage a list of drugs that companies will cover, process claims, and move money without ever physically possessing the medicines.”
Enter Navitus, whose majority owner is “the nonprofit Catholic health system SSM Health” and a minority owner is Costco, who “tells employers it will pass all that revenue back and profit only from a per-member fee it charges directly.” With such a model Navitus, unlike other PBMs, has no reason to promote costly drugs. According to Costco’s CFO, Richard Galanti, “Navitus’s 100% pass-through model saved the retailer millions of dollars on drugs costs” for its group of 300,000 employees and dependents. Costco and Navitus claim to be aligned in that their models promise to lower prescription drug costs and in general pass on as much savings as possible to customers. Savings are increasingly important as “a quarter of Americans say they have trouble affording their medications…”.
Navitus is small, 7.3 million enrollees, compared to the industry behemoths the top three of which “processed about 77% of U.S. prescriptions in 2020.” Making matters worse these top firms have “been consolidated into larger health-care enterprises-UnitedHealth Group, CVS Health and Cigna and integrated with related businesses such as health insurance, medical care and pharmacies.” According to Elizabeth Mitchell (Purchaser Business Group on Health-a coalition of large employers)…”the more integrated…you can’t tease apart where the waste is.”