You probably have no idea who your pharmacy benefits manager (PBM) is. But you almost definitely have one.
A pharmacy benefits manager is what it sounds like: PBMs manage prescription drug benefits, which involves coordinating across a laundry list of stakeholders—that includes health insurers, employers, pharmacies, customers, and more. Roughly 275 million Americans have a PBM, more than 80% of the U.S. population.
Those basic facts in place, I don’t know what I expected, but it wasn’t this: In 2023, about 80% of all prescription drug claims in the U.S. were processed by only three companies. Those three companies are all attached to healthcare monoliths: Cigna’s Express Scripts, UnitedHealth’s OptumRx, and CVS Caremark. CVS made headlines earlier this week, as the giant is reportedly exploring a potentially sprawling breakup.
Jordan Feldman, CEO and cofounder of VC-backed PBM Rightway, believes the news could have downstream effects for millions. And he didn’t mince words.
“CVS is a failed healthcare vertical integration,” he said via email. “Across the board, whether it be Medicare advantage or pharmacy benefits, they are ineffective. So all they can do at this point is try and extract maximum profitability on PBM, to try and appease shareholders. This will come at the expense of employers and employees.”
Then again, Feldman isn’t a words-mincing-kinda-guy. He cofounded Rightway in 2017, expressly looking to reimagine the space. The PBM portion of Rightway’s business was incubated with Thrive Capital in 2019, looking to build a serious competitor to the largest PBMs. Today, two million people have access to Rightway through their employers. Feldman says the timing is starting to look right for an industry shake-up.
“Pharmacy benefits has arrived,” he told Fortune. “It’s come onto the radar. It’s become a meaningful part of overall healthcare spend, and as we pull back the curtain on it, there are some enormous flaws, misaligned incentives, and challenges with the current ecosystem."
Few topics generate as much heat as pricing in healthcare, and prescription drug prices are no exception—between 2006 and 2020, prices for hundreds of the most common prescriptions increased fast enough to outpace general inflation, according to an AARP report from this year. In that time, pharmacy benefits have gained importance, growing from “a single-digit [and] small-percent of total healthcare spend, to 30% or 40% of healthcare spend in some cases,” said Feldman.
But it’s not just about pricing. After years behind-the-scenes, concerns about concentration in the PBM space have grown increasingly public. And it’s been quite the pile-on. This summer, the House Oversight Committee held a hearing on PBMs, with an investigation concluding that the largest PBMs “play an oversized role in the pharmaceutical supply chain and push deliberate pricing tactics to line their own pockets.” Almost simultaneously, four former Wells Fargo employees sued the bank for mishandling its employer-offered health insurance plan, with the lawsuit putting large PBMs right in the crosshairs. Then, in September, the FTC sued the three big PBMs, alleging “anticompetitive and unfair rebating practices.”
In all this, Feldman and Thrive partner Kareem Zaki believe we’re in early innings of a shift in the industry—and, despite the few entrenched players, there's a chance to really make a difference in the marketplace.
"I think this is the first time it's actually happening to consumers,” said Zaki. “Consumers are frustrated when they show up and the drugs are expensive, and prices shouldn't be this high.”
Feldman and Zaki seem far from alone in this view. Rightway’s other backers include Khosla Ventures and Tiger Global, and the company was valued at $1.1 billion in 2021 (Rightway declined to disclose its latest valuation). Per Crunchbase, the company has raised about $238 million to date. There are also a number of other venture-backed or tech-adjacent PBMs out there: SmithRx is backed by Founders Fund and Venrock, and there’s Mark Cuban’s buzzy Cost Plus Drugs.
"When you see a market dominated by three people, that's too expensive, and that no one likes, it feels like there's something to go after,” said Zaki. “But in the same way that it's so dominant, big, and important, it's also not easy to disrupt something like that."
The word “oligopoly” comes up when I talk to both Zaki and Feldman, and it’s a term that both CVS and the Pharmaceutical Care Management Association naturally object to. The PCMA said via email that “the market is competitive and diverse, with more than 70 full-service PBMs of varying size operating across the country.”
“Anyone calling the PBM space an ‘oligopoly’ simply doesn’t understand how pharmacy benefits work,” said CVS Caremark spokesperson Phillip Blando in a statement. “With so much competition,” he added, “CVS Caremark has to earn our clients’ trust every day based on the service and value we provide.”
Indeed, there are at least 70 U.S. PBMs operating, a point that Aon SVP and national pharmacy practice leader Tracy Spencer also made to me. I asked her if she thinks hopeful disruptors have a shot.
“I don’t think it’s a futile fight,” said Spencer. “Disruptors have driven change in this marketplace for as long as I've been doing this…These disruptive players do have the ability to change the environment…Oftentimes, the market has to see some proof points with these organizations before they’ll start to take off.”
Rightway’s corporate customers include Tyson, eBay, and Qualtrics. I spoke to one Rightway customer, a human, not a company. She’s had a good experience with Rightway so far, after switching from her previous Big Three provider nearly a year ago. She’d probably tell me “good experience” is an understatement.
“I know this sounds so goofy, but it's changed my life as far as time goes,” she said, speaking on the condition of anonymity because we discussed her health. “I'm not having to do all this legwork for prescriptions anymore. That's a big deal to me."
It’s in Rightway’s interest to put me in touch with a happy customer, yes. But her enthusiasm was undeniable—as was her relief. Talking to her drove home a reality that transcends Rightway or any of the other PBMs: I’m very lucky that I don’t have to know my PBM. Many Americans have no choice, because they or their loved ones have a health condition that means they have no choice but to know. Perhaps this is a sector where venture can truly do what it does best—back the upstart.
And Feldman, in characteristic fashion, isn’t mincing words.
"It's going to take a village to unseat an oligopoly,” he said. “And one of the things I take most pride and joy in is rallying a village.”
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Correction, October 4, 2024: The email version of this article misspelled Phillip Blando's name.
