Tyson Foods switches pharmacy benefit manager to an upstart, amidst industry turmoil over cost concerns.

• Tyson Foods has changed its pharmacy benefit manager from CVS' Caremark to reduce the cost of providing drug benefits to its 140,000 employees.
• The food giant opted for Rightway, a PBM startup that operates on a fee basis and promises employers a 15% reduction in pharmacy benefit expenses.
• Small PBMs like Rightway have mostly worked with small and medium-sized employers.
• At a time when large pharmacy benefit managers are facing pressure for their business models, Tyson will be among the first Fortune 100 companies to collaborate with an emerging PBM.

One of the first Fortune 100 companies will stop using traditional large pharmacy benefits managers in order to reduce spending on high-cost drugs.

Tyson has chosen Rightway to manage drug benefits for its 140,000 employees, starting this year. Rightway guarantees it can save employers 15% on pharmacy costs by using a transparent model where it passes drug discounts to employers and plan members, while also providing concierge care to help employees find lower-cost alternatives like generics and biosimilars.

Tyson's decision to change its business model due to rising pharmacy costs has added to an upheaval in the industry, as startups challenge the largest benefit managers with promises of lower costs and transparency.

Renu Chhabra, Tyson vice president and head of global benefits, stated that the pharmacy component of their trends was responsible for the majority of the increase in spending, which ranged from 12% to 14%, on a $200 million budget.

Chhabra claims she couldn't obtain the desired data from the company's former pharmacy benefit manager, or PBM, when she attempted to understand the factors behind those trends.

I wanted to examine Humira's acquisition cost and understand what Tyson was paying for it. However, it was challenging to obtain those figures." She added, "This was also an opportunity to find a partner who could help us organize information, manage specialty products, and optimize net costs.

A CVS spokesperson informed CNBC that although the company will no longer manage Tyson's overall pharmacy benefits contract, it will still offer specialty drug pharmacy services in collaboration with Rightway.

According to CVS Caremark spokesman Phil Blando, our specialty pharmacy services assist members in managing high-cost, complex conditions and typically account for more than half of pharmacy benefit spending in the marketplace.

Blando stated that we have historically given Tyson Foods significant transparency, including point of sale rebates, a custom retail pharmacy network, and unique utilization management strategies that resulted in a flat trend over the last several years. Our most recent comprehensive bid would have exceeded the 15 percent savings rate claimed by a competitor and reported by a news outlet.

Choosing a transparent PBM startup

In the U.S., nearly 80% of the pharmacy benefits market is controlled by the three largest Pharmacy Benefit Managers (PBMs) by the end of 2022, according to a Health Industries Research Center report. These three PBMs are Caremark, Evernorth, and OptumRx.

The large players in the pharmaceutical industry claim to have the size and clout to reduce employers' drug expenses through negotiating substantial rebates from drug manufacturers. However, they have faced growing criticism from Congress and the Federal Trade Commission for their lack of transparency in the negotiation process and the extent to which they pass on the savings to employers and patients.

Vertically integrated players have been criticized for conflicts of interest, while smaller PBMs like Rightway have marketed themselves as transparent alternatives.

Jordan Feldman, co-founder and CEO of Rightway, stated that the traditional PBM model operates on a taxi-meter approach, where the more drugs members are on, the higher cost drugs they receive, the more money PBMs make or are making. However, Rightway aims to fundamentally re-architect what it means to be a PBM by not trapping margin through rebate retention.

New competition in the industry

Tyson is Rightway's first major employer with over 100,000 workers, surpassing its previous largest client with 10,000 employees.

If large employers shift to alternative PBM players, competition may increase and costs could decrease, according to University of Southern California economist Karen Van Nuys.

According to Van Nuys, a senior fellow at the USC Schaeffer Center for Health Policy and Economics, if individuals are given a broader range of transparent options to compare the costs of different PBM providers, they will be better equipped to make informed decisions about which provider to use.

Professor Robert Burns of the University of Pennsylvania's Wharton School is not convinced that increased price transparency will significantly reduce drug prices.

Burns stated that the company has employed numerous competitive strategies to address the issue. Despite this, he is uncertain if it will have a significant impact. He emphasized that general price transparency has not resolved many of their problems.

Tyson aims to address its biggest health challenge in the upcoming year by introducing a new PBM and managing diabetes effectively. The company is focused on striking the right balance in coverage for GLP-1 weight loss drugs like Wegovy and Zepbound, which have a monthly list price of over $1,000.

Chhabra stated that in June we will decide on the treatment approach, while considering the cost-access balance. The reason for choosing Rightway is the flexibility it provides for making joint decisions in the future.