With Costco Now in its Corner, PBM Navitus Thinks Big

May 14, 2020
100% Pass-Through

As appeared in AIS Health’s RADAR on Drug Benefits on May 14, 2020.

Serving just 6.2 million members, Navitus Health Solutions — a PBM owned by St. Louis, Mo.-based integrated health system SSM Health — is hardly one of the industry’s major players. But given that it features a “pass-through” business model in an era when opaque PBM structures are facing scrutiny, and Costco Wholesale Corp. recently purchased a minority stake in the firm, Navitus may be poised for a bigger spotlight.

Just ask David Fields, who in late April was named the PBM’s new CEO after serving on an interim basis after Navitus’ former chief executive stepped down due to health issues. Fields — who joined SSM Health in 2018 as president of its Dean Health Plan and has held leadership roles at Blue Shield of California and Aetna Inc. — tells AIS Health that what he likes best about Navitus is how it differs from some of its peers.

“I was an accidental tourist and just kind of fell into Navitus at the request of my boss, and I’ll be very honest — I didn’t know a lot about the PBM business, and frankly what I knew I didn’t really care for,” he says. However, in Navitus he found an “incredible passion” for making health care less fragmented and more user-friendly.

AIS Health caught up with Fields to ask him about trends in the PBM industry, the current public health crisis and where Navitus fits in that landscape.

Editor’s Note: The following interview has been edited for length and clarity.

AIS Health: Navitus Health Solutions for years has promoted a 100% pass-through PBM model. How do you define that concept?

Fields: Our business model is very simple. We work for the customer — and for the employees and dependents of those customers — and we charge a very small monthly administrative fee. Any revenues, any fees, anything that is negotiated by us on behalf of the customers, goes to the customer. We were founded under that principle back when a transparent, pass-through PBM had almost never been heard of, and that is our business model to this day.

Our passion as an organization is to lower the cost of pharmaceuticals, and to take out all of the “fluff” that exists at many steps along the way from when a drug is manufactured to when it is received through the pharmacy or mail order.

AIS Health: Last year, there was a big debate about whether PBMs should be keeping rebates they collect from drug manufacturers or passing them on at the point of sale, which culminated in the Trump administration pulling its rebate-reform rule and a GAO report that found PBMs pass on most rebates to Medicare Part D plan sponsors. What’s your view of where the debate now stands?

Fields: When those regulations came out last year, we thought that they had a very positive intent, and so we commented back to the administration to try and make them better.

Many years ago, we built our systems to be able to enable rebates that go back to the plan sponsor — the employer or the health plan. [And] we also built the capability to do it at the point of sale. And one thing to be aware of is that plan sponsors, in most cases, take the rebates and they use [them] to make the costs of the benefits overall, for everyone, less expensive.

But I would say it certainly is a growing trend to think about making those rebates available [at the point of sale] to the people who have the highest-cost drugs and have more prescriptions than others.

AIS Health: So your comments to HHS were essentially, “Let us have the flexibility to pass through rebates to either plan sponsors or at the point of sale”?

Fields: Yes. There was another really important piece to this — what we suggested was that in addition to doing the point of sale [rebate changes], you needed to do something to control the actual costs when it comes to the manufacturer. So our commentary was more along the lines that there are additional things that should be added to the regulations to control the spiraling upward costs of pharmaceuticals — or in the end, both the sponsor (the government) and the consumer will wind up paying more.

AIS Health: The big news about Navitus these days seems to be that Costco bought a minority stake in the PBM. What are the implications of that, in terms of your short- and long-term business strategy?

Fields: They have a unit called Costco Health Solutions that sells PBM services to small, midsized employers, so we have been the intel inside, if you will, for Costco Health Solutions for seven years.

In January of 2019, Navitus took over responsibility for managing all of the Costco employees and dependents in the U.S., and that’s a little over 300,000 people. In addition to the longevity of the relationship, Costco got a bird’s eye view of what we did for them in terms of delivering cost savings on their population, and I know that they were amazed.

As an organization, we developed some guiding principles to determine who would qualify to be a partner with us. [One was] cultural alignment: Are we organizations that see the world in the same way? [In addition], we didn’t want a partner who would come in and say, “Well, let’s change the model,” because we are very passionate about this transparent and pass-through model. And then we wanted to make sure that we had a partner that could help us grow.

During the process, we found out that we were incredibly aligned with Costco. That at first may sound like an odd statement, but if you think about the Costco model, it is to go out and find the best products and buy at the best prices, and then pass along those prices to their consumers. That aligned with us because…buying it at the best price and getting it in the hands of consumers, that’s core to the Navitus model.

Once the transaction was closed, COVID immediately hit, and Costco at every turn stepped up and said, “Let us help find you masks, let us help find you hand sanitizer.” When we as an organization needed help, they could not have been better partners.

AIS Health: What are some other ways the COVID-19 pandemic affected your business?

Fields: In a couple of weeks, we were able to really ramp up our technology to enable about 95% of our workforce to work from home. What’s been most remarkable about that is we had lots of projects that are underway — believe it or not, there are finalist presentations that are now taking place virtually, and we’ve been able to win several pieces of new business during the COVID shutdown. Our employees have really adapted quickly to a new way of doing business.

But not all our employees could work from home. We have a specialty pharmacy company called Lumicera that’s part of Navitus…so those employees had to come in every day. Everyone was very concerned that pharmacies were going to close [and] they wouldn’t have access to their medications, so for a six-week period we saw a spike of 25% in terms of our average daily volumes — both in what we were processing on the Navitus PBM side plus the prescriptions we were filling on the Lumicera specialty pharmacy side. Our systems and our employees flexed quite well, and we didn’t miss a beat.

AIS Health: There’s been a large amount of consolidation in the PBM world in recent years, with the biggest players now owned or under the same umbrella as a health insurer. What do you think of that trend, and where does Navitus fit in that landscape?

Fields: I can’t really comment on what other organizations are up to. I think they believe that there’s a potential better outcome in scale and in some type of vertical integration. Our focus is on human beings having a better outcome and lowering costs.

That being said, we have a new partner and we want to accelerate our growth so that our model is able to benefit more people. So we’re really kind of starting to look outwardly and investigate if there are organizations out there — they could be startups or midsized companies — where we share a similar philosophy, or if they have tools that we could use that we were [otherwise] going to build. We’ve never been acquisitive in the past, but I expect us to be acquisitive in the future.

AIS Health: What strategies does Navitus Health Solutions use to manage drug costs, and how do they stand out among other PBMs?

Fields: It’s not a secret — we try and design formularies that will maximize the efficacy of the drugs for the members and the cost-effectiveness. The second piece of it is, with our direct interaction with either the providers who are ordering the medications or with the pharmacists who are dispensing or the end user…[we can discover that] maybe the physician didn’t order the best drug, [so] let’s talk to him as he is ordering. Or the pharmacist sees, “Wow, there were more cost-effective medications that were available that do the exact same thing,” so let’s get them the most cost-effective medication. An additional step we’re doing is providing the cost information directly to the consumer so that they can see, “Oh, if I drive a mile down the road, this drug that at this outlet costs $20 could be available for $7 at the other location.”

AIS Health: Looking ahead to the next five years, what are your goals for Navitus Health Solutions?

Fields: My focus for the next five years is, in particular working with Costco, let’s figure out how we buy at the best price and let’s figure out how we expeditiously get the best product into the hands of the consumer. So I think there’s going to be a lot of disruption — Navitus has always had a disruptive model, and now with Costco, we’re looking forward to being a further disruptor to the status quo in the pharmaceutical world.

Associated People

David Fields