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Scouting Report-SmithRx: Shooting to Disrupt the PBM Market

The Driver:

SmithRx, a tech-backed pharmacy management company, recently raised $20 million in a Series B funding round led by Venrock and existing investors including Founders Fund. The company was founded in 2016 and has raised a total of over $37 million in three rounds of funding. The company states that they “have built an evolved client-aligned version of a pharmacy benefit manager (PBM) which promotes 100% pass-through savings to their employer clients thereby maximizing drug savings. The fundraising proceeds will be used to expand their platform to more health systems as well as hire new staff members.

Key Takeaways:

  • According to the Drug Channels Institute, the three largest PBMs control nearly 80% of the market, while the top six PBMs handled more than 95% of total U.S. equivalent prescription claims.

  • SmithRx claims to have over 200 integrations with employer benefit brokers and payers and to provide 50% potential drug savings via its platform.

  • The company has developed a Drug Acquisition Platform or DAP - (their own version of a pharmacy benefit manager or PBM) which runs claims through algorithms that look for lower-priced medications.

  • SmithRx charges a flat fee for each claim and states that it uses 100% pass-through pricing with its PBM technology.

The Story:

Founder and CEO, Jake Frenz, started SmithRx 2016 ”to create a technology-driven and cost-competitive PBM that offers clients a flexible customer-centric product …that enables choice, aligns incentives, and surfaces insights to improve care delivery,”, according to the company’s website. Frenz, who had previously worked at Collective Health where he built the operations organization, and at Anthem where he led teams delivering commercial and Medicare healthcare products, states his vision is to bring a new disruptive business model to the PBM space, one that couples technological innovation and efficiencies with a transparent and auditable pricing program.

Pharmacy Benefits Managers are, in essence, the intermediaries of almost every aspect of the pharmacy benefits marketplace, however, they are known to be very vague about their costs and fees. SmithRx claims to reduce total drug costs and improve health outcomes with 100% pass-through pricing with their PBM technology. With ambitions such as these, they seem to be leading the next generation of customer-centric pharmacy benefits with a tech-forward approach that provides full control and transparency to its 1200+ employers served.

The Differentiators:

While PBMs create complexity and make back-room deals for rebates, SmithRx has created what they call a Drug Acquisition Platform (DAP). According to Axios, the company works with employers and runs claims through algorithms that look for lower-priced medications based on pharmacy distribution, clinical management, rebates, and special programs. As employers spend more and more on prescription drugs and medication, SmithRx offers an alternative to the traditional PBM with no hidden fees. In addition, SmithRx offers mail-order Rx which gives patients a 90-day supply of their prescription delivered straight to their door which the company claims is comparable in cost to a 60 day supply from other suppliers. SmithRx also offers members clinical programs and alternative sourcing through SmithRx Connect which the company claims will make it easier to manage their prescription benefits and can help reduce overall drug spending. The company is currently working with brokers including Alliant, Hays, and Gallagher and has integrations with payers including Aetna, BlueCross BlueShield, and HMA.

The Big Picture:

SmithRx states it was built on the foundation of aligning incentives and providing a better solution for plan sponsors. In addition, their platform has been using technology to integrate with telemedicine to potentially benefit both patients and clients. According to the company, this has resulted in a client retention rate of 99% and an estimated savings of up to 50%. While there are a number of competitors like Mark Cuban’s Cost Plus Drug Company, Amazon, Hims and Hers as well as Ro, as Axios recently noted, many are restricted in how they work due to PBM rules or avoid PBM’s altogether. Moreover, given that SmithRx charges a flat fee for each claim, it is likely to increase pressure for others to provide greater visibility into their pricing as well as make it more easily auditable than current interactions with the major PBMs. Moreover, by working with brokers and payers, SmithRx has positioned itself alongside those whose incentives in terms of cost and quality are better aligned to their mission and that of their customers. By enabling greater convenience through such things as a prescription card to use at other retail pharmacies, and home delivery that provides discounted prescriptions at your door, services like SmithRx can also help to broaden access to hard-to-reach populations who may lack access if there are no local brick-and-mortar pharmacies. While it remains to be seen which model will best disrupt the PBM market or even if any single model alone will disrupt the PBM market, it is clear that the PBM go-to-market model is ripe for disruption.


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