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Why a VC frustrated by the PBM industry decided to start an alternative

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Boston, Massachusetts-based WithMe Health has launched out of stealth with $20 million in funding from venture capital firm Oak HC/FT. The startup’s plan? Broach the massive pharmacy benefits management industry with an alternative business model.

WithMe Health’s origin story differs from that of most companies. Founder and interim CEO Chris Pine had experience working with PBMs in his career as an executive at Oak HC/FT, most recently helping lead an investment in LDI Integrated Pharmacy Services, which was later sold off to Diplomat Pharmacy in 2017.

“We still believed in the initial thesis which led us to invest in LDI, but when we started looking for other opportunities to invest we couldn’t find one that we thought made sense,” Pine said.

“So I said ‘why don’t I start talking with some customers and seeing if this is something we can build ourselves?’”

The organizing principle goes that an upstart PBM that is better financially aligned, transparent, clinically sophisticated and consumer friendly could be a success in the self-funded employer market.

“Obviously discount rates and the prices of the drugs are an important part of the overall equation, but it’s important to note there is an overall equation,” Price said.

The multi-billion dollar PBM is dominated by three key players. CVS Caremark, UnitedHealth Group’s Optum RX and Express Scripts make up around 90 percent of the market and use their size and scale to negotiate better discounts and prices with drug makers.

But that size advantage also creates a challenge when it comes to offering customized service for the employer market.

“Even if these guys want to innovate, it’s hard to do that at a big company which may not be not nimble,” Pine said. Legacy infrastructure or existing business deals can be hard to overcome, he added.

By building from the ground up, WithMe believes that it can provide a more efficient and transparent service offering for a customer base that’s starved for choice. Which is not to say the effort won’t be a heavy lift.

One surprising development in getting the startup off the ground, according to Pine, is the willingness of drugmakers and retailers to sit at the table with a new company and provide discounts and deals to make them competitive.

“They want more options in people to work with too. They don’t want these larger companies having a stranglehold on the market,” Pine said.

The startup is hoping to launch with its first customer, a “multi-billion dollar Fortune 100 company” later this year. For now the company is working on building out its team and setting up its infrastructure as it looks to acquire more customers.

The idea behind WithMe is to provider employers a more financially aligned, personalized and efficient PBM experience. Instead of making money from rebates and fees for dispensing drugs, the company will charge a fixed PMPM admin fee with guarantees around clinical costs, acquisition costs and transparency.

WithMe is trying to differentiate itself with its ability to provide population level insights into the workforce and the clinical expertise to determine what drugs work for who, along with a more consumer friendly experience to help steer patients to better pharmacy decisions.

“We want to take the load off the provider with our consumer experience,” Pine said. “We’re focusing on building a relationship with the member, rather than just a financial transaction.”

Pine characterized transparency as a “huge selling point” for potential customers, especially when considering the largely opaque operations of the dominant PBMs in the market.

WithMe’s launch is taking place against the the larger backdrop of  healthcare industry consolidation, with major recent deals like Cigna’s acquisition of PBM express scrips and pharmacy giant CVS Health’s purchase of health insurer Aetna.

In this environment, Pine said he sees room for a startup like WithMe to do business with companies wary of working with direct competitors and increasingly dissatisfied with the lack of choice in the space.

Photo: Devrimb, Getty Images

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