Every now and then, there comes a new idea to tease out savings from the U.S. health care system. One such idea is Springfield, Arkansas-based Tyson Foods replacing its pharmacy benefits manager (PBM) CVS Caremark with New York City-based Rightway, a smaller firm that promises employers pricing transparency and savings of 15% or more.

Trying to lower the costs of pharmacy benefits is part of the bigger question of how to control health care costs, Wharton professor of health care management Lawton Robert Burns said on the Wharton Business Daily radio show that airs on SiriusXM. (Listen to the full podcast here.) While drugs account for 10% to 14% of the total national spend on health care, “we spend a lot more on hospitals and doctors, and we still haven’t figured out a way to control those two things,” he added. “There’s no silver bullet.”

Pushback on Prescription Drug Costs

Tyson spends some $200 million annually on pharmacy benefits for its 139,000 employees, and those costs have increased 12% to 14% every year, according to a CNBC report that quoted the company’s head of global benefits. Tyson will become one of the first Fortune 100 companies to work with an upstart PBM, the report added. Savings on pharmacy costs will be more than handy for Tyson, which in the past year has faced flat sales and declining profits, notwithstanding an uptick in its latest quarter.

“Instead of a silver bullet, we should be looking for bronze buckshot.”— Lawton R. Burns

Tyson’s move is also part of a larger pushback by insurers and employers against PBMs. Burns cited Horizon Blue Cross Blue Shield of California, which replaced CVS Health’s Caremark with its own program.

“If we have not only employers but also health insurers being more experimental in how they structure their health benefits and who they contract with for their pharmacy benefits, that keeps that whole nexus of players on their toes,” Burns said. “The more competition there is, the better.”

Breaking Into a Consolidated Market

As of 2022, three big PBMs — CVS’ Caremark, Cigna’s Evernorth, and UnitedHealth Group’s Optum Rx — controlled nearly 80% of the pharmacy benefits market in the U.S., according to a study cited in the same CNBC report.

Smaller PBMs are attempting to disrupt that structure by promising more transparency in pricing and lower prices. A blog post on Rightway’s website claimed that in the past decade, legacy PBMs have seen their profits skyrocket by over 300%, attributing that to “driving up the prices of prescription drugs and padding their profits with hidden fees.”

Smaller PBMs will for sure help create a more competitive marketplace, but they face an uphill road in gaining traction, Burns said. “That’s always difficult because much of the health care system is already consolidated. It’s not easy to get a toehold in [and] survive. But there is vigorous competition even among the large behemoths, so that’s the good news.”

“The more competition there is, the better.”— Lawton R. Burns

The PBMs operate in an industry that is still a work-in-progress. “We don’t have a system in health care,” Burns said. “We have an ecosystem of lots of players. It’s akin to a jungle with lots of critters out there. There’s no real system that makes all of this work seamlessly and in a coordinated fashion.”

How to Fix a Broken System

Burns offered some recommendations to tidy up that setting in the health care industry. “Instead of a silver bullet, we should be looking for bronze buckshot. We need lots of smaller ideas that are going to gain traction. Hopefully, they’ll accumulate and add up to being meaningful reductions in cost or at least in cost escalation.”

Burns also reiterated the need for more competition. “Many new products are very expensive, for which there is maybe one or no competitors. One positive, promising sign is the rise of biosimilars.” Unlike generic drugs, which are identical to the original in chemical composition, biosimilar drugs are “highly similar,” but close enough in duplication to accomplish the same therapeutic and clinical result, according to a blog post.

Meanwhile, Tyson is busy setting other parts of its house in order. Last September, it shuffled its top executives heading finance, commercial operations, and prepared foods, and brought in a new CFO in John R. Tyson, the 32-year-old great-grandson of the company’s founder.