Health system PBM ownership model shows benefits amid reform pressure

Amid heightened scrutiny of the pharmacy benefit manager (PBM) model, one health system is touting an alternative approach.

St. Louis-based SSM Health is co-owner of Navitus Health Solutions, a PBM with 18 million members among 800 clients across all 50 states. Navitus has a niche that helps it optimally serve customers while bolstering the operation of its parent health system, said Kevin Smith, CFO of SSM Health, a 24-hospital system that spans four states.

“If you think about what the mission is for Navitus, it’s really about transparency,” Smith said. “We are a fully transparent PBM. It’s not that we’re trying to manage cost and have a [drug price] markup that’s not clear to other organizations.”

The PBM industry comes under fire

The perceived absence of transparency in the PBM industry, especially among the leading companies in the space, has driven increasing criticism from policymakers and healthcare stakeholders.

“The three largest insurance-owned PBMs control over 80% of the market,” said Rep. Morgan Griffith (R-Va,), chair of a House subcommittee that held a February hearing about affordability in the prescription drug supply chain. “How they manage these benefits is a mystery and can lead to higher drug prices.”

With respect to the Big Three PBMs, namely CVS Caremark, Express Scripts and OptumRx, business practices that critics say merit examination include the rebate system, which potentially encourages higher list prices by tying PBM compensation to a percentage of the rebate.

Such a structure can affect patient cost-sharing, while employers and plan sponsors lack visibility into rebate flows. The large PBMs counter that their scale allows them to negotiate lower net prices, while the use of formularies and utilization management helps restrain spending.

Another controversial approach is spread pricing, by which PBMs charge health plans more for a drug than the amount they reimburse pharmacies. PBMs then retain the difference, potentially inflating government and employer healthcare spending.

Policy and regulatory forces reshaping PBMs

With Navitus, which has operated for more than 20 years, SSM Health hopes to provide a counterpoint to such narratives. Representatives of the PBM have traveled to Capitol Hill to impart the message that “we’re different,” Smith said.

“Whenever we are buying [drugs] either through a GPO or directly from a manufacturer, you know exactly what we’re paying for and what the specific markup is going to be. And that markup is normally for just administration.”

Navitus thus may avoid ongoing policy efforts to shift the way PBMs do business.

Vehicles for change include the Consolidated Appropriations Act of 2026, which requires PBMs to move to a flat-fee service model in Medicare Part D by 2028. At that point PBMs no longer can tie customer fees to drug list prices, rebates or formulary placement. The legislation also includes transparency enhancements, plus expanded audit rights for plan sponsors.

Perhaps more consequentially, the Federal Trade Commission (FTC) reached an agreement with Cigna-owned Express Scripts in February and with CVS Caremark in March to implement pricing and rebate reform, along with transparency and operational changes. OptumRx, a UnitedHealth Group subsidiary, is in similar negotiations. The settlements stem from the government’s 2024 complaint against the three PBMs for inflating the list prices of insulin.

Transparency a hallmark of a new model

“The industry may be on the verge of moving from a debate about how PBMs should operate to a world where the FTC has effectively defined how PBMs must operate — through negotiated orders with the largest market participants,” attorneys with Polsinelli wrote in an analysis about the FTC’s recent action.

Such edicts may bring those PBMs closer to the model of Navitus. In contrast to spread pricing, Navitus uses a pass-through model in which all rebates and manufacturer discounts go directly to clients.

“Being able to show [clients] truly what we’re buying the items at,” Smith said. “If you think about the formulary that they’re receiving, they should be able to see: Here’s what the cost is.

“If that [medicine] costs a buck, we are buying it for a buck, and you’re paying a buck plus. And that plus represents all of the things that we are helping to support, either your employees, the experience of being able to get mail-order or being able to get medical management and things like that.”

Smith thinks spreading the word can nudge the PBM model in a better direction.

“I believe that what we’re doing at Navitus will help shape what the Big Three are doing,” he said. “I think they’re starting to come around. Others are saying, ‘We’ve got to be transparent.’”

PBM ownership promotes valuable diversification

SSM Health, which sold a share of Navitus to Costco Wholesale Corporation in 2020, is one of a few health systems with an ownership stake in a PBM. Among others are UNC Health, which launched its PBM in 2024, and Fairview Health Services in Minneapolis.

Owning and operating Navitus is not about a hard ROI, Smith said.

“The margin on that book of business is very thin,” he said. “We’re not losing on the business, which is good.”

As a business strategy, the diversification that Navitus brings is valuable, the CFO added. Fitch Ratings, which in February affirmed SSM’s issuer rating at AA- despite a “negative” outlook, cited the organization’s revenue diversification as a characteristic that has helped overcome financial drags pertaining to labor costs, slow volume recovery, longer-than-expected lengths of stay, and inflationary pressures.

SSM’s assets also include a medical group and Dean Health Plan.

“We have this revenue structure that spans the continuum of patients,” Smith said. “That’s a benefit, and I think other organizations are trying to do that. It’s just nice that we have it at scale at this point.”

There are parallels in the organizational skill sets needed to operate a health plan and a PBM, he noted.

“If you think about benefit design and structure, pharmaceuticals happen to be a component of that,” Smith said. “If you think about claims processing, you’ve got to make sure you have a robust system in place to be able to keep track of what you’re charging the various retail pharmacies, how you’re ensuring better coordination of care and things like that with the health systems that we’re partnering with.”

A pillar of the portfolio

Smith sees Navitus as an example of doing well by doing good, promoting the system’s faith-based mission to spread health and healing.

“It totally aligns with our overall mission and what we’re trying to do,” he said. “I’m happy that I can stand behind it.”