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With a new headquarters going up at a prominent intersection on Madison’s West Side, Navitus Health Solutions is gaining visibility at a time when some of its competitors are trying to avoid attention.

Pharmacy benefit managers, or PBMs, have come under increased scrutiny as the country’s prescription drug costs continue to rise. The companies, which act as brokers between drug makers, insurers, employers, patients and pharmacies, help determine which drugs people can take, where they can get them and how much they will pay.

Three PBMs — CVS Caremark, Express Scripts and OptumRx — control more than two-thirds of the market, capturing rebates and fees that are hard to quantify because their contracts are not transparent, critics say.

They “exercise undue market power” and “generate outsize profits for themselves,” the White House Council of Economic Advisers said this year in a report calling for more competition.

PBMs “encourage large list prices to fuel the pricing schemes,” Dr. Scott Gottlieb, Food and Drug Administration commissioner, said in a speech to insurance companies. Madison-based Navitus, owned by SSM Health, says it doesn’t absorb rebates or differentials on what it charges patients and what it pays pharmacies, as some PBMs do. Instead, the company assesses an administrative fee.

“We pass through the cost 100 percent; we pass through the rebate 100 percent — no games, no funny business,” said Pete Beste, chief financial officer.

Navitus is five times larger than it was just eight years ago, but it still accounts for less than 2 percent of the market, Beste said.

As lawmakers and regulators look to constrain PBMs, and some PBMs enter mergers — CVS plans to buy Aetna, an insurance company, and Cigna, another insurer, seeks to acquire Express Scripts — Navitus is poised to capitalize on its model, Beste said.

“People are fed up with the PBM industry and some of the industry trends,” he said. “We believe we are a great alternative to that.”

The company has skeptics, however. Navitus may be different from the big PBMs, but it still seeks to recoup money from pharmacies for simple clerical errors and steers specialty drug business away from them, said Matthew Mabie, president-elect of the Pharmacy Society of Wisconsin and owner of Cottage Grove-based Forward Pharmacy.

“They’re the lesser of two evils,” said Mabie, who said Navitus controls about half of his business at pharmacies in Cottage Grove, Deerfield and McFarland. “They’re better than the other options out there, but they’re still a PBM. They get in the way of patient care.”

Mabie supported a bill in Wisconsin last year that would have required the state Office of the Commissioner of Insurance to regulate PBMs.

The bill didn’t pass. Neither did another measure that would have banned PBMs and insurers from including “gag rules” in contracts that prevent pharmacists from telling patients they could save money by paying cash instead of using insurance, as is sometimes the case.

SSM Health opposed the first bill, which Terry Seligman, chief executive officer at Navitus, called unnecessary. “Regulation drives up cost,” he said.

Navitus, which aims to double in size in five to seven years, plans to move in March into a building under construction at South Gammon and Mineral Point roads, near West Towne Mall.

The project, by Livesey Co., is called West Place. It replaces a building previously used by Madison Area Technical College and Famous Footwear that has been demolished.

West Place’s $28 million first phase features a five-story, 80,000-square-foot building for Navitus. It includes a two-story, 30,000-square-foot building for Lumicera, a specialty pharmacy business that Navitus started in 2014.

Navitus has outgrown the 50,000 square feet of space it has in the Arbor Gate complex off the West Beltline Highway near Todd Drive, Seligman said.

The company manages prescription drug benefits for more than 5 million people at more than 500 employers and health plans, overseeing $4 billion in drug spending annually, Seligman said. That’s up from about 1 million people and about 80 clients in 2010.

Existing clients include Alliant Energy, Johnsonville, Land’s End and Group Health Cooperative of South Central Wisconsin.

Navitus was started in 2003 by Dean Health Plan and an insurance company owned by ThedaCare, of Appleton. Its first client was the Wisconsin Department of Employee Trust Funds. In 2004, the company saved the state $25 million by reducing state worker drug costs by 6 percent after they had been projected to rise at least 17 percent, state officials said.

In 2007, Dean bought out its partners. St. Louis-based SSM Health, which owns St. Mary’s Hospital in Madison, acquired Dean in 2013.

In the past few years, Navitus has erected two buildings with a total of nearly 200,000 square feet of space in Appleton, its operations center.

The company has about 780 employees, including 500 in Appleton, 200 in Madison and 40 each in Phoenix and Austin, Texas.

Seligman said Navitus’ administrative fee model makes it more transparent than other PBMs. Clients can audit their claims and see what price Navitus got from drug manufacturers and what payments it gave to pharmacists, he said.

“If you get incented on every rebate you bring in, you’re incented to bring in higher rebates but not necessarily lower net cost,” Seligman said. “We have one lever for making revenue, and that’s our (administration) fee.”

Steve McCauley, director of employee benefits at Marquette University in Milwaukee, said the campus switched from Express Scripts to Navitus this year after its annual drug costs of more than $5 million kept going up by about 25 percent per year.

So far this year, the cost is down about 15 percent for Marquette and more than 8 percent for employees, McCauley said. The employee figure likely will rise as workers use up their deductibles, he said.

A few employees had to switch pharmacies, and nearly 9 percent had to change drugs, including some patients with diabetes who had to take different brands of insulin. But administrators at Marquette, which insures about 4,600 workers and dependents, are happy with the switch and Navitus’ customer service, McCauley said.

“There was very low noise from our employees,” he said. “It’s more of an upfront, lower cost.”

In President Donald Trump’s speech last month about his plan to lower drug prices, he attacked PBMs, which he called “middlemen.”

“We’re very much eliminating the middlemen. The middlemen became very, very rich,” he said. “They won’t be so rich anymore.”

Trump’s plan itself says the government will require PBMs “to act in the best interests of patients.”

More than half of states, not including Wisconsin, regulate PBMs through registration or licensure, according to the National Community Pharmacists Association. Twenty-two states ban gag rules, according to the National Conference of State Legislatures.

State Rep. Deb Kolste, D-Janesville, who co-sponsored the bills in Wisconsin, said the measures are needed to rein in PBMs and will be reintroduced. PBMs “control the pharmaceutical market; it’s becoming a closed system,” she said.

Navitus, which says it has no gag rules, maintains it is the antidote to concerns about the industry. Amid the growing national discourse over drug prices, the company expects more employers to switch to its model.

“We’re incented to help the client. We’re not taking a piece of everything that happens,” Seligman said. “A lot of people are waking up to this.”

“People are fed up with the PBM industry and some of the industry trends. ... We believe we are a great alternative to that.” Pete Beste, chief financial officer for Navitus

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