Over the past ten years, retail Rx networks have matured and the winners have emerged. As we look forward to the next five to ten years, and as specialty drugs emerge as the dominant category, the question arises whether the specialty value chain will be dominated by new players or whether incumbent retail Rx networks will prevail there as well.
But before we look at the specialty Rx space, I’d like to deconstruct in this series the reality behind the explosive growth of these incumbents, which succeeded to carve out networks in the retail Rx value chain. CoverMyMeds, RelayHealth, and SureScripts all identified breakdowns in the patient journey that could be addressed by connecting the prescription ecosystem. Each of these companies created a network around distinct problems in the patient journey, and in doing so they all rocketed to huge success.
Spoiler alert: you’ll see that the triumph of these so-called unicorns has nothing to do with magic.
Let’s start with CoverMyMeds, a software network that streamlines the medication prior authorization process for doctors, pharmacies, and health plans. (Disclosure: Paul Ciccero, the first national sales director for CMM, who helped grow the company revenue to $50M run rate, now leads sales at my company, HelpAround.) In 2017, CoverMyMeds was acquired by McKesson for $1.1 billion. In May, 2021, McKesson announced the unification of CoverMyMeds, RelayHealth, and RxCrossroads under the CoverMyMeds brand.
A pharma niche saddled with stone age processes
The company began, as the best often do, by identifying a white space in the market. Co-founder Matt Scantland, a software entrepreneur, recognized that patients frequently experienced significant delays in receiving prior authorizations from their health plans. All too often, this resulted in patients failing to get their medications filled. This schism meant that medical conditions could regularly go untreated, sometimes worsening patients’ conditions and requiring more extensive treatment or hospitalization.
Scantland teamed up with a pharmacist friend, Sam Rajan, to develop software that automates what had been a paper-based prior authorization process. With strong payer and technology backgrounds, they knew that this grossly inefficient area of pharma cried out for digitization. Pharma brands stood to gain enormously if they could figure out how to improve the communication between the pharmacy and provider. Fast PAs meant that more patients could access their medications.
So the founders came up with the idea for a pharmacy plug-in.
Prior to CMM, if you were trying to fill a medication at a pharmacy, the claim was rejected the minute that a prior authorization was required. Now, with CMM, a popup appears that indicates that a prior auth is required. If you click on that button, a request to the prescriber is auto-faxed instantly.
The result? Pharmacies are no longer forced to turn patients away with a request to deal with the doctor themselves. Instead, a streamlined communication easily begins between the pharmacy and doctor, saving patients from that burden.
Building a network with yourself in the middle means that you own the data
But improving efficiencies in a white space wasn’t the only secret sauce of CMM’s success.
What made them different was their go-to-market approach. Instead of approaching each stakeholder in the value chain one by one, CMM created a network that prescribers, pharmacies, and brands would all feel compelled to join.
They did this by building up a critical mass of participation from both pharmacies and prescribers before they even focused on pharma brands. There was no reason for pharmacies and prescribers to not join the CMM network. The company presented an onramp for greater efficiency and ease in their prior auth process. With CMM, pharmacies, prescribers, and patients would be able to enjoy one place for all of their PA forms.
Plus: joining was free. The cost would be passed on to the pharma brands because they stood to gain the most financially from increased patient onboarding. Without any obstacle of cost, it was a no-brainer for prescribers and pharmacies to adopt CMM.
The ramp was slow at first. And then it snowballed like crazy.
First, RelayHealth came on board, and CMM engaged their help in leveraging their network of pharmacies. Eventually, Walmart joined, followed by other big chains, including CVS.
With this powerful network effect, CMM armed itself with hard data when they pitched pharma brands. They knew with mathematical certainty the percentage of scripts that a particular brand was losing every month to PA breakdowns. And they were able to state with confidence that CMM could prevent leakage.
The pitches thus pivoted on financial analyses rather than promises. All because CMM had already built a network and owned the data.
As CMM contracted with a new brand, the program grew instantly the minute that a big pharmacy chain joined the network. When CMM brought on Walgreens and CVS, pharma programs increased by an order of magnitude.
Sometimes, unicorns just fix what’s broken. And much is broken in pharma.
CMM became a unicorn because of two ingredients: 1) they were hyper-focused on one thing: fixing the inefficiencies with PAs. And 2) they had a novel go-to-market approach.
The status quo is endemic in the pharma world, and it begs to be challenged in many other areas. Inefficiencies have been allowed to drag on, year after year, because of inertia and a failure of imagination.
If there’s a lesson to be learned from the staggering success of CMM, it is that there is a huge need to automate the myriad manual processes that fracture the patient journey. Unicorn status awaits the companies that can shrewdly leverage the power of networks to modernize and build market penetration within the disparate pharma ecosystem.