Umar Afridi sensed a paradigm shift last summer when Blue Shield of California turned the prescription-drug playbook on its head.
The health insurer unveiled plans in August to partner with disruptors Mark Cuban Cost Plus Drugs and Amazon to offer lower, transparent prices and relegate pharmacy-benefit giant CVS Caremark to a lesser role.
To Afridi, the co-founder and former CEO of pharmacy fulfillment startup Truepill, the move signaled a growing desire from health plans to ditch the big middlemen that drive up costs in favor of working more closely with their patients and providing more affordable, convenient experiences.
He’s launched a new company, Foundation Health, to help them do that quickly and at a low cost. Foundation aims to make it easy for insurers to set up their own online pharmacies and pharma companies to sell drugs directly to consumers.
“The main focus area for us is to help health plans disintermediate PBMs,” Afridi said. “They want to have more control over the delivery of pharmacy services to their members but just don’t have the tools to be able to do it.”
The startup just nabbed $6 million in seed funding Garry Tan, the CEO of Y Combinator, Transpose Platform, Tuesday VC, Alt Capital, Box Group, Liquid Ventures, Exceptional Capital, Calm/Storm Ventures, and PageOne Ventures, among other investors.
PBM scrutiny is heating up
Afridi, a pharmacist by trade, stepped down as CEO of Truepill in 2022. He said he’s known for years there was a need for a software solution to help health plans and pharma companies sidestep pharmacy-benefit managers (PBMs), but only recently has there been a market for it.
“If I built this product 10 years ago, it would completely flop. No one would be interested in it,” he said. But with rising pressure on PBMs, “now it seems like it’s a good time to step in and build a solution to solve this problem.”
Congress, the Federal Trade Commission, and state regulators have been dialing up the scrutiny of PBMs for their role in high drug prices. PBMs work on behalf of health insurers and employers to negotiate rebates from drugmakers, but they’ve been criticized for pocketing too much of those discounts and steering patients to expensive drugs that fetch them more revenue.
Some of what Foundation Health is building sounds similar to Truepill, which powers the pharmacy operations of digital-health startups and other customers, like the UnitedHealth’s Optum Store and Eli Lilly’s new program connecting patients to doctors who can prescribe its anti-obesity treatment Zepbound.
But Afridi said unlike his former company, Foundation doesn’t operate a pharmacy or hire prescribers. It focuses on the technology and connects customers with established telehealth providers and pharmacies that can mail prescriptions to patients’ homes.
Alt Capital’s Jack Altman said he invested in Foundation because of Afridi’s deep healthcare expertise. On the backend, infrastructure businesses like Foundation are going to enable a new generation of companies providing online healthcare, he said.
Foundation Health wants to help customers ditch big PBMs
Foundation’s software enables a few different things. It gives health plans the ability to start their own branded digital pharmacies where patients can compare drug prices from various pharmacy companies or check the cash price. Health plans can pick any pharmacy they want to partner with to fulfill prescriptions.
“The patient gets to choose what method they want to use. It’s that clear, crisp pricing that today, I feel like consumers are missing,” Afridi said.
Foundation will also deliver clinical services to pharmacy customers, such as helping patients manage their medications and stick to them.
The startup also allows pharma companies to sell their drugs directly to patients, skipping the need to negotiate discounts and fees with PBMs and giving them more control over patient access and outcomes.
The pharma company might choose to have Foundation set up a webpage that connects patients with a telehealth provider who could prescribe the manufacturer’s drug, and then have it delivered home. Or Foundation can have the pharma company show up in an electronic health record, so the patient can choose to get the drug directly from the manufacturer while still in the doctor’s office.
Finally, direct-to-consumer health companies can plug into Foundation’s technology to power their services, instead of building their own pharmacies and hiring doctors.
Afridi said Foundation charges an implementation fee and then monthly fees that will depend on the level of customization a customer wants. Because it’s a software product, it will constantly improve with new features on a regular basis, he said.
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