SSM finds Costco partnership especially timely amid health emergency

April – May, 2020

April 6, 2020

SSM Health's new partnership with Costco Wholesale has brought an unexpected bonus amid the coronavirus emergency.

The two companies announced March 3 that Costco was buying a minority stake in pharmacy benefit management company Navitus Health Solutions, an SSM Health subsidiary.


While SSM Health expects the Costco partnership to fuel Navitus's expansion in the long term, Navitus Chief Executive David Fields said the pairing has had some unexpected immediate benefits as the health system and the rest of the nation grapples with the coronavirus crisis. He said Costco executives have readily answered the health system's calls to bolster its supplies of staples.

"Right now there is such a crush and a deficit of some relatively straightforward things like hand sanitizer and sanitizing wipes, N95 face masks and nitrile gloves needed for this health emergency, and Costco has really stepped up," he said "They have access to those goods and they are helping us procure what we need for our hospitals and ambulatory clinics. They're just being an unbelievably great partner."

Slow decision
Fields is also president of SSM Health's insurance provider Dean Health Plan, a sister organization to Navitus inside SSM. He said SSM Health went through a two-year discernment and evaluation process before choosing Costco as a partner in Navitus because he and others involved in the decision wanted to ensure that any co-owner would embrace Navitus' "disruptive" business model.

Unlike most other pharmacy benefit managers, Navitus passes all rebates, fees and incentives from drug manufacturers through to clients and operates with complete transparency, even allowing clients to audit its financial records and contracts, Fields said.

"Navitus is all about trying to lower customers' and members' pharmacy costs," Fields said. "We're not trying to figure out how to make more money than anybody else in the industry. We believe that we have a mission and an obligation to try to make health care not as expensive."

In a joint statement with SSM Health announcing the partnership, Costco President and Chief Executive Craig Jelinek said his company is on board with that mission. "Navitus shares our long-term commitment to transparency and our philosophy of reducing costs and passing savings on to our members," Jelinek said.

Complementary cultures
While Navitus was established as a for-profit company, as a wholly owned subsidiary the company's profits flow into the nonprofit SSM Health to further its overall mission of providing quality health care to all, especially the poor and vulnerable.

SSM Health and Costco aren't disclosing the financial terms or the size of Costco's minority stake in Navitus, but Fields said Costco brought much more than money and support of the Navitus business model to the table. It offered a complementary business culture focused on treating employees well, getting the best deals for customers, and maintaining respectful long-term relationships with vendors and suppliers.

Another bonus from the partnership, Fields said, is that Navitus can use the Fortune 500 company's experience with Navitus to attract other companies as clients.

Before pairing up on the ownership of Navitus, Costco was itself a client. Navitus has had a contract for seven years to provide what Fields calls "back office support," such as formulary development and drug selection, for Costco's own pharmacy benefits management company for small and midsize companies, Costco Health Solutions. Also, since January 2019, Navitus has managed the pharmacy benefits for Costco employees and dependents, about 300,000 people in total.

Disruptive innovation
Navitus operates in all 50 states and it covers more than 6 million members who get drugs through a network of 65,000 pharmacies. It has contracts with businesses, health plans, health and welfare trusts, and state and local governments.

The company was founded in 2003 as a side business by Dean Health Plan, in consultation with the board of the state of Wisconsin's employee trust funds. "The state of Wisconsin basically said we're tired of the (pharmacy benefit management) models where the PBMs take a lot of money out of the supply chain and retain it for themselves," Fields said.

Navitus had to be an independent company because the managers of the employee trust funds, which pay for benefits for state workers, wanted the company to be able to serve all the health plans that do business with the state of Wisconsin.

Although Navitus is a small part of SSM Health, Fields said "it's a pretty innovative piece of SSM's mission." He said it is a venture that aligns with Civica Rx, the not-for-profit generic drug company launched in 2018 to counteract drug shortages and the correspondingly high prices that could be commanded by becoming a value-driven source of essential drugs for hospitals and patients. Civica Rx's governing board includes representatives from SSM Health and several other ministry health systems including CommonSpirit Health, Trinity Health and Providence St. Joseph Health. Civica Rx's mission is to prevent shortages of essential medications.

Also under the Navitus umbrella is Lumicera Health Services, a specialty pharmacy company. Lumicera acquires and distributes expensive medications that require special handling for people who have serious illnesses or diseases such as cancer or cystic fibrosis. Like Navitus, it passes through any incentives from drug companies to its customers.

"Navitus is really here, like Civica, to try and solve a problem, which is pharmaceuticals cost too much and how can we, with our business model of transparency and not keeping any of the rebates or fees, help lower costs for people," Fields said.

Copyright © 2020 by the Catholic Health Association of the United States

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