Digital Health’s Latest Unicorn Aims To Lower Employee Drug Costs

Growing up Jordan Feldman could always call on his dad, a cardiologist, to guide him through the healthcare system. In 2017, Feldman, 33, and his dad Theodore, 65, teamed up to launch New York-based Rightway, a healthcare navigation company, to give everyone the equivalent of a “doctor in the family.” The goal was to help patients make better healthcare decisions based on quality that would also help lower costs. But there was one major problem area. “We started to notice where members were frustrated and where costs were rising at a disproportionate rate for the employer groups that we work with,” says Feldman. “And it was obvious that it was around pharmacy.” 

No amount of guidance could circumvent the incredibly convoluted rebate system that drives the industry of middlemen sitting between insurers and pharmacies, known as pharmacy benefit managers or PBMs. This complexity is why you might end up paying different prices for the same prescription on the same insurance, depending on which pharmacy you go to. To simplify this system, in 2020, Rightway decided to launch its own alternative and take on a market with giant legacy players. On Tuesday, the startup announced a $100 million Series C funding round led by Khosla Ventures, valuing the three-year-old company at $1.1 billion. Thrive Capital and Tiger Global Management also participated in the round, among others. 

“People are dying for some kind of guidance or engagement or transparency in the market,” says Kareem Zaki, a general partner at Thrive Capital. The September 2020 IPO of GoodRx, which had a market cap of nearly $14.6 billion at Monday’s close, showed just how profitable lower drug prices can be. But instead of having to show a coupon generated by a third-party, Rightway is directly integrated into the benefits the patient gets from their employer. So far the company has signed on 865 employer customers, which total more than 500,000 employees—a number it hopes to grow to 1 million by the end of the year. 

Some of Rightway’s customers include cloud security company Okta, private equity firm TPG, law firm Davis Polk and the parent company of Burger King and Popeyes, RBI. And the results so far are promising. More than 80% of users have accepted a redirection to a lower cost care channel, while 40% of users have redirected to a lower cost equivalent drug, says Zaki. The high-level of engagement is not surprising, since Rightway’s software was built as a consumer-facing tool, he adds. 

Americans spend more on prescription drugs than other industrialized countries. In 2019, retail prescription drug spending in the U.S. totaled $369.7 billion, an increase of 5.7% over 2018, according to the National Health Expenditure report. At the same time, many consumers are being hit with higher deductible health plans, as healthcare spending continues to outpace inflation. “We can’t continue to cost shift and burden the underlying members without giving them the tools and support to execute on these new healthcare realities,” says Feldman. 

Rightway charges a per member per month fee for both its navigation services and its PBM. This fee structure means it can offer drugs at cost, rather than spread pricing or rebates, like many traditional PBMs. The navigation platform has developed a proprietary quality rating system that looks at things like procedure counts, complication rates and readmissions scores to figure out where to steer members to get the best care. “It is essentially synthetically narrowing a network to the highest quality and most cost effective doctors,” says Feldman. In 2021, the company expects to hit over $50 million in annual recurring revenue, which would be a four-fold increase over 2020. 

“There's not a ton of startup activity in the PBM space,” says Samir Kaul, founding partner at Khosla Ventures. It’s an increasingly consolidated market dominated by huge corporations, like UnitedHealth Group’s OptumRx, CVS Health (which acquired Aetna), and Cigna’s Express Scripts. The interplay between the care navigation business and the PBM business will help bring down Rightway’s cost of customer acquisition. “And that's where I think it goes from being a great investment in navigation to kind of hopefully a home run investment,” says Kaul. “No one has combined those two things together.”