February 20, 2025 • 55 mins
"The mission of Capital Rx is to give our country the infrastructure we need for the healthcare we deserve." AJ Loiacono, CEO and co-founder of Capital Rx, shares with Bloomberg Intelligence analyst Jonathan Palmer how his company is reshaping the pharmacy benefit management (PBM) industry by eliminating hidden costs and conflicts of interest. He explains how traditional PBMs profit from inflated drug prices, creating a system where the most expensive drugs are preferred over more affordable alternatives. Capital Rx aims to disrupt this model by using technology to reduce administrative costs and promote transparency. The discussion also covers regulatory reform and how AI-driven claims processing, with a unified approach to medical and pharmacy benefits, could unlock massive cost savings.
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Speaker 1 (00:20):
Welcome to another episode of Bloomberg Intelligence Vanguards of Healthcare podcasts,
where we speak with the leaders at the forefront of
change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Bloomberg Intelligence, the in
house research term of Bloomberg. I'm thrilled to welcome Ajloyacano,
the CEO and co founder of Capital RX, to the
program today. AJ is a serial entrepreneur with more than
(00:43):
two decades of experience in the world of pharmacy, benefits
and healthcare technology, and since it's founding in twenty seventeen,
Capital RX has been one of the fastest growing companies
in this space. I'm really excited to dive deep into
the world of PBM. So welcome to the podcast. AJ.
Speaker 2 (00:58):
Thank you for having me, John.
Speaker 1 (00:59):
So, maybe let's just jump right in with one sentence,
what's the mission of capital our ax.
Speaker 2 (01:04):
The mission of Capital RX is to give our country
the infrastructure we need for the healthcare we deserve. And
just to kind of clarify that, I always want to
make it, you know, very apparent that we could think
of hundreds of brilliant ideas to improve healthcare but good
luck implementing any of them. On our aging infrastructure, one
(01:26):
of the things that I identified early on is if
we truly wanted to advance or evolve healthcare in this country,
we need to move off of systems that are thirty
to forty years old.
Speaker 1 (01:37):
Good, good start. So maybe let's peel back the onion there.
And so when we talk about the healthcare system and
we talk about PBMs, can you maybe set the table
for us for where the PBMs fit in the industry
and where capital ur ax fits within that landscape of PBMs.
Speaker 2 (01:52):
Yeah. I always want to take it, you know, as
high as you can go up, you know, for people
to kind of think through their own personal experiences day
to day with healthcare. And so I often say there
are two electronic workflows in the United States for healthcare.
The first one is what we call EMR EHR. This
is your experience at a doctor's office or it could
(02:14):
be a health system, a hospital setting. And this is
the system to what I call create a claim in
the US healthcare system. So these are systems that do
things like scheduling, decision support. But the moment a prescription
is prescribed or you have some sort of procedure. You're done.
You have created some sort of insurance claim in the
(02:35):
United States, and it disappears from this workflow and it
moves over to what I call my world, which is
claim administration, the electronic workflow to administrate a claim. And
before we go into pharmacy, this is it doesn't really
doesn't matter if it's medical or pharmacy. You're doing the
same tasks. You're doing eligibility, you're managing networks, you're billing someone,
(02:59):
you're someone, you're doing plan design and accumulators. So this
is that electronic rapper or infrastructure. So where does capital
our exit in there? Is that we started on the
pharmacy benefit side of this electronic workflow administrating claim. So
if you think about a PBM and PBMs often are
given this name the middleman or these mystery people. I
(03:24):
always want to simplify it in saying an employer group
or a health plan is asking someone to administrate their claims.
That's what they're asking of a PBM. The m part,
the management and what that workflow again are these different
pillars if you will, of what I would call workflow
(03:44):
and patient and claim and payment management. And so we
started on the PBM side, and it really was for
us trying to create a more transparent system because I
feel like, and we'll get into this, I'm sure a
little bit more, but there was something is wrong with
the original model.
Speaker 1 (04:02):
Well, maybe talk about that a little bit. You know,
how did the original model or what maybe we traditionally
think about with PBMs and what we see in media
and press, how did that model evolve? Because I don't
think if we started, going back to your discussion about
pharmacy and medical I don't think if we started from zero,
we would have these separate buckets, right.
Speaker 2 (04:23):
I completely agree, and I think there's a lot of
things that goes into the history of healthcare and why
we are in our current kind of setting. But going
to the pharmacy benefit side, nothing really makes sense in
pharmacy benefits. And I have to take you on a
journey with me to have you appreciate my perspective here.
(04:46):
So I started in pharmaceutical manufacturing. I started doing the
driest work possible, which is consulting and helping pharmaceutical manufacturers
convert old supply chain systems. This is on the plant side.
This is not cool stuff, and you would basically be
converting old MRP systems to MRP two to modern ERP
(05:06):
systems like Oracle and SAP, and you blink in eight
years of your life close by. But during that time
I had a first rate education not just in software implementation,
but supply chain logistics and drug pricing. And so towards
the end of my time on the manufacturing side, a
friend of mine came over to me and said, hey,
(05:26):
you're really good with claims data or database work. Could
you help me look at this really big file and
you obviously sign NDAs and you say sure, let me
help you. And I'm like, what am I looking at?
And they're like, this is a PBM data And I'm like,
what's a PBM? Like, aren't you in pharmaceutical And I'm like,
I'm in pharmaceutical manufacturing. I don't know what a PBM is.
(05:47):
And this is an important point. If you ask me
to describe the pharmaceutical supply chain in our country in
the early two thousands, I would say it's very similar
to semiconductors. The other thing is generic drug prices, and
this is what really offended me. Generic drug prices change
price maybe two or three times a year, and it's
always deflating. Generic drugs are typically you know, obviously there's
(06:12):
some limited manufactured product that may break that rule, but
ninety nine percent of generic drugs are deflayed, and no
one understood the price of a drug. And just to
finish on this thought, people ask me like, well, what
were you expecting, And I said, when you go into
a pharmacy, if you want to see how drug pricing
should work globally in the United States, don't go to
(06:32):
the pharmacist. Yet, go to the over the counter section
and reach for a bottle of tailanol or advil or
eye drops, and something magical happens. In the US healthcare system.
It doesn't matter if you're insured or uninsured. It's the
same price. And the only time price will change is
if actual supply and demand or market forces change that price.
If you go across the street to buy a tilan all,
(06:55):
no one is charging you six hundred dollars for a
thirty tablet. And you know, if you want on a
point of finger, I always want to say, you know,
is pharma blameless in this? No, But pharma lost control
of the supply chain years ago, and this is solely
the work of the pharmacy benefit management industry.
Speaker 1 (07:13):
Wow, that was a great synopsis. It's interesting. The example
you brought up is very similar to the one that
Doug Hirsh from Good Our Ax always brings up where
he was shopping for something that was at a network
or something that wasn't covered by his plan, and he
went to eight different pharmacies and eight different prices, and
hence we had Good our.
Speaker 2 (07:27):
Acts exactly right. And it's this artificial variable. And I
use the word artificial because it doesn't have to be
this way.
Speaker 1 (07:36):
So maybe go a little deeper on how you differentiate,
you know, just versus the traditional players as it stands today,
those big three. How is that differentiated in that sales process?
What are the keys that you focus on.
Speaker 2 (07:49):
The first thing we needed to do was to understand
this was going to take us. It took us eight
years to get to a point in which we are
now able to bid on any size customer. But there's
no shortcuts and you have to ground yourself in that.
But how are you winning or what's the differentiator? And
it goes back to this point. The first thing I
say is we're aligned when we look at a mail
(08:12):
order file. But the point of it is. This is
the sole domain of the PBM. And what we find
is sixty days excess, seventy days excess, ninety days excess.
And people are like, well is that bad? Well, first
of all, the drugs just expire. You know, there's an
expiration date, Like, you can't stockpile drugs and be like,
(08:33):
this will be used for five years from today. The
other thing is you want to follow FDA guidelines, which
typically are between seven and fourteen days, depending upon therapeutic category,
and what you're talking about. You should not have eighty
nine days of excess drugs in your cabinet. And this
is happens all the time.
Speaker 1 (08:53):
Well, I'll tell you it happens to me. I have
a maintenance script that's a ninety days script that I
get through the mail, and I have way more of
it than I'm ever going to go through.
Speaker 2 (09:01):
And who would do this, Well, we wouldn't. We have
programmatically a thing that you know, I should say, we
programmatically have a system that looks at the day's supply
that each patient has based upon the current history, and
it will throttle up and down based upon always maintaining
that FDA guideline corridor between seven and fourteen days. So
(09:25):
none of our members should ever have the stockpile. So
this can very easily be solved for But who doesn't
solve for it? If you're making money on drugs, you
want people to have.
Speaker 1 (09:35):
You owned a dispensing pharmacy.
Speaker 2 (09:37):
Exactly right, You're making money twice over. You're making money
on what you have kind of opened the conversation to
is PBMs aren't just administrators anymore. They also are vertically integrate, right,
so they own maybe some retail asset, some mail assets,
some specialty asset, and some what we call GPO aggregation.
(10:00):
Sometimes they even have some sort of relabeler or white
labeler for generic as well as biosims. And it's making
more money on the same patients, and it is to
the detriment of the plan ultimately, because if you're just
an administrator, you're always going to take the lens of
championing the plan and the patient. You know, we want
(10:24):
to give the patient the best service, best oversight, best education,
best chance of outcome, and we want to deliver the
lowest price for the plan and the patient. This is
you know, our charge as the administrator. But the moment
you make money on drugs. I will say, you know,
you immediately have biased It is a textbook definition of
(10:46):
a conflict of interest if you get a better financial
outcome for decision A versus decision B. And so this
is what we started to educate the industry on. But
you have to compete on price. I always say this
is you know, you have national brokers and consultants that
run these RFPs and if you're not competitive, you're not
going to win. And so you first compete on price,
(11:08):
then you compete on service, and historically then you compete
on fiduciary kind of obligation and ethics. You know what
I mean, which is are we aligned? I think that
order is starting to flip a little bit. Okay, you're
seeing larger payers become concerned about because remember I always
(11:29):
like to point this out, no one is buying drugs
twenty or thirty percent cheaper than someone else. You know,
drug pricing, from what I would say, the administrative side
is quite competitive. So what you're really looking at as
a game of inches, like two percent savings for this
person versus three percent you know, in a competitive RFP
at the finish line. So if the finish line is tight,
(11:50):
what is beginning to be overweighted. Is the reverse where Okay,
that was kind of like the prerequisite or table.
Speaker 1 (11:59):
State of sure, you're antia, just be part of the rfpage.
Speaker 2 (12:02):
Yeah, like you're saving money, you're competitive, and you're in
this class of employer group of certain sizes that you service.
But the next thing is going to be you have
really good service levels. You know. One of the things
that we talk about is, you know it's a very
old school brick and mortar is we have a domestic
twenty four seven three sixty five multilingual call center and
(12:23):
people would be like, why don't you outsource that? I go, well,
first of all, I think we have better service by
controlling that narrative internally. And what I mean by that
is we're all in the same system. We'll talk about this,
I'm sure in a bit. Our system is called Judy.
Judy short for Adjudication, and she's the brains of our organization.
But the junior call center analyst or representative is on
(12:44):
the same system as our CFO and everyone in between.
And this gives us complete visibility and control to the
patient and plan experience. And so what we want to
be able to do is deliver better service, and this
means time to respond, first call resolution and we have
one tons and tons of award for call center and
it's so old school in brick and mortar, but it's
(13:05):
so important because if you have a problem, what does
everyone do? You flip over your card and you call
a number.
Speaker 1 (13:09):
Yep, you may try.
Speaker 2 (13:11):
And resolve it on an app, but you know, if
you're trying to resolve something that's very complex, like I
have a prior authorization for a new therapy, it's a
biologic I'm trying to work with my physician and the
PaperWorks missing or what you know, you're not gonna do
they're going to make.
Speaker 1 (13:27):
Yeah, there's a lot of complexity for some of these.
Speaker 2 (13:29):
Some of these absolutely, but these are the calls that
come through usually you know, these are hard problems to solve,
but you want the patient of the best experience. So
service is coming through more and more and fiduciary concerns
under ARISA, where there's this shadow or specter that you know,
maybe we're not being served appropriately under the current model
(13:49):
that if you really had to look at what's going
on for the last twenty five years, these PBMs are
making money on bad decisions.
Speaker 1 (14:00):
Maybe can you go a little bit deeper on that.
You know, if we think about those areas where there
are conflicts, and you highlighted the mail order pharmacy as
an obvious one, but as you think about it, what
are the other big buckets that have massive conflicts from
the traditional PBM perspective.
Speaker 2 (14:14):
Oh well, let's you know, let's start with the shared
responsibility of formulary access. And so I always say, how
is a formulary selected? And you would like to say
words like efficacy and outcomes, And the reality is.
Speaker 1 (14:33):
It's nothing to do with pricing.
Speaker 2 (14:35):
Well, it has to do the pay to play system
of market access. And I call it the prisoner's dilemma.
You know, this Nash equilibrium on drug pricing. And what
I mean by that is, let's just to illustrate the
problem with our formulary structure in the United States. And
(14:56):
PBMs have no interest in changing because they make so
much money. More expense of the drug, the high the
list price. Love it and think about it. So if
you have two manufacturers, Manufacturer A has a drug that
has an annual cost let's use specialty category of forty
thousand dollars a year, and manufacturer B has one for
eighty thousand dollars a year. It's twice the price. And
(15:16):
they're you know, let's say they're clinically equivalent. One might
have a slight advantage, but it's never clear cut. Let's
just say because they're you know, second and third to market,
you know, they're pretty tight in their R and D phase.
It's not like a generational lift on a drug, is
my point. They're very competitive, same indication, same everything. Which
(15:38):
drug makes every PBM's formulay as they're preferring the eighty
thousand dollars drug not the forty thousand, and you would
be like, well, why wouldn't you pick the forty thousand
dollars drug, because if they both have let's just say,
roughly fifty percent rebate and discountload. I want to make
(15:58):
twenty percent on the eighty one thousand dollars drug. I
don't want to make twenty percent gross margin through vertical
integration on the forty thousand dollars drug. And so I
was on the phone the other day with a pharmaceutical
manufacturer and they said, we made such a mistake. A
few years ago. We thought the industry was ready for
the lower cost branded drug and they got destroyed. No
(16:20):
one picked up their drug because the PVM industry is
so focused on the earning side, and so if you
don't make money on drug spend, you don't make money
on rebates, and you're just trying to make the best
clinical decision and managed to low net cost, wonderful things
can happen. And I feel like this is another example
(16:41):
of that conflict of interest that if they were prevented
or just ethically did not make money on the drug
spend side, they would choose, you know, formularias that are
focusing on low net cost with equivalent or better outcomes.
That's the goal. You know. The other thing that we
would talk about is you would stop having this one
(17:03):
size fits all formulary. I joke about this all the time.
My sister and I are genetically similar but have very
different therapeutic needs. Yet every person in the United States
has the same formulary. You know, if we're all members
of X plan, we're all treated the same. That's absurd.
(17:24):
And what we should be focusing on is what we call,
you know, precision medicine and thinking about what's the best
medication for Jonathan, What's the best medication for AJ, even
in the same therapeutic category. You know, I get migraines,
You know what I mean, So what's the best drug
for me? You may get migraines, but we are going
to respond very different to the different triptans in the class.
(17:47):
And this is very important to remember. But in the
current healthcare system, precision medicine doesn't have a prayer of
evolving because nobody, nobody, being legacy gatekeepers, wants it to
move there because they lose their leverage. They want everyone
to buy as a class, and shop as a class,
and react as a class. But the reality is precision
(18:08):
medicine would be better outcomes for everyone and you still
can manage to the appropriate price. And this is a
myth that we can't control pharma if we were to
move off this model. That's again absurdity, And I feel
like this is another example of that conflict playing a
role in holding back the industry.
Speaker 1 (18:30):
Where does the responsibility fall in your mind of a
benefit manager? So they obviously know that their formulae has
the eighty thousand dollars drug versus the forty thousand drug.
I mean, I don't expect every benefit manager to be
savvy enough to understand which one might be better therapeutically
or for critical outcomes. But when does the responsibility kind
(18:50):
of come back to the actual payer, the ultimate payer.
Speaker 2 (18:55):
Maybe under Arissa, if we wanted to read the letter
of the law, it's always been the pay responsibility. But
in reality, I mean, and you know so I always say, legally,
it's the fiduciary's obligation. So under RISA, that's your plan sponsor.
The person that is preventing the information I'm gonna say
is split again. You do have a consultant, and a
(19:18):
consultant is providing you guidance typically on your benefit plan
in general.
Speaker 1 (19:22):
As well as your RFP.
Speaker 2 (19:24):
And we have spent a lot of time over the
last eight years educating consultants and collaborating with consultants, and
for us, I think one of the things that we
want to make note of when you asked that question
is to say, I think the PBM's job is to say, oh,
by the way, I'm trying to win this RFP. And
(19:45):
it depends on which consulting firm is running it. If
I have an evolved, enlightened consulting firm, this is going
to be a joyful moment where we could talk about
loan net cost, we can talk about precision medicine in
the future, we could talk about all these different drivers
and options for you. Because it doesn't change our financial outcome.
We're already bidding on this on a flat fee basis.
(20:08):
I always want to always have people remembers the job
of the PBM is to say, how may I help you?
But I want to educate you on what you could do.
But I also have to navigate this RFP. And then
you have people that are just like, look, highest rebate
is going to win this bid. It is seventy five
percent of the value in a traditional RFP, maybe eighty
(20:29):
percent at this point.
Speaker 1 (20:30):
Really, oh yeah.
Speaker 2 (20:31):
So whoever shows even age, Oh yeah, whoever shows up
with the biggest rebate check wins. But no one is
contemplating low neck cost in that scenario. They're just contemplating
the biggest bucket of money coming over the line. Because remember,
when we're doing an RFP, you're asked to reprice the
existing drugs in the claim file. But there are some
(20:54):
drugs I would never use. They're wasteful. These are branded
products and the generic spin Availa for fifteen years, why
is someone filling this you know, classic example, I don't
know if you caught the interim PBM report from the
FTC as well as some of the congressional oversight, and
some of the drugs that they were you know, really
focusing on were generic oncology junior specialty where these drugs
(21:17):
have list price of five and six thousand dollars in
a branded form, but the generic goes off at one
hundred and eighty dollars, right, I would reprise it at
one hundred and eighty because I would be like, why
am I using the brand? But the mistake and back
to the bias or the inherent conflict, is they just
made a six thousand percent markup on that drug that
(21:38):
that may not have been a mistake. And I think
this is the fundamental flaw that we've ignored for far
too long. But the really you know, hopeful or great
part or inspiring part for me, is we're seeing the
industry shift. I think people are waking up from this
hangover and this reality of like we've probably we overlooked
(22:01):
this for far too long. And what I mean by
that is when I started in this industry in two thousand,
it was about one hundred and twenty billion dollars of
top line drug spend domestic in the US. We're going
to clear eight hundred billion this year. That's five hundred
and fifty percent population shift. To make an equivalent, so
(22:21):
if we had same utilization, same price, that would mean
our population has increased five hundred and fifty percent. It's
more like thirty percent.
Speaker 1 (22:27):
Over that same period.
Speaker 2 (22:28):
So no one can take a victory lap and say
I've kept drug prices down. But the PBM industry has
said that for twenty five years, we keep drug prices down. No,
you have not. The case in point is, why is
our drug spent at an all time high every year?
And there is a direct correlation to the twelve to
(22:52):
fifteen percent trend to the twelve to fifteen percent increase
in YE earnings.
Speaker 1 (22:58):
That's probably one to one. I mean, there's probably some
innovation in there as well. I would argue that's probably
not the main driver, but there's there's got to be
a component of that well, you know, things like carties
or gene therapy.
Speaker 2 (23:10):
I agree the average price prescript is going up, but
we do have a limited patent. It's like, you know
what I mean, your patent protected. No, going back to yeah,
you know, I would say if patents were like electronic devices,
So if you come out with the iPhone whatever up
to the eighteen I don't know we're up to at
this point, but you're gonna get it ninety nine years
(23:33):
on your bad depending upon when you come out of
clinical trials and acceptance. You're lucky if you have a decade,
you know what I mean.
Speaker 1 (23:40):
Unless your humra well, then you're creating entirely.
Speaker 2 (23:45):
That's a different discussion for a different day, and I
think perhaps the FDA has learned some lessons hopefully over
the years on that. But I think the point of
it is there's a real opportunity here for I would say,
the entire industry to benefit from a differentiated approach that
goes back to serving the plan and the patient first.
Speaker 1 (24:07):
So if I read between the lines, it sounds like
you're saying the ultimate payer, the decision maker has woken
up or is more cognizant of the conflicts and is
maybe trying to manage around them. But from a regulatory perspective,
you know, we've seen some stuff in the last year
come out of Washington. We have a completely new administration.
(24:27):
You know, I guess from your perspective, you know, knowing
that this administration might do things a little differently than
the past one, what would you tell them or how
would you educate them and recommend what would you recommend
they do to help fix some of these conflicts of interest.
Speaker 2 (24:42):
I think there was some legislation that was circulated in
December and then for variety of the Warren Bill, Yes, correct,
that didn't have the ability to kind of get the
momentum that it needed, and it was obviously pretty tight
with the election cycle and obviously the new administration coming in.
(25:03):
But I'm you know, I believe those will be revisited.
I do believe they had bipartisan support. I do believe
one of the few bipartisan issues everyone agrees upon is
drugs are a little bit too expensive. So I think
there are two ways to solve for this. I think
first going back to just remove the conflicts of interest.
You know, if you want to be an administrator, administrate
(25:25):
I say that all the time. If you want to
make money on drug spend, be a manufacturer, be a wholesaler,
be a pharmacy, or be a rebate aggregator. But you
can't be both at the same time.
Speaker 1 (25:37):
I think maybe there's probably more, maybe all three, all five.
Speaker 2 (25:42):
Well, most people in the vertically integrated legacy PVA model
own everything you know at this point, and so the
point of it is to say I didn't necessarily you know,
divesting of assets is a little extreme in the original bill,
but I'm just saying a very simple solve or compromises.
If you're the administrator, you just can't use your mail
(26:04):
specialty and rebate services. No one's saying you can have
to get rid of them. So in the accounts where
you're not the aggregator, someone can use or buy those services,
and you can compete in the market fairly in those areas.
I think when you're on the buy and the cell side,
and what I mean by the buy side representing the
payer because you're obviously controlling payments, and on the cell
(26:25):
side you are the fulfillment arm, you're the mail order
specialty rebates. If you're on the buy and sell side,
you just represent yourself at all times, and I think
you need to make a stand. If you're the administrator,
you know, it is an awesome responsibility. I say this
all the time as you're performing hundreds of administrative tasks
on behalf of the plan and the member, and that
(26:46):
integrity has to be absolute. And I think this is
something that has gone overlooked for far, far too long.
So I think the first thing is, yes, I do
believe there might be some legislation or regulatory or site
that could put better guard rails. I always want to
make this fair. I believe that competition is the best
(27:06):
medicine to improve an industry, and I think we're already
providing that pressure in others as well. But I do
believe that I'll always take a tailwind. The other side
of it is this is something that I think Senator
Sanders and other people have very clearly seen, which is
we have other developed nations Germany, UK, France paying a
(27:30):
fraction of the cost of the same medication. And this
is something that goes back to the nineteen seventies where
you have economic committees that basically set up tiered structure
on pricing for drugs, and this is part of a
greater trade negotiation, and it basically says you're a developing nation,
(27:51):
you should just pay the lowest price and for like
you know, somewhat elevated or developed. I don't like that term,
but I'm just using what they have is more advanced.
You get decent pricing, and then the United States you
just get the worst. And in the nineteen seventies early seventies,
the average price of prescription was four dollars and fifty cents.
(28:15):
Fast forward to today, the average price of a drug
is one hundred and thirty dollars. More importantly, the highest
price drug back in the nineteen seventies might have been
five or six hundred dollars. The highest price drug now
in the is millions for you know, sell gene therapy,
take your pick, or even just good old fashioned biologics
can run one hundred grand a year. And so no
(28:38):
one foresaw this acceleration of cost, and this was very
difficult for people to you know, work through, and we've
ignored it for twenty five years. But the example I
like to give is, let's take you know, one of
the hardest things in the world to do, which is
to put a satellite into orbit. And I use this
(29:00):
example all the time because I admire SpaceX because if
you go on their website and you click ride share
and it'll start taking you through like a menu choice
and be like, how many kilograms would you like to
put into orbit one to eight hundred, you know, and
what type of orbit you know would you like to
put it in and etc. At the end of your sequence,
(29:21):
it'd be like, your cost is three point two million dollars.
If I can get a cost to put something into orbit,
why can't get I clear cost for everything else? But
the important thing is it doesn't matter if I'm in
Germany or the United States making that request. It's the
same price outside of currency conversion. Perhaps the other part
of it is, let's take something really complex to build,
like a GPU from Nvidia, like a forty ninety chip.
(29:45):
I don't care where you're standing in the United States,
the latest forty ninety chip is the same price anytime
of day. If I go to Germany, France, the it's
the same price. If I go to Australia, a forty
ninety is the same price. No one can tell me
it's harder to make a biologic versus a forty ninety GPU.
I mean, these are extraordinarily difficult things to construct an architect.
(30:08):
And so my point here is is if we can
have price efficiency in these areas of putting satellites into
space to GPUs, we should be able to have fair,
reasonable trade on drug spend. And so I do believe
if back to the original question, I believe it's removing
(30:29):
the conflicts of interest. I also think there's a discussion.
I don't think this is a demand. I'll leave that
to the administration. But I think there's an equilibrium point,
which is we're all developed nations here. You know, not
to pick on Germany for a second, but if someone's
getting a BMW, you know, and the list price is
forty thousand dollars in Germany, it's roughly forty thousand dollars here.
(30:50):
It's it's not two hundred and forty one thousand dollars
here for the same car, and that's what the drugs are.
That's the delta. It's five x six x. I mean,
I don't know if you remember Senator Sanders and you
had the GLP ones behind him, and he's like, Germany's
paying seventy bucks. Our list price, you know, net of
rebate is five to six hundred. That's not reasonable. So
(31:13):
I do believe there's an equilibrium point, which is, does
the world get to pay seventy dollars for drugs in
that same class, Maybe that appropriate price is one hundred
and seventy five for everyone. And I think the United
States has carried that burden for far too long. And
so when someone this is the argument I hate, when
someone says you're gonna kill R and D, I go,
(31:34):
no one's paying for the R and D for Nvidia
or AMD, or take your pick of every other high
tech organization that has to create the next architecture. And
you want to talk about one of the most competitive
arenas in the world, semiconductor and GPU development and CPU
development is incredibly difficult to keep up with everybody, and
(31:57):
so no one's paying their freight. Hey, I'm going to
pay six thousand dollars for a GPU with Nvidia and
everyone else pays you know, seven hundred eight hundred.
Speaker 1 (32:07):
No that I believe it would never happen.
Speaker 2 (32:11):
I believe the world needs to move off of this point.
And so these are the two areas where I would
focus my time on, you know, really trying to drive
down the costs on drugs for everyone.
Speaker 1 (32:21):
So really to summarize kind of like a reference pricing
discussion in a lot of ways. Yeah, and I used
to work in farmround back in the day, and I
remember when we were talking about Europe that was a
very topical point, Germany versus France, versus Italy, the more developed,
you know, the Big five in Europe. So maybe you know,
as we think about the US system going forward, you know,
(32:42):
it seems like we're moving to more transparency, at least
on the generic side. It seems like there's a convergence
there over the last couple of years. Is that a
fair statement? You know? I think people used to think
of it, and maybe you could tell me if I'm
right or wrong. You know, generics were almost priced as
a class versus the actual drug or molecule itself. But
it seems like now we're getting to a place where
there's a lot more transparency and my whippeitaur at Costco
(33:06):
is going to be within range of my whippetaur at
CVS or wherever I might go. Uh. Is that a
fair statement?
Speaker 2 (33:14):
It has gotten better? You know? And I will say
that is you know, I think a lot of the
PBM industry has operated like a casino in what it is.
It's it's odds at any moment of acceptance of price.
And if you think about it. Statistically, you have greater
(33:36):
than ninety two percent chance of a patient accepting any
price at the register. Those are pretty good odds. And
so when you think about generic drugs, most plans, let's
say statistically fifty five percent of plans have a flat
cope on generics, like right, ten dollars, so it's cope island.
So most people wouldn't know there was a shift. If
(33:58):
you have a deductible plan, you would suddenly recognizes my
lipitour fifteen dollars or sixty dollars, you know, because like, WHOA,
what happened there? So there is still price variability because
I look at claims data as it comes in in
RFPs and everything, and there's still this variance. It still exists.
Has the variance decreased, has it, you know, become tighter?
(34:19):
The answer is yes, But unfortunately there's still a lot
of noise. And there shouldn't be you know.
Speaker 1 (34:28):
Like we have that eighty ninety percent of scripts, like
we should have transparency and visibility on it.
Speaker 2 (34:33):
Well, it's probably ninety two percent you know for some
plans for generic you know utilization, you know, so let's
just say ninety percent of the drugs it should be
like reaching for a can of pepsi or coke. You know,
this is a dollar. Like if you charge me eight
dollars for a can of coke, I would begin to
(34:54):
wonder what's going on. But I think that's the other
problem with drugs is because it it's existed in such
an opaque and dark world for so long. When someone
has presented a price of seventy two dollars, you're like,
I guess that's reasonable when it could be two.
Speaker 1 (35:12):
And I feel like, yeah, there's not the same discovery
mechanisms as there are.
Speaker 2 (35:16):
Other now, and I think there's a lot of shared responsibility,
you know, in this kind of environment of the supply chain.
But I do believe it's getting better. I agree with
your point one hundred percent that most consumers are becoming
smarter shoppers too, which is let me price compare through
different services to figure out is this a reasonable price?
Speaker 1 (35:39):
But there's still a disconnect there, Yes, there's still a disconnect.
We're moving in the right direction.
Speaker 2 (35:43):
We're moving in the right direction. And then branded product,
you know, I see less variance on the list price,
but where you begin to see it is the net price,
which is net of rebate, discount coupon other things that
may be reducing cost. And you know, this is something
that's always bothered me as when people say, you know,
(36:05):
I give like one hundred percent of rebates, like you know, don't.
And my point is, oftentimes when they say this, they're
not talking about the I should say, they're only talking
about it from the lens of the PBM, Like the
PBM is giving one hundred percent of the rebate that's available.
What's the definition of rebate? You know, it's a small R,
not a capital R. But the other part of it
is they're not talking on behalf of the parent organization
(36:26):
in all subsidiaries, you know who else took money out
of that. You're just speaking about the pharmacy arm The
other part of it is when we talk about net
is if you when I learned this when I was
at my role as an auditor, if I were to
look at a fortune fifty company's rebates in the same
year as you know, let's just say a thousand life
(36:49):
two thousand life case, the rebates are of a different magnitude.
So if it's the same drug, why does someone have
more money coming to them? And when you say you're
passing one hundred percent of the rebate through. Well, that
can't be. Are you either giving that other customer more money?
Are you giving me less or a little bit of each?
(37:10):
And you're keeping the difference.
Speaker 1 (37:11):
You know.
Speaker 2 (37:12):
And so unless everyone gets the same price, and that's
the way it should be, you can't trust the system.
And this goes back to that conflict of interest. So
another area of distinction of capital arcs is everyone gets
the same price our admin fee going back to we
charge a flat admin fee and it's five dollars for
you know, a slightly smaller account, and it might be
(37:33):
four dollars for a slightly bigger account. But that's the.
Speaker 1 (37:36):
Only real and that's on each claim.
Speaker 2 (37:38):
Yeah, or it could be pm PM. You know, they're
roughly the same. You know, you have twelve months versus
eleven scripts on average for commercials, so they're pretty tight
either way. But the point of it is when you
when you get back to you know, that conflict of interest,
there's no escaping it, you know what I mean. And
this is something that bothered me for far, far too long,
(38:01):
which is why are patients and plans put in this position?
You know, they never should have been, and I think
for us, we just always wanted to say back to
my tailand all rule you get the same price. Everyone's
the same price until prices change nationally, and we don't
set prices. We use NADAK National Average Drug Acquisition cost
as our reference, and we always tell pharmacies when we negotiate,
(38:24):
you must at least be at this price National Average
Drug equisitions or better some people at better prices, like
Costco for example, Lovely have tons of generics that are
lower cost and they want to provide that lower I'm
all for it, but they love giving us the lower
price because they know we're not encumbering it. I'm not
going to then take their low price and mark it
up twenty percent. And so I think everyone getting the
(38:47):
same price is extraordinarily helpful because it helps us again
train the consumer and patient on what are real prices
so they can't be taken advantage of at the register.
There's a layer of trust and integrity that's built in
that no one is taking advantage of them. And I think, again,
these are things that should not have gone on for
(39:07):
the length of time.
Speaker 1 (39:08):
They have maybe an existential question here switching gears, but
you know, if your model and others takes off or
is taking off, and we see more critical mass going
to you guys versus the big three, you know what
stops them from just acquiring the new model? Yeah, so,
(39:28):
I mean, I think we've seen that story before in
other spaces, where a new flavor comes to market, it
has some success, and now it becomes part of the
bigger organization.
Speaker 2 (39:40):
I was actually talking to a friend who's in finance
the other day and one of the things that we
both observed was that there hasn't been a company that
has achieved incumbency and healthcare in the twenty first century.
And what I mean by that is, you know, there
wasn't this little engine that could that were an upstart
search in and we become Google and we become and
(40:02):
displace everyone, or you know, you could say there was
someone who was you know, take your pick of everything
from e commerce to CRM to whatever. You know, the
new entrant achieves incumbency, you know, it becomes part of
the landscape forever. We don't see that in healthcare very often.
Speaker 1 (40:21):
I'm racking my brain while you're talking, trying to think
of one, but I've nothing's coming to mind.
Speaker 2 (40:25):
Well, we were both challenged about this, and you know,
one of the things that we began to, you know,
think through was why. And I think part of it
is there's a lot of friction to achieve incumbency because
it's built on trust. Back to my earlier point, there
are no shortcuts. You don't just get to knock on
(40:47):
the door and serve as the largest payers in the country.
So you have to earn that trust, earn that right,
and re earn it over and over again. And so
I think that's the first part, which is many companies
may not have the distance, the management team, the financing,
and so it's this comfortable exit, you know, which is like,
(41:09):
you did a good job, you scrappy little company. Now
it's time for you to retire. We're gonna take over
from here. We're gonna help you out, well, we'll solve
your ebidah problem. Well, we'll help you reach more people.
And you know, it's who killed the electric car, you
know what I mean on some level back in the day.
And so I agree with you with that observation. But
(41:33):
I will say, thankfully, you're seeing a new generation of
healthcare companies that are coming to market like us and
even on the medical side, other people and extraordinarily well
funded where you don't have to be exhausted by the
headwind that you can grow and grow responsibly. You know.
(41:55):
I think if there's one thing that came out of
the pandemic and the helcyon days of people having crazy
valuations and burning tons of money was responsibility, which is,
you know, you're threading a needle between growth and appropriate earnings.
And I think this is something that I'm fortunate that
we were able to be part of that transition. And
(42:19):
I think it's having strong investors backing your organization, being
part of your board, agreeing to your mission, and allowing
you the privilege, it's a privilege to try and achieve incumbency.
And that's what we're doing, is you know, we have,
you know, thankfully achieved a significant war chest.
Speaker 1 (42:39):
Yeah. I believe you guys have raised a quarter of
a billion dollars over the years, haven't you somewhere in
that ballpark.
Speaker 2 (42:44):
Three hundred and fifty five?
Speaker 1 (42:45):
Okay, number is off, yeow.
Speaker 2 (42:47):
And so you know, I was proight from the last race.
But what I'm just saying is we have significant capital
because we want the what I say, the ability to
have the runway because remember you're doing two things. You're
investing heavily in R and D. I mean, a great
example is a third we're about eleven hundred employees at
(43:07):
my company. A third of them are engineers, you know,
full stack front end DevOps, secops, you know, take your pick,
you know, product team. You want to have the capital
to achieve the mission to grow productively in your segment.
And this takes time, you know, but you don't want
(43:28):
to sacrifice innovation, you know. I think the one thing
I joke about is healthcare is probably the greatest market
in the United States. People like, why would you say that,
I got it's better than e commerce, banking, real estate,
And they're like why. First off, it's an inelastic demand curve,
doesn't matter if it's boom times or a recession, very defensive.
(43:49):
Extremely other thing is drug prices we just discussed seemingly
always go up one hundred and twenty billion to eight
hundred billion. The other thing is everyone's premium goes up.
Premiums don't go down, you know what I mean unless
you lost people.
Speaker 1 (44:03):
Provider salaries don't go down now.
Speaker 2 (44:05):
And so if everything is going up and you have
this incredibly defensive industry. Yeah, it's the greatest. You want
to buy as much of it as possible. When people
are like I can't believe vertical integration happened, I'd be like,
I can't believe it took so long, because if you're
focused on the business end of it, it makes complete sense.
You don't innovate, you consolidate. You buy every ounce of
(44:29):
this footprint. And I think this is where the FTC,
DOJ Congress people are starting to look into this and
being well.
Speaker 1 (44:35):
Because it feels like they were very much to sleep
at the switch, and I don't know that anybody would have.
We're seeing twenty years.
Speaker 2 (44:42):
Down the road that no, no, I want a.
Speaker 1 (44:44):
Specialty pharmacy would be the size that it is today.
Speaker 2 (44:47):
I didn't know what a PBM was, and I worked
in pharmaceutical side for eight years. I was like, a
pharmacy benefit what And they're like, what do you do?
I go, My life ends at the loading dock. You know,
we've made a palette of lipotour. We're shipping into McKesson, Cardinal,
you know, Amerisource Bergen. I don't have anything else to
do with this. I just assume, you know.
Speaker 1 (45:07):
Yeah right, yeah, but oh medical, that's something merk sol
But I'm not really sure what they do.
Speaker 2 (45:12):
I'm not sure what they did, you know, And it's
it's almost you know, comical, you know, where you could
be industry and overlook these segments. So who am I
to blame, you know, someone from the FTC. Who's got
to be you know, well read in so many different
areas than forget healthcare globally, but digging into the niche
of pharmacy benefits, I mean, not the greatest cocktail hour
(45:36):
discussion topic typically, but I think that's it is. They
just didn't understand to your point, they were just it
seemed like a non event. But it is an event
and it is a big deal now.
Speaker 1 (45:49):
So if we look out in five to ten years,
where do you think the industry is going to be.
Speaker 2 (45:54):
So I think we're seeing this tipping point of fiduciaries, employers,
and plans sponsors understanding they need to have an aligned administrator.
And I do believe you're seeing this unbundling of making
money on drug spend through fulfillment and debaate and pure administration.
I believe that trend will continue and that will be
(46:16):
commonplace going forward, at least for large payers and small
ones still might be bundled under some things, but I
definitely believe that's the first place we're heading. I think
the other area where where you've been spending a tremendous
amount of time on is this concept of unified claim processing.
And you know, back to why did pharmacy go on
(46:37):
its own little way and medical went on its way?
And we do everything twice in the United States, you know,
we we have pharmacy claim administration to medical. So this
means you have two underwriting teams, two billing teams, to
network teams, to reimbursement teams, to clinical teams, to call
center teams. And every time you do something twice, it's
usually twice as expensive. And so we probably you know,
(46:59):
depending upon how you calculate total market of US spend
on healthcare, let's just say it's five trillion dollars, I
would say there's at least a trillion dollars in administrative waste,
and we see it with pharmacy benefits. We effectively administrate
a claim seventy percent cheaper than my competitors and find
a profitable contribution margin there. I think the same is
(47:22):
true for medical, but it's twice as bad because we're
doing it twice So why do we have these two workflows?
I don't really care, it's why don't we put it
on the same system. And first of all, and you
guys have that is yes, So that's where you know,
we started this journey two years ago, and we, you know,
(47:42):
didn't really want to talk about it too much because
if we fall flat on your face, you don't want
the world to know about that. So we did a
little lot of it in stealth mode. But at the
start of this year we launched unified claim. So we
already did pharmacy benefits, you know, commercial caricade, but medical
obviously we have about seventeen eighteen hundred lives and our
benefit plan. We're self insured. So I said, why don't
(48:05):
we do our own medical on our Judy platform. So
at the start of the year Judy went live. We're
processing medical and pharmacy claims on the same platform now.
And I often say, the best test of your system
is your own family. So my wife and kids are
on it, everyone's families are on it, and everyone thinks
it's amazing. It's a much better experience, much more efficient,
(48:28):
there's and the reason why is we talk about when
you define enterprise, you talk about enterprise software. You know, yes,
that means scalable and secure, but it really means a
single source of truth. You're managing multiple work streams on
the same system, so everything understands, you know what I
call it important aspects, time and information.
Speaker 1 (48:49):
And you have that ground truth all in the same place.
Speaker 2 (48:51):
Exactly, so you know you're no longer trying to merge files,
You're no longer making decisions with half the information. There's
safety concerns, there's how could you ever achieve the promise
of value based care and contracting if you can't see
the medical and pharmacy in real time. So for us,
we think unified claim is when you talk about five
years out, is going to be a huge part of
(49:13):
improving healthcare. I'll never claim to be I know what
the best clinical solutions are or the best way to
engage patients, But what I will say is we're the
best plumbers in healthcare. We're going to give you all
the tool sets that you need to administrate your plan
as efficiently as possible, and then deploy all those brilliant ideas.
And so this is a huge part of it. And
(49:34):
the last leg of it is you know, you talk
about artificial intelligence. You know, AI is an incredibly powerful
toolset going forward for healthcare. But one of the things
that we talk about is AI can be trained on
lots of data. But one of the things that's very
powerful about our Duty platform is it's now one place
(49:56):
where you could observe medical and pharmacy in real time,
and not just the claims coming in, but all the
work streams, the call center information, the clinical the billing,
the reimbursement, the network and when you start training a model.
But Judy is not just read only. Judy is read
and write, Judy does things. So if you have AI
(50:18):
that's being trained on your system, yes it's going to
improve your variable cost and improve efficiency more. But the
other part of it is a human being or a
team of human being will never be able to take
in all these data points in real time. So if
someone has emergency surgery, it's already queuing up the billing
and the outpatient service, it's already thinking about your rehab,
it's already contacting your primary care physician. It's the system
(50:41):
is so far in front, and this is what gets
me excited. Is I believe AI is going to drive
even further advancement for patient care. And it's again at
this fundamental administrative level.
Speaker 1 (50:55):
That's great. Maybe we'll wrap up with one last question,
so I like to end these with a little bit
on a personal Now, is there a lesson from your
personal life or your professional experience that really drives you
day today?
Speaker 2 (51:06):
Driving me in this role, you know, is I think
the biggest one for me was coming out of my
old company. And what I mean by this is I
failed in my last role. And what I mean by
this is there was this Netflix moment for me in
my old company. And what I mean by this is
(51:26):
I admire Netflix for many reasons besides being a subscriber.
But I admire Netflix because think about it. Fifteen years ago,
they were mailing us DVDs to our home. So they
had to go to their board of directors and say, hmm,
I have an idea. This thing that we're doing mailing
the DVDs. It pays for everything here, but I think
(51:46):
we're going to sunset it and we're going to start
streaming old content to people's homes and they'll pay us
some you know, a couple bucks to do this, and
they won that argument. They went to their board and
they said, I think we need to evolve and this
is the way to do it, and the board agreed.
And then they went back to their board five or
six years later and said this was pretty good, but
(52:08):
now I think we should become a world class production
house and make our own content. And they're like, like
Sony and Universal and they're like, yeah, like take your
pick comedies to movies, We're going to do them. And
they said okay. And I think that's why Netflix is
in the position that they are today. So they continue
to evolve and continue to push that kind of frontier
(52:31):
of entertainment and engaging with the consumer. I tried that
at my old company, where we were doing audit and procurement,
and I was frustrated because I'm not solving anything. We
built a decent business, but I'm like, hey, we're mailing
out DVDs here. I think we should try and solve
the problem. We need to change this. And I lost
(52:52):
the argument, and that was humbling for me, and it
put me in a very different path and it's very
scary to go back out and try again at any
point in your life, especially when you got young kids
and you're like, I'm going to start from zero again.
(53:13):
But I had lost the argument, and I blame myself
for that, and it was a lesson that sat with me,
which is, if you really believe in the mission, you
really believe what you were trying to explain to your
old board, then go out and do it. And I
think that has been a driving force for me, which
(53:33):
is I never want to lose that argument again. I
want to make sure everybody understands the mission, everyone has conviction,
from my junior employees to my senior management, to my
board of directors, and I want to make sure we
are given every opportunity to execute it, back to having
the runway, help have the strong balance sheet, to set
(53:56):
everyone's expectations on these timetables. And so I think this
is one of the things that has really kept me
focused and pushed me. And I want to say at
the level of being maniacal, but it certainly pushed me.
I never want to go through that again.
Speaker 1 (54:15):
Well, thank you for sharing that. That was fantastic. I
don't think I could have asked for a better answer.
And now we have capital RX. That's a j Oyakano,
CEO and co founder of Capital RX. Thank you so
much for joining us on our latest episode, and please
make sure to click the follow button on your podcast
app so you never miss a discussion with the leaders
in healthcare innovation. I'm Jonathan Palmer, and you've been listening
(54:37):
to the Vanguards of Healthcare podcast by Bloomberg Intelligence. Until
next time, take.
Speaker 2 (54:42):
Care the mass as usual us US asses
Welcome to another episode of Bloomberg Intelligence Vanguards of Healthcare podcasts,
where we speak with the leaders at the forefront of
change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Bloomberg Intelligence, the in
house research term of Bloomberg. I'm thrilled to welcome Ajloyacano,
the CEO and co founder of Capital RX, to the
program today. AJ is a serial entrepreneur with more than
(00:43):
two decades of experience in the world of pharmacy, benefits
and healthcare technology, and since it's founding in twenty seventeen,
Capital RX has been one of the fastest growing companies
in this space. I'm really excited to dive deep into
the world of PBM. So welcome to the podcast. AJ.
Speaker 2 (00:58):
Thank you for having me, John.
Speaker 1 (00:59):
So, maybe let's just jump right in with one sentence,
what's the mission of capital our ax.
Speaker 2 (01:04):
The mission of Capital RX is to give our country
the infrastructure we need for the healthcare we deserve. And
just to kind of clarify that, I always want to
make it, you know, very apparent that we could think
of hundreds of brilliant ideas to improve healthcare but good
luck implementing any of them. On our aging infrastructure, one
(01:26):
of the things that I identified early on is if
we truly wanted to advance or evolve healthcare in this country,
we need to move off of systems that are thirty
to forty years old.
Speaker 1 (01:37):
Good, good start. So maybe let's peel back the onion there.
And so when we talk about the healthcare system and
we talk about PBMs, can you maybe set the table
for us for where the PBMs fit in the industry
and where capital ur ax fits within that landscape of PBMs.
Speaker 2 (01:52):
Yeah. I always want to take it, you know, as
high as you can go up, you know, for people
to kind of think through their own personal experiences day
to day with healthcare. And so I often say there
are two electronic workflows in the United States for healthcare.
The first one is what we call EMR EHR. This
is your experience at a doctor's office or it could
(02:14):
be a health system, a hospital setting. And this is
the system to what I call create a claim in
the US healthcare system. So these are systems that do
things like scheduling, decision support. But the moment a prescription
is prescribed or you have some sort of procedure. You're done.
You have created some sort of insurance claim in the
(02:35):
United States, and it disappears from this workflow and it
moves over to what I call my world, which is
claim administration, the electronic workflow to administrate a claim. And
before we go into pharmacy, this is it doesn't really
doesn't matter if it's medical or pharmacy. You're doing the
same tasks. You're doing eligibility, you're managing networks, you're billing someone,
(02:59):
you're someone, you're doing plan design and accumulators. So this
is that electronic rapper or infrastructure. So where does capital
our exit in there? Is that we started on the
pharmacy benefit side of this electronic workflow administrating claim. So
if you think about a PBM and PBMs often are
given this name the middleman or these mystery people. I
(03:24):
always want to simplify it in saying an employer group
or a health plan is asking someone to administrate their claims.
That's what they're asking of a PBM. The m part,
the management and what that workflow again are these different
pillars if you will, of what I would call workflow
(03:44):
and patient and claim and payment management. And so we
started on the PBM side, and it really was for
us trying to create a more transparent system because I
feel like, and we'll get into this, I'm sure a
little bit more, but there was something is wrong with
the original model.
Speaker 1 (04:02):
Well, maybe talk about that a little bit. You know,
how did the original model or what maybe we traditionally
think about with PBMs and what we see in media
and press, how did that model evolve? Because I don't
think if we started, going back to your discussion about
pharmacy and medical I don't think if we started from zero,
we would have these separate buckets, right.
Speaker 2 (04:23):
I completely agree, and I think there's a lot of
things that goes into the history of healthcare and why
we are in our current kind of setting. But going
to the pharmacy benefit side, nothing really makes sense in
pharmacy benefits. And I have to take you on a
journey with me to have you appreciate my perspective here.
(04:46):
So I started in pharmaceutical manufacturing. I started doing the
driest work possible, which is consulting and helping pharmaceutical manufacturers
convert old supply chain systems. This is on the plant side.
This is not cool stuff, and you would basically be
converting old MRP systems to MRP two to modern ERP
(05:06):
systems like Oracle and SAP, and you blink in eight
years of your life close by. But during that time
I had a first rate education not just in software implementation,
but supply chain logistics and drug pricing. And so towards
the end of my time on the manufacturing side, a
friend of mine came over to me and said, hey,
(05:26):
you're really good with claims data or database work. Could
you help me look at this really big file and
you obviously sign NDAs and you say sure, let me
help you. And I'm like, what am I looking at?
And they're like, this is a PBM data And I'm like,
what's a PBM? Like, aren't you in pharmaceutical And I'm like,
I'm in pharmaceutical manufacturing. I don't know what a PBM is.
(05:47):
And this is an important point. If you ask me
to describe the pharmaceutical supply chain in our country in
the early two thousands, I would say it's very similar
to semiconductors. The other thing is generic drug prices, and
this is what really offended me. Generic drug prices change
price maybe two or three times a year, and it's
always deflating. Generic drugs are typically you know, obviously there's
(06:12):
some limited manufactured product that may break that rule, but
ninety nine percent of generic drugs are deflayed, and no
one understood the price of a drug. And just to
finish on this thought, people ask me like, well, what
were you expecting, And I said, when you go into
a pharmacy, if you want to see how drug pricing
should work globally in the United States, don't go to
(06:32):
the pharmacist. Yet, go to the over the counter section
and reach for a bottle of tailanol or advil or
eye drops, and something magical happens. In the US healthcare system.
It doesn't matter if you're insured or uninsured. It's the
same price. And the only time price will change is
if actual supply and demand or market forces change that price.
If you go across the street to buy a tilan all,
(06:55):
no one is charging you six hundred dollars for a
thirty tablet. And you know, if you want on a
point of finger, I always want to say, you know,
is pharma blameless in this? No, But pharma lost control
of the supply chain years ago, and this is solely
the work of the pharmacy benefit management industry.
Speaker 1 (07:13):
Wow, that was a great synopsis. It's interesting. The example
you brought up is very similar to the one that
Doug Hirsh from Good Our Ax always brings up where
he was shopping for something that was at a network
or something that wasn't covered by his plan, and he
went to eight different pharmacies and eight different prices, and
hence we had Good our.
Speaker 2 (07:27):
Acts exactly right. And it's this artificial variable. And I
use the word artificial because it doesn't have to be
this way.
Speaker 1 (07:36):
So maybe go a little deeper on how you differentiate,
you know, just versus the traditional players as it stands today,
those big three. How is that differentiated in that sales process?
What are the keys that you focus on.
Speaker 2 (07:49):
The first thing we needed to do was to understand
this was going to take us. It took us eight
years to get to a point in which we are
now able to bid on any size customer. But there's
no shortcuts and you have to ground yourself in that.
But how are you winning or what's the differentiator? And
it goes back to this point. The first thing I
say is we're aligned when we look at a mail
(08:12):
order file. But the point of it is. This is
the sole domain of the PBM. And what we find
is sixty days excess, seventy days excess, ninety days excess.
And people are like, well is that bad? Well, first
of all, the drugs just expire. You know, there's an
expiration date, Like, you can't stockpile drugs and be like,
(08:33):
this will be used for five years from today. The
other thing is you want to follow FDA guidelines, which
typically are between seven and fourteen days, depending upon therapeutic category,
and what you're talking about. You should not have eighty
nine days of excess drugs in your cabinet. And this
is happens all the time.
Speaker 1 (08:53):
Well, I'll tell you it happens to me. I have
a maintenance script that's a ninety days script that I
get through the mail, and I have way more of
it than I'm ever going to go through.
Speaker 2 (09:01):
And who would do this, Well, we wouldn't. We have
programmatically a thing that you know, I should say, we
programmatically have a system that looks at the day's supply
that each patient has based upon the current history, and
it will throttle up and down based upon always maintaining
that FDA guideline corridor between seven and fourteen days. So
(09:25):
none of our members should ever have the stockpile. So
this can very easily be solved for But who doesn't
solve for it? If you're making money on drugs, you
want people to have.
Speaker 1 (09:35):
You owned a dispensing pharmacy.
Speaker 2 (09:37):
Exactly right, You're making money twice over. You're making money
on what you have kind of opened the conversation to
is PBMs aren't just administrators anymore. They also are vertically integrate, right,
so they own maybe some retail asset, some mail assets,
some specialty asset, and some what we call GPO aggregation.
(10:00):
Sometimes they even have some sort of relabeler or white
labeler for generic as well as biosims. And it's making
more money on the same patients, and it is to
the detriment of the plan ultimately, because if you're just
an administrator, you're always going to take the lens of
championing the plan and the patient. You know, we want
(10:24):
to give the patient the best service, best oversight, best education,
best chance of outcome, and we want to deliver the
lowest price for the plan and the patient. This is
you know, our charge as the administrator. But the moment
you make money on drugs. I will say, you know,
you immediately have biased It is a textbook definition of
(10:46):
a conflict of interest if you get a better financial
outcome for decision A versus decision B. And so this
is what we started to educate the industry on. But
you have to compete on price. I always say this
is you know, you have national brokers and consultants that
run these RFPs and if you're not competitive, you're not
going to win. And so you first compete on price,
(11:08):
then you compete on service, and historically then you compete
on fiduciary kind of obligation and ethics. You know what
I mean, which is are we aligned? I think that
order is starting to flip a little bit. Okay, you're
seeing larger payers become concerned about because remember I always
(11:29):
like to point this out, no one is buying drugs
twenty or thirty percent cheaper than someone else. You know,
drug pricing, from what I would say, the administrative side
is quite competitive. So what you're really looking at as
a game of inches, like two percent savings for this
person versus three percent you know, in a competitive RFP
at the finish line. So if the finish line is tight,
(11:50):
what is beginning to be overweighted. Is the reverse where Okay,
that was kind of like the prerequisite or table.
Speaker 1 (11:59):
State of sure, you're antia, just be part of the rfpage.
Speaker 2 (12:02):
Yeah, like you're saving money, you're competitive, and you're in
this class of employer group of certain sizes that you service.
But the next thing is going to be you have
really good service levels. You know. One of the things
that we talk about is, you know it's a very
old school brick and mortar is we have a domestic
twenty four seven three sixty five multilingual call center and
(12:23):
people would be like, why don't you outsource that? I go, well,
first of all, I think we have better service by
controlling that narrative internally. And what I mean by that
is we're all in the same system. We'll talk about this,
I'm sure in a bit. Our system is called Judy.
Judy short for Adjudication, and she's the brains of our organization.
But the junior call center analyst or representative is on
(12:44):
the same system as our CFO and everyone in between.
And this gives us complete visibility and control to the
patient and plan experience. And so what we want to
be able to do is deliver better service, and this
means time to respond, first call resolution and we have
one tons and tons of award for call center and
it's so old school in brick and mortar, but it's
(13:05):
so important because if you have a problem, what does
everyone do? You flip over your card and you call
a number.
Speaker 1 (13:09):
Yep, you may try.
Speaker 2 (13:11):
And resolve it on an app, but you know, if
you're trying to resolve something that's very complex, like I
have a prior authorization for a new therapy, it's a
biologic I'm trying to work with my physician and the
PaperWorks missing or what you know, you're not gonna do
they're going to make.
Speaker 1 (13:27):
Yeah, there's a lot of complexity for some of these.
Speaker 2 (13:29):
Some of these absolutely, but these are the calls that
come through usually you know, these are hard problems to solve,
but you want the patient of the best experience. So
service is coming through more and more and fiduciary concerns
under ARISA, where there's this shadow or specter that you know,
maybe we're not being served appropriately under the current model
(13:49):
that if you really had to look at what's going
on for the last twenty five years, these PBMs are
making money on bad decisions.
Speaker 1 (14:00):
Maybe can you go a little bit deeper on that.
You know, if we think about those areas where there
are conflicts, and you highlighted the mail order pharmacy as
an obvious one, but as you think about it, what
are the other big buckets that have massive conflicts from
the traditional PBM perspective.
Speaker 2 (14:14):
Oh well, let's you know, let's start with the shared
responsibility of formulary access. And so I always say, how
is a formulary selected? And you would like to say
words like efficacy and outcomes, And the reality is.
Speaker 1 (14:33):
It's nothing to do with pricing.
Speaker 2 (14:35):
Well, it has to do the pay to play system
of market access. And I call it the prisoner's dilemma.
You know, this Nash equilibrium on drug pricing. And what
I mean by that is, let's just to illustrate the
problem with our formulary structure in the United States. And
(14:56):
PBMs have no interest in changing because they make so
much money. More expense of the drug, the high the
list price. Love it and think about it. So if
you have two manufacturers, Manufacturer A has a drug that
has an annual cost let's use specialty category of forty
thousand dollars a year, and manufacturer B has one for
eighty thousand dollars a year. It's twice the price. And
(15:16):
they're you know, let's say they're clinically equivalent. One might
have a slight advantage, but it's never clear cut. Let's
just say because they're you know, second and third to market,
you know, they're pretty tight in their R and D phase.
It's not like a generational lift on a drug, is
my point. They're very competitive, same indication, same everything. Which
(15:38):
drug makes every PBM's formulay as they're preferring the eighty
thousand dollars drug not the forty thousand, and you would
be like, well, why wouldn't you pick the forty thousand
dollars drug, because if they both have let's just say,
roughly fifty percent rebate and discountload. I want to make
(15:58):
twenty percent on the eighty one thousand dollars drug. I
don't want to make twenty percent gross margin through vertical
integration on the forty thousand dollars drug. And so I
was on the phone the other day with a pharmaceutical
manufacturer and they said, we made such a mistake. A
few years ago. We thought the industry was ready for
the lower cost branded drug and they got destroyed. No
(16:20):
one picked up their drug because the PVM industry is
so focused on the earning side, and so if you
don't make money on drug spend, you don't make money
on rebates, and you're just trying to make the best
clinical decision and managed to low net cost, wonderful things
can happen. And I feel like this is another example
(16:41):
of that conflict of interest that if they were prevented
or just ethically did not make money on the drug
spend side, they would choose, you know, formularias that are
focusing on low net cost with equivalent or better outcomes.
That's the goal. You know. The other thing that we
would talk about is you would stop having this one
(17:03):
size fits all formulary. I joke about this all the time.
My sister and I are genetically similar but have very
different therapeutic needs. Yet every person in the United States
has the same formulary. You know, if we're all members
of X plan, we're all treated the same. That's absurd.
(17:24):
And what we should be focusing on is what we call,
you know, precision medicine and thinking about what's the best
medication for Jonathan, What's the best medication for AJ, even
in the same therapeutic category. You know, I get migraines,
You know what I mean, So what's the best drug
for me? You may get migraines, but we are going
to respond very different to the different triptans in the class.
(17:47):
And this is very important to remember. But in the
current healthcare system, precision medicine doesn't have a prayer of
evolving because nobody, nobody, being legacy gatekeepers, wants it to
move there because they lose their leverage. They want everyone
to buy as a class, and shop as a class,
and react as a class. But the reality is precision
(18:08):
medicine would be better outcomes for everyone and you still
can manage to the appropriate price. And this is a
myth that we can't control pharma if we were to
move off this model. That's again absurdity, And I feel
like this is another example of that conflict playing a
role in holding back the industry.
Speaker 1 (18:30):
Where does the responsibility fall in your mind of a
benefit manager? So they obviously know that their formulae has
the eighty thousand dollars drug versus the forty thousand drug.
I mean, I don't expect every benefit manager to be
savvy enough to understand which one might be better therapeutically
or for critical outcomes. But when does the responsibility kind
(18:50):
of come back to the actual payer, the ultimate payer.
Speaker 2 (18:55):
Maybe under Arissa, if we wanted to read the letter
of the law, it's always been the pay responsibility. But
in reality, I mean, and you know so I always say, legally,
it's the fiduciary's obligation. So under RISA, that's your plan sponsor.
The person that is preventing the information I'm gonna say
is split again. You do have a consultant, and a
(19:18):
consultant is providing you guidance typically on your benefit plan
in general.
Speaker 1 (19:22):
As well as your RFP.
Speaker 2 (19:24):
And we have spent a lot of time over the
last eight years educating consultants and collaborating with consultants, and
for us, I think one of the things that we
want to make note of when you asked that question
is to say, I think the PBM's job is to say, oh,
by the way, I'm trying to win this RFP. And
(19:45):
it depends on which consulting firm is running it. If
I have an evolved, enlightened consulting firm, this is going
to be a joyful moment where we could talk about
loan net cost, we can talk about precision medicine in
the future, we could talk about all these different drivers
and options for you. Because it doesn't change our financial outcome.
We're already bidding on this on a flat fee basis.
(20:08):
I always want to always have people remembers the job
of the PBM is to say, how may I help you?
But I want to educate you on what you could do.
But I also have to navigate this RFP. And then
you have people that are just like, look, highest rebate
is going to win this bid. It is seventy five
percent of the value in a traditional RFP, maybe eighty
(20:29):
percent at this point.
Speaker 1 (20:30):
Really, oh yeah.
Speaker 2 (20:31):
So whoever shows even age, Oh yeah, whoever shows up
with the biggest rebate check wins. But no one is
contemplating low neck cost in that scenario. They're just contemplating
the biggest bucket of money coming over the line. Because remember,
when we're doing an RFP, you're asked to reprice the
existing drugs in the claim file. But there are some
(20:54):
drugs I would never use. They're wasteful. These are branded
products and the generic spin Availa for fifteen years, why
is someone filling this you know, classic example, I don't
know if you caught the interim PBM report from the
FTC as well as some of the congressional oversight, and
some of the drugs that they were you know, really
focusing on were generic oncology junior specialty where these drugs
(21:17):
have list price of five and six thousand dollars in
a branded form, but the generic goes off at one
hundred and eighty dollars, right, I would reprise it at
one hundred and eighty because I would be like, why
am I using the brand? But the mistake and back
to the bias or the inherent conflict, is they just
made a six thousand percent markup on that drug that
(21:38):
that may not have been a mistake. And I think
this is the fundamental flaw that we've ignored for far
too long. But the really you know, hopeful or great
part or inspiring part for me, is we're seeing the
industry shift. I think people are waking up from this
hangover and this reality of like we've probably we overlooked
(22:01):
this for far too long. And what I mean by
that is when I started in this industry in two thousand,
it was about one hundred and twenty billion dollars of
top line drug spend domestic in the US. We're going
to clear eight hundred billion this year. That's five hundred
and fifty percent population shift. To make an equivalent, so
(22:21):
if we had same utilization, same price, that would mean
our population has increased five hundred and fifty percent. It's
more like thirty percent.
Speaker 1 (22:27):
Over that same period.
Speaker 2 (22:28):
So no one can take a victory lap and say
I've kept drug prices down. But the PBM industry has
said that for twenty five years, we keep drug prices down. No,
you have not. The case in point is, why is
our drug spent at an all time high every year?
And there is a direct correlation to the twelve to
(22:52):
fifteen percent trend to the twelve to fifteen percent increase
in YE earnings.
Speaker 1 (22:58):
That's probably one to one. I mean, there's probably some
innovation in there as well. I would argue that's probably
not the main driver, but there's there's got to be
a component of that well, you know, things like carties
or gene therapy.
Speaker 2 (23:10):
I agree the average price prescript is going up, but
we do have a limited patent. It's like, you know
what I mean, your patent protected. No, going back to yeah,
you know, I would say if patents were like electronic devices,
So if you come out with the iPhone whatever up
to the eighteen I don't know we're up to at
this point, but you're gonna get it ninety nine years
(23:33):
on your bad depending upon when you come out of
clinical trials and acceptance. You're lucky if you have a decade,
you know what I mean.
Speaker 1 (23:40):
Unless your humra well, then you're creating entirely.
Speaker 2 (23:45):
That's a different discussion for a different day, and I
think perhaps the FDA has learned some lessons hopefully over
the years on that. But I think the point of
it is there's a real opportunity here for I would say,
the entire industry to benefit from a differentiated approach that
goes back to serving the plan and the patient first.
Speaker 1 (24:07):
So if I read between the lines, it sounds like
you're saying the ultimate payer, the decision maker has woken
up or is more cognizant of the conflicts and is
maybe trying to manage around them. But from a regulatory perspective,
you know, we've seen some stuff in the last year
come out of Washington. We have a completely new administration.
(24:27):
You know, I guess from your perspective, you know, knowing
that this administration might do things a little differently than
the past one, what would you tell them or how
would you educate them and recommend what would you recommend
they do to help fix some of these conflicts of interest.
Speaker 2 (24:42):
I think there was some legislation that was circulated in
December and then for variety of the Warren Bill, Yes, correct,
that didn't have the ability to kind of get the
momentum that it needed, and it was obviously pretty tight
with the election cycle and obviously the new administration coming in.
(25:03):
But I'm you know, I believe those will be revisited.
I do believe they had bipartisan support. I do believe
one of the few bipartisan issues everyone agrees upon is
drugs are a little bit too expensive. So I think
there are two ways to solve for this. I think
first going back to just remove the conflicts of interest.
You know, if you want to be an administrator, administrate
(25:25):
I say that all the time. If you want to
make money on drug spend, be a manufacturer, be a wholesaler,
be a pharmacy, or be a rebate aggregator. But you
can't be both at the same time.
Speaker 1 (25:37):
I think maybe there's probably more, maybe all three, all five.
Speaker 2 (25:42):
Well, most people in the vertically integrated legacy PVA model
own everything you know at this point, and so the
point of it is to say I didn't necessarily you know,
divesting of assets is a little extreme in the original bill,
but I'm just saying a very simple solve or compromises.
If you're the administrator, you just can't use your mail
(26:04):
specialty and rebate services. No one's saying you can have
to get rid of them. So in the accounts where
you're not the aggregator, someone can use or buy those services,
and you can compete in the market fairly in those areas.
I think when you're on the buy and the cell side,
and what I mean by the buy side representing the
payer because you're obviously controlling payments, and on the cell
(26:25):
side you are the fulfillment arm, you're the mail order
specialty rebates. If you're on the buy and sell side,
you just represent yourself at all times, and I think
you need to make a stand. If you're the administrator,
you know, it is an awesome responsibility. I say this
all the time as you're performing hundreds of administrative tasks
on behalf of the plan and the member, and that
(26:46):
integrity has to be absolute. And I think this is
something that has gone overlooked for far, far too long.
So I think the first thing is, yes, I do
believe there might be some legislation or regulatory or site
that could put better guard rails. I always want to
make this fair. I believe that competition is the best
(27:06):
medicine to improve an industry, and I think we're already
providing that pressure in others as well. But I do
believe that I'll always take a tailwind. The other side
of it is this is something that I think Senator
Sanders and other people have very clearly seen, which is
we have other developed nations Germany, UK, France paying a
(27:30):
fraction of the cost of the same medication. And this
is something that goes back to the nineteen seventies where
you have economic committees that basically set up tiered structure
on pricing for drugs, and this is part of a
greater trade negotiation, and it basically says you're a developing nation,
(27:51):
you should just pay the lowest price and for like
you know, somewhat elevated or developed. I don't like that term,
but I'm just using what they have is more advanced.
You get decent pricing, and then the United States you
just get the worst. And in the nineteen seventies early seventies,
the average price of prescription was four dollars and fifty cents.
(28:15):
Fast forward to today, the average price of a drug
is one hundred and thirty dollars. More importantly, the highest
price drug back in the nineteen seventies might have been
five or six hundred dollars. The highest price drug now
in the is millions for you know, sell gene therapy,
take your pick, or even just good old fashioned biologics
can run one hundred grand a year. And so no
(28:38):
one foresaw this acceleration of cost, and this was very
difficult for people to you know, work through, and we've
ignored it for twenty five years. But the example I
like to give is, let's take you know, one of
the hardest things in the world to do, which is
to put a satellite into orbit. And I use this
(29:00):
example all the time because I admire SpaceX because if
you go on their website and you click ride share
and it'll start taking you through like a menu choice
and be like, how many kilograms would you like to
put into orbit one to eight hundred, you know, and
what type of orbit you know would you like to
put it in and etc. At the end of your sequence,
(29:21):
it'd be like, your cost is three point two million dollars.
If I can get a cost to put something into orbit,
why can't get I clear cost for everything else? But
the important thing is it doesn't matter if I'm in
Germany or the United States making that request. It's the
same price outside of currency conversion. Perhaps the other part
of it is, let's take something really complex to build,
like a GPU from Nvidia, like a forty ninety chip.
(29:45):
I don't care where you're standing in the United States,
the latest forty ninety chip is the same price anytime
of day. If I go to Germany, France, the it's
the same price. If I go to Australia, a forty
ninety is the same price. No one can tell me
it's harder to make a biologic versus a forty ninety GPU.
I mean, these are extraordinarily difficult things to construct an architect.
(30:08):
And so my point here is is if we can
have price efficiency in these areas of putting satellites into
space to GPUs, we should be able to have fair,
reasonable trade on drug spend. And so I do believe
if back to the original question, I believe it's removing
(30:29):
the conflicts of interest. I also think there's a discussion.
I don't think this is a demand. I'll leave that
to the administration. But I think there's an equilibrium point,
which is we're all developed nations here. You know, not
to pick on Germany for a second, but if someone's
getting a BMW, you know, and the list price is
forty thousand dollars in Germany, it's roughly forty thousand dollars here.
(30:50):
It's it's not two hundred and forty one thousand dollars
here for the same car, and that's what the drugs are.
That's the delta. It's five x six x. I mean,
I don't know if you remember Senator Sanders and you
had the GLP ones behind him, and he's like, Germany's
paying seventy bucks. Our list price, you know, net of
rebate is five to six hundred. That's not reasonable. So
(31:13):
I do believe there's an equilibrium point, which is, does
the world get to pay seventy dollars for drugs in
that same class, Maybe that appropriate price is one hundred
and seventy five for everyone. And I think the United
States has carried that burden for far too long. And
so when someone this is the argument I hate, when
someone says you're gonna kill R and D, I go,
(31:34):
no one's paying for the R and D for Nvidia
or AMD, or take your pick of every other high
tech organization that has to create the next architecture. And
you want to talk about one of the most competitive
arenas in the world, semiconductor and GPU development and CPU
development is incredibly difficult to keep up with everybody, and
(31:57):
so no one's paying their freight. Hey, I'm going to
pay six thousand dollars for a GPU with Nvidia and
everyone else pays you know, seven hundred eight hundred.
Speaker 1 (32:07):
No that I believe it would never happen.
Speaker 2 (32:11):
I believe the world needs to move off of this point.
And so these are the two areas where I would
focus my time on, you know, really trying to drive
down the costs on drugs for everyone.
Speaker 1 (32:21):
So really to summarize kind of like a reference pricing
discussion in a lot of ways. Yeah, and I used
to work in farmround back in the day, and I
remember when we were talking about Europe that was a
very topical point, Germany versus France, versus Italy, the more developed,
you know, the Big five in Europe. So maybe you know,
as we think about the US system going forward, you know,
(32:42):
it seems like we're moving to more transparency, at least
on the generic side. It seems like there's a convergence
there over the last couple of years. Is that a
fair statement? You know? I think people used to think
of it, and maybe you could tell me if I'm
right or wrong. You know, generics were almost priced as
a class versus the actual drug or molecule itself. But
it seems like now we're getting to a place where
there's a lot more transparency and my whippeitaur at Costco
(33:06):
is going to be within range of my whippetaur at
CVS or wherever I might go. Uh. Is that a
fair statement?
Speaker 2 (33:14):
It has gotten better? You know? And I will say
that is you know, I think a lot of the
PBM industry has operated like a casino in what it is.
It's it's odds at any moment of acceptance of price.
And if you think about it. Statistically, you have greater
(33:36):
than ninety two percent chance of a patient accepting any
price at the register. Those are pretty good odds. And
so when you think about generic drugs, most plans, let's
say statistically fifty five percent of plans have a flat
cope on generics, like right, ten dollars, so it's cope island.
So most people wouldn't know there was a shift. If
(33:58):
you have a deductible plan, you would suddenly recognizes my
lipitour fifteen dollars or sixty dollars, you know, because like, WHOA,
what happened there? So there is still price variability because
I look at claims data as it comes in in
RFPs and everything, and there's still this variance. It still exists.
Has the variance decreased, has it, you know, become tighter?
(34:19):
The answer is yes, But unfortunately there's still a lot
of noise. And there shouldn't be you know.
Speaker 1 (34:28):
Like we have that eighty ninety percent of scripts, like
we should have transparency and visibility on it.
Speaker 2 (34:33):
Well, it's probably ninety two percent you know for some
plans for generic you know utilization, you know, so let's
just say ninety percent of the drugs it should be
like reaching for a can of pepsi or coke. You know,
this is a dollar. Like if you charge me eight
dollars for a can of coke, I would begin to
(34:54):
wonder what's going on. But I think that's the other
problem with drugs is because it it's existed in such
an opaque and dark world for so long. When someone
has presented a price of seventy two dollars, you're like,
I guess that's reasonable when it could be two.
Speaker 1 (35:12):
And I feel like, yeah, there's not the same discovery
mechanisms as there are.
Speaker 2 (35:16):
Other now, and I think there's a lot of shared responsibility,
you know, in this kind of environment of the supply chain.
But I do believe it's getting better. I agree with
your point one hundred percent that most consumers are becoming
smarter shoppers too, which is let me price compare through
different services to figure out is this a reasonable price?
Speaker 1 (35:39):
But there's still a disconnect there, Yes, there's still a disconnect.
We're moving in the right direction.
Speaker 2 (35:43):
We're moving in the right direction. And then branded product,
you know, I see less variance on the list price,
but where you begin to see it is the net price,
which is net of rebate, discount coupon other things that
may be reducing cost. And you know, this is something
that's always bothered me as when people say, you know,
(36:05):
I give like one hundred percent of rebates, like you know, don't.
And my point is, oftentimes when they say this, they're
not talking about the I should say, they're only talking
about it from the lens of the PBM, Like the
PBM is giving one hundred percent of the rebate that's available.
What's the definition of rebate? You know, it's a small R,
not a capital R. But the other part of it
is they're not talking on behalf of the parent organization
(36:26):
in all subsidiaries, you know who else took money out
of that. You're just speaking about the pharmacy arm The
other part of it is when we talk about net
is if you when I learned this when I was
at my role as an auditor, if I were to
look at a fortune fifty company's rebates in the same
year as you know, let's just say a thousand life
(36:49):
two thousand life case, the rebates are of a different magnitude.
So if it's the same drug, why does someone have
more money coming to them? And when you say you're
passing one hundred percent of the rebate through. Well, that
can't be. Are you either giving that other customer more money?
Are you giving me less or a little bit of each?
(37:10):
And you're keeping the difference.
Speaker 1 (37:11):
You know.
Speaker 2 (37:12):
And so unless everyone gets the same price, and that's
the way it should be, you can't trust the system.
And this goes back to that conflict of interest. So
another area of distinction of capital arcs is everyone gets
the same price our admin fee going back to we
charge a flat admin fee and it's five dollars for
you know, a slightly smaller account, and it might be
(37:33):
four dollars for a slightly bigger account. But that's the.
Speaker 1 (37:36):
Only real and that's on each claim.
Speaker 2 (37:38):
Yeah, or it could be pm PM. You know, they're
roughly the same. You know, you have twelve months versus
eleven scripts on average for commercials, so they're pretty tight
either way. But the point of it is when you
when you get back to you know, that conflict of interest,
there's no escaping it, you know what I mean. And
this is something that bothered me for far, far too long,
(38:01):
which is why are patients and plans put in this position?
You know, they never should have been, and I think
for us, we just always wanted to say back to
my tailand all rule you get the same price. Everyone's
the same price until prices change nationally, and we don't
set prices. We use NADAK National Average Drug Acquisition cost
as our reference, and we always tell pharmacies when we negotiate,
(38:24):
you must at least be at this price National Average
Drug equisitions or better some people at better prices, like
Costco for example, Lovely have tons of generics that are
lower cost and they want to provide that lower I'm
all for it, but they love giving us the lower
price because they know we're not encumbering it. I'm not
going to then take their low price and mark it
up twenty percent. And so I think everyone getting the
(38:47):
same price is extraordinarily helpful because it helps us again
train the consumer and patient on what are real prices
so they can't be taken advantage of at the register.
There's a layer of trust and integrity that's built in
that no one is taking advantage of them. And I think, again,
these are things that should not have gone on for
(39:07):
the length of time.
Speaker 1 (39:08):
They have maybe an existential question here switching gears, but
you know, if your model and others takes off or
is taking off, and we see more critical mass going
to you guys versus the big three, you know what
stops them from just acquiring the new model? Yeah, so,
(39:28):
I mean, I think we've seen that story before in
other spaces, where a new flavor comes to market, it
has some success, and now it becomes part of the
bigger organization.
Speaker 2 (39:40):
I was actually talking to a friend who's in finance
the other day and one of the things that we
both observed was that there hasn't been a company that
has achieved incumbency and healthcare in the twenty first century.
And what I mean by that is, you know, there
wasn't this little engine that could that were an upstart
search in and we become Google and we become and
(40:02):
displace everyone, or you know, you could say there was
someone who was you know, take your pick of everything
from e commerce to CRM to whatever. You know, the
new entrant achieves incumbency, you know, it becomes part of
the landscape forever. We don't see that in healthcare very often.
Speaker 1 (40:21):
I'm racking my brain while you're talking, trying to think
of one, but I've nothing's coming to mind.
Speaker 2 (40:25):
Well, we were both challenged about this, and you know,
one of the things that we began to, you know,
think through was why. And I think part of it
is there's a lot of friction to achieve incumbency because
it's built on trust. Back to my earlier point, there
are no shortcuts. You don't just get to knock on
(40:47):
the door and serve as the largest payers in the country.
So you have to earn that trust, earn that right,
and re earn it over and over again. And so
I think that's the first part, which is many companies
may not have the distance, the management team, the financing,
and so it's this comfortable exit, you know, which is like,
(41:09):
you did a good job, you scrappy little company. Now
it's time for you to retire. We're gonna take over
from here. We're gonna help you out, well, we'll solve
your ebidah problem. Well, we'll help you reach more people.
And you know, it's who killed the electric car, you
know what I mean on some level back in the day.
And so I agree with you with that observation. But
(41:33):
I will say, thankfully, you're seeing a new generation of
healthcare companies that are coming to market like us and
even on the medical side, other people and extraordinarily well
funded where you don't have to be exhausted by the
headwind that you can grow and grow responsibly. You know.
(41:55):
I think if there's one thing that came out of
the pandemic and the helcyon days of people having crazy
valuations and burning tons of money was responsibility, which is,
you know, you're threading a needle between growth and appropriate earnings.
And I think this is something that I'm fortunate that
we were able to be part of that transition. And
(42:19):
I think it's having strong investors backing your organization, being
part of your board, agreeing to your mission, and allowing
you the privilege, it's a privilege to try and achieve incumbency.
And that's what we're doing, is you know, we have,
you know, thankfully achieved a significant war chest.
Speaker 1 (42:39):
Yeah. I believe you guys have raised a quarter of
a billion dollars over the years, haven't you somewhere in
that ballpark.
Speaker 2 (42:44):
Three hundred and fifty five?
Speaker 1 (42:45):
Okay, number is off, yeow.
Speaker 2 (42:47):
And so you know, I was proight from the last race.
But what I'm just saying is we have significant capital
because we want the what I say, the ability to
have the runway because remember you're doing two things. You're
investing heavily in R and D. I mean, a great
example is a third we're about eleven hundred employees at
(43:07):
my company. A third of them are engineers, you know,
full stack front end DevOps, secops, you know, take your pick,
you know, product team. You want to have the capital
to achieve the mission to grow productively in your segment.
And this takes time, you know, but you don't want
(43:28):
to sacrifice innovation, you know. I think the one thing
I joke about is healthcare is probably the greatest market
in the United States. People like, why would you say that,
I got it's better than e commerce, banking, real estate,
And they're like why. First off, it's an inelastic demand curve,
doesn't matter if it's boom times or a recession, very defensive.
(43:49):
Extremely other thing is drug prices we just discussed seemingly
always go up one hundred and twenty billion to eight
hundred billion. The other thing is everyone's premium goes up.
Premiums don't go down, you know what I mean unless
you lost people.
Speaker 1 (44:03):
Provider salaries don't go down now.
Speaker 2 (44:05):
And so if everything is going up and you have
this incredibly defensive industry. Yeah, it's the greatest. You want
to buy as much of it as possible. When people
are like I can't believe vertical integration happened, I'd be like,
I can't believe it took so long, because if you're
focused on the business end of it, it makes complete sense.
You don't innovate, you consolidate. You buy every ounce of
(44:29):
this footprint. And I think this is where the FTC,
DOJ Congress people are starting to look into this and
being well.
Speaker 1 (44:35):
Because it feels like they were very much to sleep
at the switch, and I don't know that anybody would have.
We're seeing twenty years.
Speaker 2 (44:42):
Down the road that no, no, I want a.
Speaker 1 (44:44):
Specialty pharmacy would be the size that it is today.
Speaker 2 (44:47):
I didn't know what a PBM was, and I worked
in pharmaceutical side for eight years. I was like, a
pharmacy benefit what And they're like, what do you do?
I go, My life ends at the loading dock. You know,
we've made a palette of lipotour. We're shipping into McKesson, Cardinal,
you know, Amerisource Bergen. I don't have anything else to
do with this. I just assume, you know.
Speaker 1 (45:07):
Yeah right, yeah, but oh medical, that's something merk sol
But I'm not really sure what they do.
Speaker 2 (45:12):
I'm not sure what they did, you know, And it's
it's almost you know, comical, you know, where you could
be industry and overlook these segments. So who am I
to blame, you know, someone from the FTC. Who's got
to be you know, well read in so many different
areas than forget healthcare globally, but digging into the niche
of pharmacy benefits, I mean, not the greatest cocktail hour
(45:36):
discussion topic typically, but I think that's it is. They
just didn't understand to your point, they were just it
seemed like a non event. But it is an event
and it is a big deal now.
Speaker 1 (45:49):
So if we look out in five to ten years,
where do you think the industry is going to be.
Speaker 2 (45:54):
So I think we're seeing this tipping point of fiduciaries, employers,
and plans sponsors understanding they need to have an aligned administrator.
And I do believe you're seeing this unbundling of making
money on drug spend through fulfillment and debaate and pure administration.
I believe that trend will continue and that will be
(46:16):
commonplace going forward, at least for large payers and small
ones still might be bundled under some things, but I
definitely believe that's the first place we're heading. I think
the other area where where you've been spending a tremendous
amount of time on is this concept of unified claim processing.
And you know, back to why did pharmacy go on
(46:37):
its own little way and medical went on its way?
And we do everything twice in the United States, you know,
we we have pharmacy claim administration to medical. So this
means you have two underwriting teams, two billing teams, to
network teams, to reimbursement teams, to clinical teams, to call
center teams. And every time you do something twice, it's
usually twice as expensive. And so we probably you know,
(46:59):
depending upon how you calculate total market of US spend
on healthcare, let's just say it's five trillion dollars, I
would say there's at least a trillion dollars in administrative waste,
and we see it with pharmacy benefits. We effectively administrate
a claim seventy percent cheaper than my competitors and find
a profitable contribution margin there. I think the same is
(47:22):
true for medical, but it's twice as bad because we're
doing it twice So why do we have these two workflows?
I don't really care, it's why don't we put it
on the same system. And first of all, and you
guys have that is yes, So that's where you know,
we started this journey two years ago, and we, you know,
(47:42):
didn't really want to talk about it too much because
if we fall flat on your face, you don't want
the world to know about that. So we did a
little lot of it in stealth mode. But at the
start of this year we launched unified claim. So we
already did pharmacy benefits, you know, commercial caricade, but medical
obviously we have about seventeen eighteen hundred lives and our
benefit plan. We're self insured. So I said, why don't
(48:05):
we do our own medical on our Judy platform. So
at the start of the year Judy went live. We're
processing medical and pharmacy claims on the same platform now.
And I often say, the best test of your system
is your own family. So my wife and kids are
on it, everyone's families are on it, and everyone thinks
it's amazing. It's a much better experience, much more efficient,
(48:28):
there's and the reason why is we talk about when
you define enterprise, you talk about enterprise software. You know, yes,
that means scalable and secure, but it really means a
single source of truth. You're managing multiple work streams on
the same system, so everything understands, you know what I
call it important aspects, time and information.
Speaker 1 (48:49):
And you have that ground truth all in the same place.
Speaker 2 (48:51):
Exactly, so you know you're no longer trying to merge files,
You're no longer making decisions with half the information. There's
safety concerns, there's how could you ever achieve the promise
of value based care and contracting if you can't see
the medical and pharmacy in real time. So for us,
we think unified claim is when you talk about five
years out, is going to be a huge part of
(49:13):
improving healthcare. I'll never claim to be I know what
the best clinical solutions are or the best way to
engage patients, But what I will say is we're the
best plumbers in healthcare. We're going to give you all
the tool sets that you need to administrate your plan
as efficiently as possible, and then deploy all those brilliant ideas.
And so this is a huge part of it. And
(49:34):
the last leg of it is you know, you talk
about artificial intelligence. You know, AI is an incredibly powerful
toolset going forward for healthcare. But one of the things
that we talk about is AI can be trained on
lots of data. But one of the things that's very
powerful about our Duty platform is it's now one place
(49:56):
where you could observe medical and pharmacy in real time,
and not just the claims coming in, but all the
work streams, the call center information, the clinical the billing,
the reimbursement, the network and when you start training a model.
But Judy is not just read only. Judy is read
and write, Judy does things. So if you have AI
(50:18):
that's being trained on your system, yes it's going to
improve your variable cost and improve efficiency more. But the
other part of it is a human being or a
team of human being will never be able to take
in all these data points in real time. So if
someone has emergency surgery, it's already queuing up the billing
and the outpatient service, it's already thinking about your rehab,
it's already contacting your primary care physician. It's the system
(50:41):
is so far in front, and this is what gets
me excited. Is I believe AI is going to drive
even further advancement for patient care. And it's again at
this fundamental administrative level.
Speaker 1 (50:55):
That's great. Maybe we'll wrap up with one last question,
so I like to end these with a little bit
on a personal Now, is there a lesson from your
personal life or your professional experience that really drives you
day today?
Speaker 2 (51:06):
Driving me in this role, you know, is I think
the biggest one for me was coming out of my
old company. And what I mean by this is I
failed in my last role. And what I mean by
this is there was this Netflix moment for me in
my old company. And what I mean by this is
(51:26):
I admire Netflix for many reasons besides being a subscriber.
But I admire Netflix because think about it. Fifteen years ago,
they were mailing us DVDs to our home. So they
had to go to their board of directors and say, hmm,
I have an idea. This thing that we're doing mailing
the DVDs. It pays for everything here, but I think
(51:46):
we're going to sunset it and we're going to start
streaming old content to people's homes and they'll pay us
some you know, a couple bucks to do this, and
they won that argument. They went to their board and
they said, I think we need to evolve and this
is the way to do it, and the board agreed.
And then they went back to their board five or
six years later and said this was pretty good, but
(52:08):
now I think we should become a world class production
house and make our own content. And they're like, like
Sony and Universal and they're like, yeah, like take your
pick comedies to movies, We're going to do them. And
they said okay. And I think that's why Netflix is
in the position that they are today. So they continue
to evolve and continue to push that kind of frontier
(52:31):
of entertainment and engaging with the consumer. I tried that
at my old company, where we were doing audit and procurement,
and I was frustrated because I'm not solving anything. We
built a decent business, but I'm like, hey, we're mailing
out DVDs here. I think we should try and solve
the problem. We need to change this. And I lost
(52:52):
the argument, and that was humbling for me, and it
put me in a very different path and it's very
scary to go back out and try again at any
point in your life, especially when you got young kids
and you're like, I'm going to start from zero again.
(53:13):
But I had lost the argument, and I blame myself
for that, and it was a lesson that sat with me,
which is, if you really believe in the mission, you
really believe what you were trying to explain to your
old board, then go out and do it. And I
think that has been a driving force for me, which
(53:33):
is I never want to lose that argument again. I
want to make sure everybody understands the mission, everyone has conviction,
from my junior employees to my senior management, to my
board of directors, and I want to make sure we
are given every opportunity to execute it, back to having
the runway, help have the strong balance sheet, to set
(53:56):
everyone's expectations on these timetables. And so I think this
is one of the things that has really kept me
focused and pushed me. And I want to say at
the level of being maniacal, but it certainly pushed me.
I never want to go through that again.
Speaker 1 (54:15):
Well, thank you for sharing that. That was fantastic. I
don't think I could have asked for a better answer.
And now we have capital RX. That's a j Oyakano,
CEO and co founder of Capital RX. Thank you so
much for joining us on our latest episode, and please
make sure to click the follow button on your podcast
app so you never miss a discussion with the leaders
in healthcare innovation. I'm Jonathan Palmer, and you've been listening
(54:37):
to the Vanguards of Healthcare podcast by Bloomberg Intelligence. Until
next time, take.
Speaker 2 (54:42):
Care the mass as usual us US asses
Host
Jonathan Palmer
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