AH008 - Ask the Right Questions to Future-Proof Your Pharmacy Benefit Plan, with Josh Golden

March 8, 2024

Capital Rx

In this episode of the Astonishing Healthcare podcast, Justin Venneri interviews Josh Golden, who brings his extensive experience as a healthcare consultant and Senior Vice President of Strategy at Capital Rx to the discussion to highlight key questions that plan sponsors should ask to future-proof their pharmacy benefit programs. It is crucial to understand how PBMs make money and how much a plan sponsor is paying their PBM. The answer to the first part helps explain PBMs' behavior, and the answer to the second aids plan sponsors in their decision-making process.

Josh explains the importance of new fiduciary responsibilities and the need for vigilant gatekeeping to control costs and ensure appropriate utilization of expensive medications. He concludes with a truly astonishing, data-based observation regarding wasteful spending (hint: it can add up quickly)!


Lightly edited for clarity.

Justin Venneri: Hello and thank you for joining us for this episode of the Astonishing Healthcare podcast. This is Justin Venneri, your host & Director of Communications at Capital Rx, and I'm so excited to have Josh Golden with us today. For those of you that don't know Josh, he's the Senior Vice President of Strategy here at Capital Rx and he has a wealth of experience working in the channel with our channel partners, with plan sponsors, and health plans of all sizes. And as far as experts go in evaluating pharmacy benefit programs, Josh is right up there. Josh, thanks so much for taking the time to be here today.

Josh Golden: Yeah, I'm glad to be part of the discussion. Thanks for having me.

[01:01] Justin Venneri: So, to start, why don't you give us a little bit more detail about your background and your unique skill set before we get into the meat of the discussion – which is, what are the top questions? Plant sponsors who are fiduciaries, what should they be asking? Their PBMs, and a couple of other topics that are timely.

Josh Golden: I like the unique skill set phrase. You make me sound like Liam Neeson in some type of action movie.

Justin Venneri: Exactly.

Josh Golden: Before I came to Capital Rx, I spent about 20 years as a healthcare consultant working with some of the largest plan sponsors in the United States. So, these are Fortune 100 companies, large labor unions, health plans. And I spent most of that time narrow and deep in the area of pharmacy benefits. And this was really the full set of support services. So, helping clients with procurement and the selection of PBMs, negotiating contracts with PBMs, implementing PBMs, auditing PBMs, sometimes firing PBMs depending on how they behaved, and otherwise just helping these plan sponsors navigate the chaos of the pharmacy benefit supply chain.  

I spent most of that time as an outspoken critic of the traditional PBM business model. The more I learned about how the typical PBM makes their money and derives their profit, the more I realized that it stood in fundamental conflict with the objectives and the financial incentives of the plan sponsor.  

I finally found my home here at Capital Rx. After spending two decades trying to change the PBM model from the outside, from the periphery as a consultant, I now have an opportunity to work within the industry to bring about some fundamental change as a disruptive PBM vendor.

[02:44] Justin Venneri: And that's why you're the perfect person to answer my questions today. So, let's dive in. Maybe we'll start off with, based on everything going on in the market, from regulatory pressure and unpredictability that plan sponsors face with their spend, to legacy PBMs becoming biosimilar manufacturers and more, what can or should plan sponsors try to do to future proof their pharmacy benefit programs? What questions should they be asking and why?

Josh Golden: There are countless articles and blog posts out there about the ten contract terms you have to negotiate to have a bulletproof PBM contract, or the 15 caveats or exclusions you need to look out for in your PBM agreement. Things can get very granular very quickly when we start talking about important questions to ask and future proofing your contract or your PBM deal.  

I generally like to start things zoomed out. Let's look at the forest, not the trees. What are some fundamental questions at the highest level that plan sponsors should be asking, especially in the context of the challenges that are going on to fiduciary responsibility in our industry? And I typically settle on two critical questions that I think every plan sponsor should be asking right now, at this moment in time.  

The first is, how does my PBM make money? It's a really basic question that's really, really hard to answer for many plan sponsors. The reason I bring this question up as the first and most important is because in healthcare economics, like in any industry, incentives drive behavior. And if you understand at a fundamental level how your vendor is making money, you will be able to see and predict their behavior a week out, a month out, a year out. And that is ultimately what's largely going to drive cost outcomes for your plan, clinical outcomes for your plan, and your patient's experience as members in the plan. That's the first question, and it's an important philosophical one. It's one that I think every plan sponsor should seek to fully understand.  

The second question, just as important is: how much am I paying my PBM? The reason I bring this one up is because it's really in the forefront in the context of the recent class action lawsuit, for example, which was brought up a couple of weeks ago, in which a plan sponsor, a fiduciary, is actually now being challenged, being accused of mismanaging the cost within the pharmacy benefit program. This is a first for the industry, a real challenge, a fiduciary level challenge on a legal basis. And the reason I asked that important question, how much am I paying my PBM, is because one of the core fiduciary duties that every plan sponsor has, and it's literally right there in the Employment Retirement Income Security Act of 1974 (ERISA), is to ensure that the fees that they are paying to their vendors -- to their PBM vendor, for example -- are reasonable.  

But I think that most plan sponsors would be hard-pressed to even calculate or assess what they're paying their vendor. And that's because, with most PBM arrangements, the vast majority of the fees that are paid to the PBM, like an iceberg, are submerged below the surface. They're hidden. They're built into things like retained backend rebates or other pharma revenue incentives. They're spread pricing the profit that's derived from the dispensing of drugs. All these back end revenue streams that the PBMs rely on are generally hidden from the plan sponsor. And I would say most plan sponsors probably couldn't answer that basic question, what am I paying my vendor? And is it reasonable?

[06:29] Justin Venneri: Okay, thanks for that, Josh. I mean, those are two crystal clear, key questions that folks should be asking, and those are topics people should be trying to understand regarding the class action lawsuit. As you think about that and other lawsuits that may follow on, what do you think plan sponsors should be thinking about? Or how should they be framing what's going on in the market for their leadership teams?

Josh Golden: Yeah, I think this is one that's hard to ignore. I'm calling this lawsuit “the shot heard round the ERISA world.” This is likely going to be the first volley of multiple legal actions, multiple legal volleys that are to follow here. They may not all take exactly the same shape, but the gist of it will likely be the same.  

It is now time for the fiduciary to essentially prove themselves right, much like they had to do back in the early 2000s when some similar class action challenges were brought against retirement fund managers, which are also subject to ERISA law and fiduciary responsibility. What I think is particularly fascinating about this lawsuit, and what it brings to the forefront, is this idea of competing or conflicting fiduciary duties. Now, let's remember, there's more than one type of fiduciary duty that the plan sponsor for an ERISA health plan has a duty to manage that plan in the best interest of the plan participants, to manage costs, to ensure, as I said earlier, that the fees that are charged are reasonable, etc. But a publicly traded traditional PBM also has a fiduciary duty to their shareholders. That duty to the shareholder is to optimize their profit over time to generate returns for the shareholder.  

Now, here's the real rub. If the traditional PBM's profit model is tied to the price and the volume of drugs that are dispensed, and they only really make money if more drugs, and more expensive drugs, are dispensed on behalf of their clients, then you can see very quickly how this puts the two fiduciary duties directly in conflict with each other. And this is, I think, the reckoning we're kind of on the brink of here, this reckoning of fundamental conflict of interest within the industry and the need for plan sponsors, for fiduciaries on the health plan side to settle this conflict once and for all.

[08:53] Justin Venneri: Got it. Do you think that the questions plan sponsors should be asking and the understanding of how the money flows and what that does to the incentives will accelerate the transformation of the industry or the demand for non-traditional PBM solutions over the near term?

Josh Golden: I think it will, more so than the results we've seen so far on the legislative and the regulatory side.  

So, look, we've got the FTC investigating traditional PBMs and their profit models. You've got Congress now considering legislation to regulate PBMs. But even they will likely tiptoe into this arena because of its complexity; because of the interconnectedness of all these vertically integrated players and how massive they are, Congress is not likely to upset the apple cart anytime soon. If anything, they might just bring about greater transparency requirements. Right? More disclosure, more reporting, sort of just investigative kind of stuff.  

And so, it's interesting because you have all of these forces working slowly to bring about change. But lo and behold, the catalyst that brings about change the quickest is a lawsuit, and, in particular, one that names specific individuals and specific members of a fiduciary committee that serve as fiduciaries. Nothing turns up the heat like a good lawsuit. And so, I think that this more so even than the regulatory or the FTC investigation going on, all those other activities, I think this is likely to be a much stronger catalyst for action in the know.

[10:23] Justin Venneri: That's really interesting. Because for me, as I've been here at Capital Rx for about two years now, it feels like plan sponsors out there, consultants and others, have just gotten a lot smarter. They've come up the learning curve quickly. They're understanding what's going on in the industry, the sources of profit, and really starting to make more informed decisions, leveraging their data about what services they should use for their populations. Is that how you see it as well?

Josh Golden: They're kind of forced to, right? I mean, let's be honest. They're being asked by their C-Suite now on a regular basis about the plan. The CFO, the CEO, are reading articles about this class action lawsuit, for example. Their next call is going to be to the director of the benefit plan. Are we safe here? Are we protected? Or are we also at risk in this capacity? Or if they're reading about the state of North Carolina and the article that came up there around their decisions around GLP-1s and the balancing act of rebates versus clinical management, that next question is going to be to the CHRO. “Hey, what are we doing around this? I don't want an article coming up about us in the media.” So, I think some of this is just survivalist training, if you will. I mean, the CHRO on down, to the director of benefits, and even the plan analysts, have to understand now the nuance to this area of benefits more than they ever have.

[11:50] Justin Venneri: That makes sense, and it's a great segue to my next question for you, which is: what are your thoughts on GLP-1s for weight loss? I mean, that's kind of the topic de jour, but it is one that I think is particularly interesting now because of the demand for these medications for diabetes, of course, and the expansion of the indication to weight loss. And so, what are plan sponsors asking you? What are you talking to benefits directors about who may be feeling some pressure to cover these? I would love to hear your thoughts on GLP-1s.

Josh Golden: Yeah. This is an existential issue for benefit plans right now. It is the single biggest factor in terms of cost increase and contribution to trend for most clients. Most plan sponsors out there, almost regardless of their coverage strategy, you kind of have to cover these medications for diabetes. They are first-line therapies for many diabetes patients. The challenge there is the drastic potential for off-label use.  

So, a plan sponsor has to make their philosophical decision around weight loss and how they want to treat and cover that among their covered population, and how they want to fund that. But once they do, it really comes down to whether the PBM is serving as an appropriate gatekeeper. So, whether or not a plan sponsor covers GLP-1s for weight loss, or just for diabetes, there really do need to be vigilant gatekeeper functions in place that control for inappropriate utilization of these meds. And that's because there is just such a rampant demand for these meds, including, in some cases, among folks who don't really have a clinical need -- perhaps their need is more cosmetic or discretionary -- and it's causing real issues at a societal level. We've got shortages of some of these medications that are impacting patients with diabetes that have an absolute clinical need for some of these. You know, these are really big questions and big issues.  

But as I said, the devil really is in the details on this. And it largely comes down to the prior authorization criteria and whether the PBM is serving as a vigilant steward of the plan sponsors limited plan assets in terms of how they're administering that. And I'll give you an example again, I'm not a clinician, and so I have to caveat this by saying, talk to a pharmacist, talk to a clinician about this. But I can tell you that I am aware of a lot of PBMs out there that are processing a lot of auto approval of prior authorizations for GLP-1s, and they're doing so with some cursory look backs to see if maybe there's some other diabetes meds in the patient's history and then auto approving or waiving the utilization through for these products where, in some cases, docs are sort of intentionally sidestepping gatekeeper functions there and taking advantage of that.  

So, this does require vigilance, it requires sophistication, but most of all, it requires a PBM that is aligned. And it really does get back to that fundamental question I said before: how does your PBM make money? Do they make more money if more GLP-1s get shipped out of their mail order facility? Or is their profit isolated to more of an admin fee structure where their primary objective is going to be to help you manage cost and retain you as a client long term.

[15:04] Justin Venneri: Got it. Kind of shift a little bit here back to the questions to ask and maybe get a little bit more tactical. You had a prior video series, Questions to Ask Your PBM, and that was focused on things plan sponsors could do pretty much immediately to help look at, control or understand costs and how certain PBM business practices were, or could be, impacting their cost trend. So, for now, here we are. What are one or two things a plan sponsor could literally do as soon as we hang up the phone to help their plan?

Josh Golden: Sure. Well, let's pluck a few from the conversation that we've had already, right? And turn those into just specific, quick actions.

Justin Venneri: Awesome.

Josh Golden: Number one, we talked about the GLP-1s. We talked about the importance of the nuance of the criteria. Now, you don't have to be a clinical expert to just ask your PBM to explain the criteria that's used for prior authorization of GLP-1s and start to understand whether there is any auto approval going on for those medications. Ask whether pharmacists are involved in the approval process or whether they can be approved by just pure administrators, things like that. These are questions that you can ask either as a plan sponsor or alongside. If you have a consultant that you trust, bring the consultant along for that discussion as well. But I think understanding that is a starting point to understand whether your PBM is fundamentally aligned with you in terms of how they are serving as a gatekeeper. So, that's one question you might want to ask.

Related Content - Questions to ask your Pharmacy Benefit Manager

We talked a little bit about the class action lawsuit around fiduciary responsibility. That particular lawsuit focused on examples of price manipulation by a traditional PBM specifically for specialty generic drugs, and it compared the price that was being charged by the plan by the PBM against a rational acquisition cost index, National Average Drug Acquisition Cost, or NADAC. So, here's a great question you could ask. Take the drugs that are in that lawsuit. Go ahead and ask your PBM, “What are we charging under the plan? What is the PBM charging for these specialty generic drugs?” And if it is relative to NADAC, a pretty rational cost, I think you're good. If it's an exorbitant cost, you have to start to ask, “Is this a reasonable fee for the PBM to retain?”  

Again, getting back to that core fiduciary duty, I like these bite sized questions. These are quick emails you can send to get the dialogue started and to maintain that vigilance around plan management that I think every fiduciary is going to be expected to deliver on.

[17:37] Justin Venneri: Great. And I would regret not asking you a little bit about PBM reform here. Toward the end of our discussion, what's been the most surprising development to you thus far as it relates to either federal or state level PBM reform initiatives?

Josh Golden: Yeah, perhaps not surprising, but a little bit frustrating, is that states really have to lead the way on this or have had to lead the way on this reform at a federal level. As with anything federal, it's slow and bureaucratic and painful. And lo and behold, the most fertile ground for change has been within the states.  

And in fact, a lot of that is because many members of legislative bodies at the state level are actually pharmacists. We actually have seen a lot of pharmacists come up within the ranks as state representatives or state senators, and that has been, I think, a catalyst for some change at the state level. The reason I say it's a little frustrating is because pharmacy and the world of PBM really is a national sort of scope.  

So, I've been cautiously optimistic something would happen at the federal level. But lo and behold, it looks like the ball is being punted on that for now, and we're not likely to see any meaningful DBM reform at the federal level this year.

[19:20] Justin Venneri: Makes sense. Okay, well, Josh, this has been great. I've got one last question for you, for now, at least until I can have you back on. Given all that you've seen and heard over your years in the industry, what's the most astonishing thing that you've encountered that you can share? Of course, maybe let's keep it on theme, and you can think of something that a plan sponsor should have or could have asked a PBM about, or another good sort of related story.

Josh Golden: Yeah, I pushed some videos and blog posts out about this on LinkedIn about a year ago, but it's a pattern that I really haven't seen subside, and that is around auto dispensing and early refill within mail order specialties pharmacy – and even in the retail pharmacy setting.  

The reality is these are all businesses. Pharmacies are businesses, and they are, at a basic level, looking to move the merchandise. Now, they want to do right by the patient, and they're responsible for patient care and clinical outcomes as well. But at a basic level, they're looking to move the merch.  

And what we saw as a pattern where traditional PBMs were at the helm and where they were the ones managing refill protocols is that they were allowing earlier and earlier refills of medications which resulted in the stockpiling of drugs within medicine cabinets. And in some cases, I would argue in most cases, this was unintentional stockpiling on behalf of the patient. I can tell you a personal anecdote, that my dad gets mail order drugs from his PBM, and he'll often call me and complain, say, “Well, they sent me another 90 days' worth of drugs. I've still got two bottles left from last year in my medicine cabinet. I don't need these medications, but, well, I guess I'll just stick it in the medicine cabinet with the rest of them.” Those bottles in his medicine cabinet cost real money for a health plan. They're contributing to cost within the US healthcare system and driving zero clinical value because, see Everett Coop's famous quote, “Drugs don't work in people that don't take them.” Well, if the drug's sitting in a medicine cabinet because of stockpiling, then it's just not creating value. And it's perhaps one of the purest forms of waste that I've seen in the pharmacy benefit supply chain.

Justin Venneri: Got it. Well, Josh, thanks so much for taking the time to speak with us today. For those of you out there, if you want to get in touch with Josh, he's on LinkedIn all the time. Reach out, connect with us, and we look forward to having you back on.

Josh Golden: Well, thanks very much. It's been my pleasure and I look forward to joining you again in the future.

If you would like to learn more about Capital Rx’s full-service PBM or PBA solutions, including our clinical programs, CLICK HERE to get in touch with our team.

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