AH024 - PBMs in the News, Again, with Ryan Duffy and Josh Golden

June 28, 2024

Capital Rx

In this episode of the Astonishing Healthcare podcast,  we discuss the ongoing challenges within the pharmacy benefit management (PBM) industry, as unveiled by a recent front-page New York Times article (subscription required). Capital Rx Senior Vice Presidents Josh Golden and Ryan Duffy join host Justin Venneri to share their reactions to the article and opinions about where the spotlight should be at this time. The article brings several issues to the forefront, including new "layers" of profit opportunity for traditional PBMs, which come at the expense of health plans/payers.

Ryan and Josh also stress the importance of PBM transparency and alignment with plan sponsors' (and members') interests. They also explain why HR leaders and benefits administrators must be vigilant and prepared for a shift toward more accountable PBM models, and the need for some benefits brokers and consultants to improve their "spreadsheets" (i.e., models for comparing PBMs). Potential regulatory reforms and their implications are also examined. Listen below or on Apple or Spotify!


Lightly edited for clarity.

[00:27] Justin Venneri: Hello and thank you for joining us for this episode of the Astonishing Healthcare podcast. Today in the studio we have Ryan Duffy, Senior Vice President of Commercial Markets, and Josh Golden, Senior Vice President of Strategy, here at Capital Rx. We're going to be talking about some recent news. Before we do that, Ryan, welcome for the first time, and Josh, thanks for coming back on.

[00:46] Ryan Duffy: June 25, the Florida Panthers are now champions.

[00:49] Justin Venneri: Yes. Unfortunately, I have my Rangers hat on. That's -- I'm fine. And Lloyd's prediction from his episode failed to come true, with Conor McDavid coming through.

[00:59] Ryan Duffy: Truly shocked at how successful professional hockey has been in the state of Florida.

[01:05] Justin Venneri: It's incredible.

[01:06] Josh Golden: There's irony there.

[01:07] Justin Venneri: So, the genesis of this episode, the New York Times article on the PBM industry: THE MIDDLEMEN, The Opaque Industry Secretly Inflating Prices for Prescription Drugs (6/21).

A lot of it really isn't new news, but we're mid-year 2024, like you just pointed out, Ryan, and I'd love your take on the significance of this article. It feels like there's a lot of momentum toward better control of pharmacy spend among our clients and other plan sponsors out there, but there's some forces against progress as well. So maybe, Ryan, what's the average overall level of understanding you see today and how this article may change that?

[01:41] Ryan Duffy: Yeah, I don't think anybody in the industry really needed a crystal ball, you know, for what was written in this article. This is, you know, a lot of the same points that we've been saying in many of our meetings with potential prospects and clients and broker partners for several years now. So it's encouraging to see this is front page news, and it's going to be even more interesting to see how the series plays out.  

But I think generally speaking, it's very necessary because the average buyer, individual in HR, and even the consultants who are advising a lot of these plan sponsors, I think, have a shallow level of true understanding of how PBMs are making money in the various layers that existed. And so, I think this article did a really good job of exposing that. And as you read through it, it is pretty shocking to realize what has happened in terms of vertical integration and the various layers that do exist in terms of money-making tactics that have been, frankly, taken advantage of, for a very long time now.  

So, all in all, very positive. And hopefully it encourages buyers, plan sponsors, to take a much more serious look at exactly how they're paying for drugs and how that impacts them as plan sponsors, their bottom line, and certainly their members.

[02:53] Justin Venneri: That makes sense. Josh, would you add anything to that?

[02:55] Josh Golden: Yeah, I mean, I thought I was going to get on here and just agree with everything that Ryan said, but I actually have a little bit of a different angle. I actually think that the buyers in this supply chain -- the HR teams at large, plan sponsors, for example -- I think these are familiar themes to them. I don't think this is news that the incentives are misaligned, that there is conflict of interest financially within the vendor relationship that they have with their PBM, their traditional PBM.  

I think some of the examples that are provided in the article may be enlightening or eye opening, may put more meat on the bone, as it were, around this general idea. But I think plan sponsors and I think also brokers and consultants largely understand that there's something rotten here, that something is fundamentally misaligned.  

What I think this article may do is it may lift the topic to a level of, sort of, more general consciousness, not just now within the HR teams of the employers, but within the employee populations who are out there, you know, reading the New York Times on Sunday and coming across this article. Where this is going to stir the pot is in the questions that come from leadership, from executives that stumble on this article, or from employees that read the companion piece that says, hey, if you don't like the way your PBM’s pricing is working, complain to your employer. And literally, there's an instruction manual in the companion piece that encourages employees to complain to their HR team if they're not happy with the structure of this.  

So, I think most HR folks would read this article and say, yeah, I kind of suspected a lot of this stuff was going on. I don't know.

[04:33] Justin Venneri: On that point, you know, they're obvious to us, but some of the things that the journalists went into, they relate to uncovering things around the retention of rebates, the misaligned incentives that you alluded to. Isn't this all the primary stuff that PBM reform is targeting? And maybe we can discuss some of the regulatory progress you've seen out there, Ryan, you want to take that?

[04:55] Ryan Duffy: A lot of it is. We have seen over the last few years, a number of states present new bills, laws, legislation, state, federal level as well. So, there's been a huge spotlight on PBM reform in general -- steerage laws across certain states, acquisition costs, certain states mandating NADAC, trying to get to more of an aligned model that is more predictable and eliminates a lot of that gameplay.  

Now, easier said than done. Obviously, you need all of those votes to come together and actually pass the legislation. Passing it as much steeper hill, and I don't think we're going to see a whole lot of momentum in an election year right now. But it is good to see that at least various levels have taken notice and they're trying to make change.  

So, what that looks like at the end of the day, I guess, is still TBD, but articles like this on the front page of New York Times will certainly help. Time will tell.

[05:46] Justin Venneri: Got it. And then, Josh, for plan sponsors and benefits administrators out there who say that, you know, they're happy with their current or traditional PBM, what would you say or suggest as it relates to points that have been raised time and time again or just in general in reaction to this?

[06:02] Josh Golden: I think the writing's on the wall. I mean, this hearkens back to the tectonic changes that occurred in the retirement fund industry in the early 2000s, where, you know, a lot of miscellaneous line incentives were uncovered. And ultimately that led to a vast migration away from those old-world models into, you know, 401k and index funds, things like that that just made a lot more sense for retirees and for the plans that were managing those retirees.  

The same thing's happening here, and I think it'll be, frankly, a little bit awkward for those plan sponsors that are the last ones holding the bag on traditional PBM deals while they see their peers migrating pretty much en masse to more progressive arrangements that ensure alignment, that ensure at least a reasonable level of transparency. And all of this happens in the context of, you know, the Consolidated Appropriations Act and other pieces of legislation that make it clear -- I mean, crystal clear -- that there's an onus on the plan fiduciary to have that basic level of transparency, that basic level of financial accountability and alignment. I think the pressure's on, personally.

[07:16] Ryan Duffy: Yeah, I totally agree. I feel like the wave of early adopters for these innovative progressive models, as Josh mentioned, has passed us, and everybody has heard the term, you don't get fired for hiring IBM. And in our industry, people have said that about the larger legacy models, and I think that's going to be a complete 180. Any executive that is reading this article and is in touch with this series, they're going to ask questions of the people that are responsible for benefit decisions.  

So, I think those folks need to be prepared for those very direct conversations. What are you doing about this? Why are we still in a legacy model if what we're seeing in the article is really true?

[07:57] Josh Golden: Yeah. And if this were just a happenstance of one article, one publication, I think you'd have, you know, folks taking note, but maybe not taking action. But at this point, the writing's on the wall. You know, you've got an FTC investigation. You've got multiple publications addressing this issue, including the Wall Street Journal, the New York Times, Forbes. I mean, the list now is -- it's irrefutable that this issue is front and center, that there's no denying it, that there's no reason that people shouldn't be aware of it at this point. So now it's a question of, okay, as a plan sponsor, if you are aware of this, if the writing is on the wall, like again, to Ryan's point, why hasn't there been action taken? I think that is the question that'll fall on the ears of the HR leaders as we move into the next couple of years.

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[08:48] Justin Venneri: So, I'll stick with you, Josh. With that being the current state of play, what are some suggestions you have if people ask you, what do I do from here? How can I break the mold? How can I evolve my program? Because we do hear a lot about the plan sponsor -- you know, this is one sliver of what they're responsible for.

[09:08] Josh Golden: Right. A lot of this comes down to the guidance that the plan sponsors are getting and the resources that they're leveraging to help them make smart decisions in this space. And I think what we're seeing is a very diverse ecosystem right now of benefit consultants and brokers. We have a very interesting point of view as a PBM that is in high demand right now and receiving a high volume of RFPs, and we have a keen eye on how the industry assesses PBMs and how those different RFPs differ from each other, how they vary.  

I would say that it is a very diverse ecosystem right now. There are consultants and brokers that, frankly, are kind of stuck in a world that's about ten years old, and they're assessing things in a way that hasn't really changed much. And if you assess models in an old-world format, you're going to end up steering towards old world models. Right? And there are, I would argue, plenty of consultants or brokers that have moved beyond that and that are helping clients assess cost in a more holistic way. 

Just as important as the selection of the PBM by the plan sponsor is that initial selection of who's going to help me with this and what does their assessment model look like? Because it turns out this is, that's not a commodity at all. It's highly diverse and there are folks that are doing it really well and there are folks that frankly are stuck in the past.

[10:37] Justin Venneri: Ryan, do you have any bullet points to help someone select a broker or consultant or advisor that can be more helpful?

[10:46] Ryan Duffy: Yeah, I think there's a lot of ways. I mean, it's to Josh's point, understanding their approach. First of all, are you working with a generalist or are you working with a pharmacy consultant specifically focused on that area? So, there's the starting point and then how are they evaluating, right? We have a very unique model. There's other PBMs that are out there trying to propose more of a transparent admin-only approach. We are as well.  

So PMPM is one example. Are they willing to evaluate unique models like that outside of the legacy spreadsheet that has been in the marketplace for 20 years, to Josh's point. So how is the PBM actually managing? You know, we always talk about the M in PBM, like the actual management of that, and how do they quantify the additional value beyond just discounts and, you know, and rebate numbers that are based off of a made-up benchmark in AWP.

[11:41] Justin Venneri: And then we get from, there is a deeper discussion about clinical programs and drug mix.

[11:45] Ryan Duffy: Drug mix is a perfect example. Right. That is an area that we are trying to drive to lowest net costs, we have a unique approach. Weve got pharmacists as the day-to-day account leaders for our clients. There's a lot of value there that typically will not be captured in a legacy spreadsheet. So really understanding their philosophies, I think first and foremost, before you engage with the consultant to actually run a procurement. Because there could be an additional 10-15% of value there that may or may not be presented to you as part of that financial savings model.

[12:17] Justin Venneri: All right, so last question here. Thank you both for sharing your thoughts thus far. Josh, starting with you, what was the most astonishing thing, or most interesting thing, you found in reading the article that you think people should really key in on?

[12:31] Josh Golden: Yeah, as I said, I think a lot of the themes and the concepts there are widely understood and already kind of appreciated in the industry -- the misalignment of incentives, the layering of the profit model of the traditional PBM. But what really pleased me was the journalists’ ability to digest this info and frame it in a way that was pretty easy for a typical person to understand, a non-expert in this industry, and in particular for them to even go so deep as to explore the virtual re-labeler operations that we have now across all three of the big three PBMs -- the example they provided was Cordavis within the corporate structure of CVS -- as an operation that is essentially another dark corner for this company to tuck away profitability that used to be historically passed through to plan sponsors in the form of rebates or other discounts, that this is now another intermediary that allows them to divert that profit.  

So to me, for them to be able to take on such a nuanced and complicated concept as that virtual re-labeler and convey it in a way that was honestly pretty straightforward and pretty honest and candid, but not overly confusing, I think was a really impressive accomplishment for that article.

[13:48] Justin Venneri: Yeah, I agree. That was nice to see. Ryan, how about you? Any last parting thoughts? Anything astonishing or particularly interesting you found in the article or relating to what we've been chatting about here?

[14:00] Ryan Duffy: I don't really have much to add to what Josh had mentioned. You know, I think it is somewhat scary and I mean, for anybody that's been in the industry long enough, maybe not surprising, to see legacy PBMs, these vertically integrated companies, actually start to create their own offshore companies. But I think PBMs historically have always been ten steps ahead of everybody else in the marketplace. So, as we've seen with vertical integration and how that's really taken off since 2018 as the article expresses, shocking but maybe not surprising for those in the industry to see these entities like Cordavis pop up. So, I'm hopeful that more and more articles and more spotlights will slow the evolution of these additional layers that have been really taken advantage of.

[14:44] Justin Venneri: Got it. Okay, well, thank you both for joining us today on podcast. We'd love to have you back and hope you have a great rest of your day.

[14:50] Ryan Duffy: Thanks, Justin.

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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