In Part 4 of Capital Rx CEO AJ Loiacono’s discussion with General Catalyst’s Holly Maloney, Holly asks AJ how regulatory progress impacts Capital Rx’s business.
The Consolidated Appropriations Act (CAA) and Inflation Reduction Act (IRA) are evidence that the government cares about runaway healthcare costs and is starting to look in some of the right places and put the right disclosure requirements in place to help health plans and consumers make better decisions and rein in costs, respectively. Watch AJ explain the importance of compensation disclosure and Medicare being able to negotiate some drug prices below.
Incremental progress is progress, and we’re excited about it!
Lightly edited for length and clarity.
Holly Maloney - General Catalyst
So, AJ, it seems like there's been some real regulatory progress with the CAA (Consolidated Appropriations Act) and the Inflation Reduction Act (IRA). How does this [progress] impact Capital Rx and the market opportunity for the business?
AJ Loiacono - Capital Rx
Yeah, so starting first with the Consolidated Appropriations Act, it's kind of like this funny little bill that provided subsidy and relief in a variety of different areas in the country, but hidden init on page 500-something is this kind of disclosure for any self-insured payer around benefit compensation and benefit costs. And a lot of people don't understand that much of the self-insured industry is somewhat unregulated or under-regulated; it kind of falls under the Department of Labor, which is kind of a result ofERISA being written in 1974. It was authored by the Department of Labor. And so, what was happening was that the country has obviously continued to expand and have runaway costs in health care. But no one had really started to think about all the different ways people are making money on health care, and there's never really been a disclosure set on this.
I think if you look back historically, the Department of Labor did a very good job because also what's contemplated under ERISA is pension and retirement funds, and those disclosures were really put in place at the start of the 21st century, which forced people in the investment advising and asset management business for retirement plans and pensions to start to disclose how they're making money because, you know, not to oversimplify, there was a question: if someone's charging a loaded fee of 7%and the fund is only performing 3%, there's really not much value being delivered to that sponsor of that plan. And so, the Department of Labor really didn't have the bandwidth, I think (not to speak for them), to tackle the healthcare side of the equation on compensation coming out of healthcare.
And when you have a $4 trillion business, a lot of people are being compensated, rightly so, for their services; perhaps some people are overcompensated. And here's the scary part… a lot of people are not disclosing the full compensation, and so what the ConsolidatedAppropriations Act did - Section 408 b2 of ERISA – it basically said, “Hey, each year you, the fiduciary, the payer, or sponsor of a self-insured plan must ask everyone who's involved in your health care benefits, what certain costs are so there's a reporting structure but more importantly, anyone who's making compensation - what are they making on these product offerings?” And so this is the first year, and I think one of the things that's great about Capital Rx is that we want to be future-proof. So, one of the things we did from the start is we don't make money on drug spend, we charge a flat administrative fee.
All our value passes through to the end payer, but more importantly, when it comes time to report, we have an admin fee and ancillaries on clinical services that are all in the contract. So, part of it is not just having to state what your fees are. It has to be included in your contract, and you have to help report for this each year. And so, this, I think, is going to slowly become a bigger and bigger thing, and I think we're very well positioned because I don't want to say we saw the future, but I just couldn't believe the country could continue to operate the way it is when you have runaway healthcare costs and limited oversight on who's making money on health care services. And so, I think we're very excited about that.
The other one, the IRA, the InflationReduction Act, is kind of looking long term, starting in a variety of different areas in which the federal government can, being the largest payer in the country, rightly so, look for ways in which perhaps the federal government should get more - or even get more for less is a good way to look at it. And so starting with the negotiation on Medicare, on rebates on particular drugs, and it starts with a fairly narrow list, and it builds up to 80 or 90 drugs going into 2030. But I think the broad paint strokes of this is, for the first time, the government is really starting to lean in and ask for the value it should be. Not just for the government that sponsors a large part of this cost, but more importantly, for the patients being served under these programs. I think it’s an amazing first step. Again, it’s showing progress as an entire country looking in the right direction; I know there'll be some friction points and some learning along the way. But, again, it's signaling that from a legislative and regulatory side, the government cares and is looking at improving all of these programs.
Holly Maloney - General Catalyst
It's kind of amazing that this is just happening for the first time, but at least we're here and moving in the right direction. That's progress.
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