Fixing What's Broken in Pharmacy Benefits w/ Dr. Alan Pannier

Healthcare spending continues to surge, with pharmacy costs now representing 30-40% of total healthcare spend.   

In this episode of CareTalk Executive Features, David Williams speaks with Dr. Alan Pannier, SVP of Product Strategy at SmithRx, about how legacy PBMs’ misaligned incentives drive up costs, the toll on patients, employers, and independent pharmacies, and how a modern PBM model focused on transparency, fair reimbursement, and aligned incentives could finally fix what’s broken in pharmacy benefits.

🎙️⚕️ABOUT DR. ALAN PANNIER
Alan Pannier, Pharm D,MBA has extensive experience in the pharmaceutical industry, with a background in managed care pharmacy. Alan has held various leadership positions at companies such as SmithRx, Magellan Health, and Veridicus Health. Alan completed their Doctorate of Pharmacy and Master of Business Administration at Idaho State University, following a Bachelor of Science in Chemistry at Westminster University.

🎙️⚕️ ABOUT SMITHRX
SmithRx is a modern PBM dedicated to reducing the cost and complexity of pharmacy benefits. They empower organizations of all sizes to take control of their pharmacy spend with a radically transparent, universal pass-through model, innovative cost-saving programs, and intuitive technology. 

Unlike legacy PBMs, SmithRX eliminates hidden fees, pass through 100% of rebates and discounts, and provide their clients with real-time prescription pricing and detailed savings reports. This gives them the insights they need to make informed decisions and achieve meaningful savings for both their business and their employees.

To learn more about how SmithRx is inventing a new kind of PBM, tune into Alan Pannier’s new Youtube series. Subscribe and keep an eye out for more installments, coming soon.


🎙️⚕️ABOUT CARETALK
CareTalk is a weekly podcast that provides an incisive, no B.S. view of the US healthcare industry. Join co-hosts John Driscoll (President U.S. Healthcare and EVP, Walgreens Boots Alliance) and David Williams (President, Health Business Group) as they debate the latest in US healthcare news, business and policy.

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Transcript

David: 0:00

Healthcare spending is surging, and nowhere is this more apparent than in the pharmacy Legacy. PBMs have long promise to manage costs, and yet patients, employers, and pharmacies alike are paying the price. Today's guest says there's gotta be a better way. Welcome to Care Talk Executive features a series where we spotlight innovative companies and leaders working to advance the healthcare field. I'm David Williams, president of Health Business Group. My guest today is Dr. Alan Pannier. He's Chief Strategy Officer at SmithRx. A modern PBM aiming to fix what's broken in the pharmacy benefits landscape. Alan, welcome to Care

Alan: 0:44

Talk. Thanks, David. Happy to be here and excited to dive into the topic of pharmacy benefits.

David: 0:51

Great. Well, you know, drug costs have gotten a lot of attention, but they're continuing to go up despite decades of PBM Management, so you have this pharmacy benefit benefit management, and yet the cost continue to go up. Why? Why is that?

Alan: 1:06

It's a great question. It seems like somewhat of an oxymoron, right? If, if the pharmacy benefit managers are truly managing your benefit, why are, why do we continue to see healthcare costs go up into the right, particularly in pharmacy? And really, to be honest, a lot of it starts with the, uh, fundamental kinda legacy infrastructure that exists today and the, the power of, uh, three large companies that we'll dive into and talk about that we, we like to call internally big health. Okay.

David: 1:32

Yeah, that's a good, that's a good one. So, you know, use this term legacy and I'm wondering, you know, why, I mean, they've been around and they've dominated and costs have gone up. So why is it that, uh, you know, how, what kind of role do they actually pharmacy benefit managers play in, in some ways accelerating costs rather than constraining it?

Alan: 1:55

Yeah, I think the, the initial intent was really well intentioned, right? You had, uh, employers that were providing benefits to their employees. Uh, and one of the most used aspects of employee benefits is, is pharmacy, right? Patients take medications to, to treat diseases that they have. And, uh, you know, the idea of a pharmacy benefit manager really came back, came about in the sixties and seventies, but it was a technology play. It was. We've got patients that are employed by an employer that wants to provide benefits and you have pharmacies that are providing medications and there's not a good way for the pharmacy to facilitate payment between the employers. Um, but even know that the employee is actually. Employed by the employer in this case. And so, uh, the idea was, hey, we can create a technology or a connection point between pharmacies and um, plan sponsors, which largely was employers and the pharmacy benefit manager can serve as that middle layer facilitating payments and data processing between the two entities. Unfortunately, uh, over time, that's been somewhat manipulated as they've become, kind of inserted themselves in the middle layer and, um. Really, sadly, as I mentioned, we, we call it big health because they're not, you can't really say it's an insurer anymore because of the vertical integration that exists. I mean, you have these entities that own pharmacies, they own, uh, providers. There was a recent report that came out that said United Healthcare owns like over 10% of the, the providers across the country. And so you have plan sponsors, which are largely employers. Providing dollars to these entities that they're trusting in negotiating on their behalf, but they're negotiating with entities that they own, whether it be a pharmacy or a provider, or even if we have time to dive into it, they've now started, uh, creating manufacturing processes for medications that are now drug manufacturers. And so it, you, you immediately think about, right, the misaligned incentives there. If I'm negotiating against myself with someone else's money, what are the incentives, right? Largely to increase costs and pay myself more. The challenges with, you know, why that isn't so obvious really comes down to, um, the black box that exists in that, what we call kind of payer layer, which is the facilitation of, um, these negotiated payments between these benefit managers and the. The parties that are providing services, um, largely it's taken historically what we call kind of a, a discount based lens of focus, saying, oh, I'm getting you better and better discounts. But if it's a, a good discount off of a higher price scenario, you're actually not getting any better. And that's truly in the simplest form why we are where we are today. This kind of discount based way of thinking.

David: 4:33

I mean, you'd say it, it came out of like the old, old time it was a technology place, so it was actually, some of these were, you know, mainframe computers, literally that it was, yeah. It was plugged into, which I think you still see there. And, and if I recall correctly, there was a time where the PBMs seemed very threatening to the pharma companies and they started to buy them, um, including, you know, Merck, Merck Medco for a while. Right. And I think it was maybe, uh, another one, PCS was bought by one of the drug companies. So. Then they became independent for a while. Now they're mostly owned by health plans and then they're, you know, sort of getting into all these other spaces. What is it about it that, um, you know, got, got them to be so big and so dominant? I understand, you know, if they're in a dominant position, why they might tend to abuse it. That's kind of a natural law. But, but how do we get just big three, big health, as

Alan: 5:24

you say. Yeah, it's a great question. I think, you know, it's fascinating to think about, like you mentioned in the early two thousands, you had pharma companies that saw the power that these pharma pharmacy benefit managers had and said, Hey, if, if we own one of these guys, we can control the flow of our drugs, right? We can make sure that our drugs are being used, which obviously as its own kind of flawed with, uh, misaligned incentives and the FTC and DOJ said it this, that's not gonna work. And so they shut it down. What's interesting is, I think because it's. It's such an unknown space, right? And healthcare is so complex and confusing, and the payer side of it is even more confusing that it's fairly easy to sell to a lay person. This idea that vertical integration is good, right? You could say, listen, we've got economies of scale, and if, if I own the pharmacy, then I can buy drugs at a really good discount and then I can lower the cost for the employers. And it's true to some extent that they are, you know, buying in bulk through their meador pharmacy and lowering the cost to. To deliver these goods and services to patients. What's left out of those conversations is they were, you know, talking, uh, up on the hill about, Hey, this is okay. You should let these mergers go into play. Is that those savings dollars weren't being passed through to the ultimate payer, right? They were presenting themselves as the payer saying, Hey, we're the payer and we're gonna lower costs by going through this vertical integration. But sadly, the actual payer is plan sponsors and they didn't have a voice in, in this equation, and largely still don't have a voice.

David: 6:51

So at the end of the day, I mean, there's a lot of. Parts of the US economy where there's some oligopolies or some other behaviors. This one may be particularly bad, but how does this then filter down? Like who is hurt by this? You know, you mentioned, you know, there's, there's the employers. You've got, you think the patients are in there somewhere, you know, part of this big health is also these big, you know. Pharmacy chains, some of which own insurance companies themselves, which are involved here. And whereas I think about like, you know, independent pharmacies, used to be a few more of them around here, not as many. Um, I'm in, I'm in the Boston area, you know, who's, who's impacted by this kind of, you know, big health and the PPM side specifically.

Alan: 7:33

It's, I mean, it's, it's really everyone you listed, right? I think you know, at the heart of it, the patient's lost, um, in that they have less great of an experience. Um, they're also overpaying for healthcare. I think we've seen in the last 18 months, several lawsuits where you now have employees, um, suing their employers, large employers, um, for not doing their fiduciary duty, right, for choosing more expensive providers of pharmacy benefits. Slate in these lawsuits. Many examples of these are scenarios where you're covering a higher cost drug over a lower cost drug and my out-of-pocket is hurt by this and my premium is hurt by this 'cause my premiums continue to go up. And so I think patients are at the forefront of, of being hurt by this. Um, you mentioned pharmacies, I think independent pharmacies of, you know, unfor unfortunately are, are getting the brunt of this as well. That piece to not go too deep. Pull me out if I, if I start geeking up too much. But would love to just dive into that a little bit and talk through why that's, you know, why independent pharmacies are getting hurt. Um, yeah. The, the root of it really comes to this, this idea of this kind of discount based way of evaluating, um, pharmacy benefit managers. So. Just to give you a kind of a quick overview of how that, you know, selection process works for employers. So if I'm an employer, uh, I provide benefits to my employees, I need to contract with the pharmacy benefit manager, and there's, you know, many out there to choose from. Not just the, the big three that we're talking about today. Um, typically the way that that works is I will contract, um, with a benefit consultant because if I am, you know, if I'm Home Depot, I'm, I'm really good at tools and hardware, but I don't really know a lot about pharmacy benefits, so I'm gonna contract an expert. That expert is gonna help me kind of put together my, my benefits, not just pharmacy, but medical, vision, dental, you know, all the benefits that are provided to your employees. Um, and as part of that evaluation process, typically what happens is that benefit consultant, we'll go out to the market, um, select a handful of pharmacy benefit managers, they'll share historical claims experience. So, hey, these are all the prescriptions that have been run by the employees of Home Depot over the last year. Um, please tell us what your pricing would be in this scenario. And that's kind of the beginning of the financial evaluation process and how you pick a PBM. Unfortunately, the, um, the outcome of that analysis is largely focused again, on, on a WP discounts saying, uh, a WP just for those that don't know stands for average wholesale price, it's effectively the sticker price of a drug. Um, they joke in the industry that it's, the, the acronym is Ain't what's paid because it's not actually ever what's paid for the medication, but it's the starting point. Then typically a pharmacy benefit manager negotiation negotiates with pharmacies as kind of that starting point going down. Um, so the, the way that the employer looks at it is they say, okay, you know, on average across my, you know, millions of claims in the case of Home Depot, across all the pharmacies, you know, what's the average pricing you're gonna provide? And that's the, the first kind of flaw of the evaluation is that in itself is just fraught with gains in terms of how do you define a brand or a generic drug, and what about a drug that's for 40 days instead of 30 days? How does this get bucketed and, and everything else? And so that's, that's the first problem of it. Um, but why independent pharmacies get hurt and why this is important is as a pharmacy benefit manager, Smithx is no different than any others, right? We negotiate with pharmacies. And the larger pharmacy chains have more negotiating power, right? It's kind of the sad truth of it, but the way that we reimburse those large pharmacies is on a, an average basis, an aggregate basis. So Walgreens as an example, what they would say is, Hey, I don't really care what you reimburse me on individual claims, but overall you need to reimburse me this amount. What that provides legacy PBMs with is the flexibility of saying, okay, for client A, I'm gonna do one price, client B, another client c another. And so the PBM is actually the one that now is kind of setting the price of drugs. Even though they're not distributing or purchasing drugs at all, they're just setting prices. Um, in that world, the way that they determine, you know, who they give the better deals to is right. Who is up for negotiation at that point in time, right through this kind of discount based evaluation process. As the market pushes pressure on the PBMs to give them better and better discounts, they only can go so far with Walgreens in this case.'cause Walgreens, right, is saying, Hey, on average you need to stick to this model. Well, with independent pharmacies, that average reimbursement doesn't really exist. And so what they then do is that sadly trickles over to say, okay, well I only can so go so deep on Walgreens. I'm gonna have to give independence less. So that that average number I'm providing to the employer is, is low enough for me to be competitive. And so it's kind of this trickle down effect where they continue to get hurt, um, what needs to happen. And what's sad with kind of the state of independent pharmacies is me being a pharmacist. I, um, you know, independent pharmacies are kind of near and dear to my heart. Um, but it's, we kind of did it to ourselves when we were kinda willing to. Move away from the, the initial model that was set up as. Reimburse me for the dispensing that I'm doing the work for, and then for the cost of the drug over time that got kind of conflated. And today it's kind of a joke, the dispensing fees that PBMs typically give pharmacies is less than a dollar for prescription. Right? Like it's not even a dispensing fee. Right. Um, what we need to do is move back to a model where they're getting dispensed for the work they're doing, independent of the cost of the drug. And that's something that we've been working on over the last couple of years is really. Um, recontracting our entire pharmacy network so that we're reimbursing, you know, the work that's done, that's gonna be a much higher dispensing fee than what's in the market. And then a lower ingredient cost.'cause the pharmacies are saying, okay, this is what we're actually buying the drugs for and we'll take a reimbursement on that.

David: 13:21

Got it. So. I know as I just sort of mentioned, that, uh, we saw more independent, more community pharmacies over time, and I think people generally do like to go into them, but there's not nearly as many around. Um, clearly part of the trend toward, uh, you know, away from community pharmacies has been just by bigger companies doing m and a. But what else is driving that trend? I mean, how much has, how much has the kind of PBM activity, uh, had an impact?

Alan: 13:50

Yeah, I definitely think there's, uh, a number of areas of impact from the, the bigger, larger PBMs, right? When you look at the, the pharmacy benefit market in general, about 85% of it's controlled by these big three players, Optum, CVS, and Express Scripts, all of them own their own pharmacies, right? And so their incentives are to drive volume to their pharmacies. And so, and this even happened when I was working in the retail pharmacy side as well, for a independent grocery chain. It wasn't uncommon for a, a patient to come in and, um, you know, them having been a patient with us for years, and then they switch employers and with their current employer, there's a mandatory mail order set up, right, where then the, they can get, you know, one more fill and then they're forced to move to mail order. Um, and so as this is continuing to occur, I think that's, you know, pulling scripts out of the, the independent pharmacies, which is hurting 'em on one end. And then on the other end, the, the reimbursement that I was talking about. Is making it so even if they can keep the patients, they're not making any money on the prescriptions to, to make it worth even staying. And this has become, uh, you know, further exacerbated with the, the rise of GLP ones as an example, because again, back to pharmacists kind of hurting ourselves. You know, one, we, we made the decision to walk away from dispensing fees as we were negotiating with PBM two years ago. And then the other. Kinda mistake that we made is we began, we became okay with kind of what's called cross subsidization, meaning I'm okay losing money on a couple individual branded medications 'cause I'm making it up on generic medications. Well, as that generic kind of boom is, has somewhat gone away. Um, when you have a scenario like GLP ones where just the branded volume dramatically increases, you've now just thrown off the cost structure for a pharmacy, right. Where they're now dispensing, you know, way too many claims they lose money on versus the generics where they're making money.

David: 15:41

Got it. So, I mean, you could just say, well, you know, they lost out too bad. I'll just go to, you know, take your name brand, uh, chain store. Is that how we should look at it? Or, you know, what, what, what's lost? When an independent pharmacy shuts down.

Alan: 15:59

Yeah, I think, well, a couple of things. I think one, the, within a special re. Especially rural areas across the country, right? You're, you're now getting or creating these, what we call pharmacy deserts where there's just not enough pharmacies to service the patients that are there, um, which is a problem. So I think it's just a geographical reach issue that becomes an issue as these pharmacies close down. But then I think the second piece that's even more important is the level of service and even clinical care that's provided by these independent pharmacies. It's, it's safe to say there's not one patient, right, that's going to these pharmacies that feels like they have bad service there. Whereas if you were to talk to somebody that uses their local, you know, big chain pharmacy, typically they complain about, you know, the amount of time they have to wait in line and the, you know, just. Bad level of service that exists and, and so on and so forth. And so I do think they're an important part of, at least from our perspective as a pharmacy benefit manager, they're an extremely important part of our go forward strategy in terms of we need them just as much as, you know, maybe they need us to, to get fair reimbursement. And so we've, um, continued to work, uh, really across the country with independent pharmacies on making sure they're getting a fair reimbursement. Um, and even looking at creative ways where we can. Potentially provide them more reimbursement for the clinical services that they provide to, to help better manage the patients that we're serving.

David: 17:21

So you, we've talked about these, you know, legacy big three, PBMs, big health, and you describe what you do as a modern approach. What, what makes it modern compared with the legacy?

Alan: 17:34

Yeah, the, there's a few pieces to it. Uh, the, the number one piece is the, just the foundation of how we think about pharmacy benefits in terms of, uh, I mentioned the kinda legacy discount based way of thinking. Um, we, we very much wanna look at, from an employer perspective, pharmacy benefits from what we call a cost-based lens. Meaning if I'm an employer, I don't really care about discounts because that doesn't correlate to what I pay. What I care about is, you know, how much am I paying every month to my pharmacy benefit manager for the cost of drugs? Right? Um, and what that does is it. By focusing on the cost and the net cost of medications, it changes from a pharmacy benefit manager. You're approach into how you're managing spend right now. I'm not necessarily focused on, oh, which medication is gonna give me the biggest rebate? That'll gimme the biggest discount so that I can meet my contractual obligations to my client. It's, you know, what is really the best overall drug, um, from a net cost perspective that, uh, meets the clinical standards that need to be out there, um, to help the patient manage whatever they're treating. So the first piece of it is that, uh, cost-based approach to, to managing spend. The other piece that I think is fundamentally different, um, is because we don't have any, you know, misaligned incentives. We don't own any pharmacies or, you know, we don't own a drug manufacturer or, you know, a, a rebate GPO. We're kind of agnostic to where the claims go. And so what that's allowed us to do is to create what we call a drug pathways engine where. There's really kind of three main levers that you can use to, to control costs. There's drug source, meaning where's the medication coming from, which pharmacy's dispensing it. There's drug selection, which is, you know, which drug are they using. And then there's what we call kind of cost modifiers or the drug cost and are there, you know, alternative ways to help lower cost for patients like, um, using coupon cards to help with their out-of-pocket expense. So any of those kind of three levers we've created, um. Algorithms as a claim comes into our system to be able to identify, okay, what is the best pathway? And it can be a combination of those three things. For a medication. And then we, uh, leverage our team of patient advocates to, to kind of effectuate those pathways and help patients along their, their medication journey. Um, so drug pathways are an important part of it. And I think the other piece that's, uh, hugely important, um, that is often lost on, um, just the pharmacy benefit space because it's so confusing and complex, is this idea or concept of platform pricing. Meaning that, as I was mentioning before, when we reimburse a pharmacy. Uh, you know, we reimburse them in aggregate and so we, we kind of have the ability to control drug pricing. Um, and what most PBMs do even pass through transparent PBMs do, is they'll set different prices for different clients based on size or scale or any kind of type of scenario. But we actually have done and made this kind of fundamental decision from the beginning is that we have one price for every client, meaning it's, it's simple. We've removed the complexity and whether you're a. Employer with, you know, 20 employees on your plan, or an employer with a hundred thousand employees on your plan. The price of Lisinopril is gonna be the same at CVS pharmacy on the same day for that, you know, patient, it's not gonna vary by our clients. Um, so what that helps with is two things. It helps create consistency across the board. Um, it also helps with pharmacies as well because they know the exact, you know, reimbursement that they're gonna get on vacation from.

David: 21:02

So part of this, it sounds like there's a approach toward transparency and aligning incentives. Is that an important part of your business?

Alan: 21:12

Yeah, absolutely. I think there's transparency and aligned incentives, and what that really comes down to is this. Concept that's becoming more and more important now, as I mentioned, the lawsuits that are coming about, but uh, what we call fiduciary alignment, right? If I'm a employer and I'm providing benefits to my employees, I have what's called a fiduciary responsibility, meaning that I need to be, you know, responsible for the employee benefit funds that I'm managing. I need to be prudent in how I'm using those funds. Um, and we feel very strongly that. The legacy way of, you know, managing pharmacy benefits or like you mentioned the beginning, lack of managing pharmacy benefits really puts these employers at risk from their kind of fiduciary responsibilities. And so transparency is the start of it, but it's really going a step further and saying, you know, everything that we do, uh, can help protect you as an employer because we are fiduciarily aligned with, um, your strategies and making sure that you're managing the benefits appropriately.

David: 22:13

There's been a lot of discussion about PBMs and some of the challenges and contradictions over the years, and yet it's still the big three. And although there, as you mentioned, a lot of other PBMs out there, they haven't necessarily gained that much, uh, market share, you know, despite putting out a pretty good value proposition. So I guess a question is whether employers and payers are ready to make a shift. What sort of barriers, you know, do you encounter? So we don't have like the big four, or you didn't kick smithx, didn't kick out one of the big three. Yeah. What's happening in terms of, uh, you know, traction and what barriers are still remaining?

Alan: 22:52

Yeah. You know, it's, it's been super interesting and there's been a lot of movement really within the last 18 months around this topic. Um, I've been in the, the pharmacy benefit industry for. A number of years and when I first started, we were, I worked at a pass through Transparent PBM that had, you know, kind of a similar ethos to to SmithRx. And I always joke that we were probably two, 10 years too soon in, in selling transparency and pass through at the time because, you know, pharmacy was maybe 10% of overall healthcare spend and it just wasn't a focus of employers. Um, and so as we're, you know, shouting from the rooftops, Hey, these are the games that are happening and you're getting taken advantage of, nobody really cared. Um, fast forward though to where we are today, and I mentioned the lawsuits a couple of times. Uh, you also have, you know, the New York Times and the Wall Street Journal publishing articles over the last couple years and agreeing that pharmacy benefits is broken and they don't agree on anything. And so there's just a lot more excitement and, um, I think renewed focus around pharmacy benefit. And you have, you know, every state is trying to do their own legislation to, to combat and, and fight against the, um, games that are being played by the pharmacy benefit managers. But what's even more interesting with this, I think, is what we're finally seeing is, um, with all of this noise within the ecosystem is employers are starting to realize that. Uh, just kind of renewing and staying with your, you know, the big three PBMs isn't necessarily the IBM Safe solution that existed before. We used to always joke that, you know, large enterprise employers never moved because, you know, nobody was fired for picking IBM and the, you know, total rewards leader didn't wanna put their neck out on the line and using kind of an unknown player in the space. But what we've seen over the last couple of years is a number of prominent. Employers have have made the switch and decided to come to, whether it's SmithRx or some of the other kind of big players that are in the space. Um, and so we're starting to see that movement, movement and proof points are starting to exist in the market. And so I think. We're really just at the precipice of, of seeing this change in this evolution. Um, to answer your question of why it hasn't happened before, uh, what's interesting is there, there's a number of misaligned incentives that exist. We talk a lot about kind of the PBMs misaligned incentives, but. There's, um, that, that exists as well within the kind of benefit consultant space. So as I was talking about before, the, you know, typically a, an employer hires a benefit manager or a benefit consultant to help them craft and put together their benefits. Well, it's sad, but true reality is there's a lot of kind of backdoor payments and deals that the legacy PBMs provide to these benefit consultants that, um. Gives them incentives to, to choose kind of the, the IBM solutions of old. Um, and so it's, it's a lot of upfront educa education on our side and trying to articulate that our prop value proposition is different, um, and that you need to look at us differently. And that the, you know, the spreadsheet that's being used and the, the payments that occur are something that you need to ask questions about. Um, but what we're finding, like I said, is. Employers are really starting to dive in and, and dig in. Whereas before they were just kind of taking what they were told is true.

David: 26:02

You mentioned that from a maybe independent pharmacy standpoint, they are, you're including your yourself in that they've made a mistake in accepting certain, you know, ways of doing business that became entrenched. Now that there's more of a realization, and you mentioned GLP ones with all the branded products there, that you know, that's not a stable equilibrium for them. Are you saying? Are you seeing the community pharmacies try to try to take a little more of an active role and they're somehow helping with this evolution as well?

Alan: 26:32

Yeah, absolutely. And we're seeing it in, in two different ways. So one is the, like I mentioned, the state level, um, interest in creating legislation to manage, manage pharmacy benefit managers and um, to. Really try to prevent a lot of the games that are happening from the legacy PBMs. Um, the vast majority of that, to be honest, is, is driven by independent community pharmacists, um, that are within their state that are really loud and vocal about, you know, the games and problems. And so most of the legislation we're seeing is, um, targeted towards fair reimbursement or, um, you know, no mandatory mail order and all of the, um, issues that they're running into as, as pharmacy owners. What we're also seeing, um, is becoming more and more common as well, is independent pharmacy owners reaching out to us as well and saying, Hey, you know, I know a lot of the business owners in my community, I don't really understand how pharmacy benefits are picked and chosen, and I don't get what, you know, benefit brokers do. But can you help me because I've got the ear of the CEO or the CFO of these prominent employers in my, in my town. Um, and I'd love to educate them because if I can get. You know, them to make a switch to a, you know, a modern PBM, then that means that I'm going to stay in business because I'm, you know, providing prescriptions to all of their employees. Uh, and so we are seeing this kind of groundswell evolution that's, that's super exciting. And it's, um, at least for me, very. Uh, satisfying to be able to know that, you know, we're helping keep a pharmacy in business and we're helping these small employers, um, save as well, which we didn't necessarily dive into and talk about, but the, the savings that can come from making a switch and kind of removing that fat that exists within the, the pharmacy benefit ecosystem is meaningful and it, um, you know, can provide. Meaningful value back to these employers. That can mean hiring more people or providing bonuses to their employees or keeping their premiums low. And so it's, it's really awesome to be able to, to be a part of this, you know, movement and helping employers really. You know, stay strong across the country.

David: 28:34

Well, we didn't dive into that. You're right. But let, let's talk about it a little bit. You were saying before when pharmacy costs were just a small part of healthcare costs and you're just saving a percentage of that, people would sort of look away. Now it's more what does it break down to either on a, like, you know, dollar per employee or what an overall, a typical company could, could have. What, what's the difference to their economics of going the modern path versus the legacy path?

Alan: 29:00

Yeah, so what we see now, it's not uncommon for pharmacy spend to be 30 to 40% of overall healthcare spend. And so it's, you know, you look over just the last 10 years that, that increase that existed and it's astonishing and much of that is coming from specialty drugs. And now GLP ones have been, you know, obviously a huge impact on the budgets of these employers. Um, but what we see overall, if you look at the data and there's a number of, uh, public reports that are out there. Um, Milliman Medical Index is one that's publicly published that shows the average. Um, they look at it on a per member per year or per member per month basis, but, um, spend on prescription drugs. Uh, and they're, the, the poll that they do is largely looking at, uh, legacy PBMs that exist in the market. And, um, what we're finding with them is it's typically around 120 to $130 per member per month that they're spending on pharmacy. If you look at, uh, pass through PBMs, so these would be, you know, fellow good guy PBMs that are, you know, charging the employer, what they're paying the pharmacy. Um, again, there's games that can be played there, like I mentioned before, but they're typically around. 105 to $110 per member per month. And so you see just by kinda removing the fat that spread pricing that exists in that layer and passing through all the rebate dollars that they're getting from manufacturers, there's, you know, a significant amount of savings that can exist there just from switching business models. I. And then if you take it a step further and you look at, um, pharmacy benefit managers, much like SmithRx that are actively managing pharmacy spend and really executing and pulling patients through these different drug pathways, you can actually go even further. So our average per member per month spend, um, this year is around $85 per member per month. And so you see an additional. Like I said, 15 to $20, um, per member in pharmacy spend that can be lowered by, uh, getting patients to the, the right place and on the right medication.

David: 30:57

One of the things we, you've hinted at a little bit, um, is the incentives even within, like in an employer. And so they may be receiving, although of course the all this is funded by them paying for the drugs they may be receiving what looks to them like a revenue. In terms of a rebate stream. And you know, if they start to negotiate and they say, well, you're gonna lose this revenue that you're using, you know, they may have a certain target or certain things that it's used for, and sometimes that can actually inhibit a company from negotiating or wanting to get, you know, lower overall net payments 'cause they've got this revenue stream coming in. Is that, am I making that up or is that in fact the case?

Alan: 31:37

Well, it's interesting because that's the, um. Historically that's been the, the conversation is the, you know, drug prices have continued to increase and rebates have gone up in value. Um, the, the kind of typical narrative of the pharmacy benefit managers is like, Hey, these employers really like rebates and so they're, you know, we want to give them their money back. And they're fine with drug costs going up 'cause their rebates are, are going up as well. Um, I think we've gotten to a tipping point though. So, because what we're finding is we talk to employers across the country and we have. Over 4,500, uh, clients today across, you know, varying different sizes and, you know, in every state across the country. And what we're finding is with a lot of these medications, I mean, Humira is a great example where the list price of Humira is over a hundred thousand dollars now. Uh, a year for a medica for, to, for a patient to be on the medication, the rebate on that drug is 50 to $60,000. Um, and so what you're finding is, yeah, that would be great to get that, but then it becomes a cashflow issue, right? And you think about the net present value of money. And if I'm a CFO and I, you know, A PBM presents to me, Hey, instead of paying $7,000 per fill upfront and getting a huge check six months later. You could actually just pay$700, get a medication through Mark Cuban's cost plus drug. It does the exact same thing. Um, which one would you want to do 10, 10 times outta 10? The CFO says, I want the savings upfront, right? I want money now. Um, whereas historically I think maybe it's 'cause the rebates weren't as large or as impactful. I, I do think that narrative existed. Um, I don't think that exists anymore. Okay. Employers are looking for, you know, they wanna spend less and it's hard to see that you're spending less when you're waiting for rebates that may or may not come.

David: 33:23

You mentioned, uh, legislation going on at the state level. Is there like a, a template that's being used in a lot of places or there, like particular couple of elements of these laws that you endorse or find that are most impactful?

Alan: 33:38

It's, so, it's been fascinating, the, the federal level we've been actively involved. Um, we're part of a, a coalition called Transparency rx. And, um, it's a bunch of fellow, you know, good guy pharmacy benefit managers that are trying to provide kind of a counter view to the, the legacy PBMs. And, um, it's been. Fascinating to have these conversations up in Washington and on the hill about, um, really educating them about the games and what's going on. And there's a great interest in understanding, um, in wanting, you know, to, to find a solution to this. I think, uh, as we often find right in Washington things, nothing moves fast. And so there's been a handful of proposed legislative, um. Uh, items that have, have kind of come and failed and still kind of moving and maybe eventually something happens there. Um, but the states, as you mentioned, have, have been very active and said, Hey, we're not waiting for Washington. We're gonna do our own thing. Um, I think one of the challenges for us that we're finding is. A lot of these individual state pieces are well intentioned and I can understand and appreciate where they're coming from in terms of, Hey, these are the games we need to, you know, kind of essentially stop the games from happening. But what's happening with a lot of them is they're actually becoming very administratively burdensome for us as a, you know, a small company that's trying to make change. And so, um, one of the pieces that we're fearful of is, you know, in, in the interest of, you know, stopping the big three from doing their games, they may actually inhibit competition because it could be a, where it's like, hey. You know, we can't afford the fees or the oversight or like the, the work that's required to provide all the data and reporting for you as the state to try to prevent these games when we're not even doing the games and we're, you know, more than happy to share everything with you. But it's a lot of work and it's, you know, expensive for us to do that. Um, so that's, that's one of my fears as I see these coming about. Um, there's the, obviously the Arkansas, um, legislation is something that's got a lot of excitement, Florida as well, and kind of the way they're going about things. I think we're seeing those kind of service templates, um, and how to kind of manage pharmacy benefit managers. But ag, again, it's, for us, it's, we need to tr figure out if we can find a balance where it's, hey, this gets at your intention, but it still allows us to operate and, you know, be competitive within your state.

David: 36:00

Well, you know, sometimes people think that the big companies don't want regulation, but it's a real barrier to entry. And ironically, if you put enough. Legislation and, and hoops and, and, and hurdles make it expensive enough to comply, uh, it will tend to reinforce the oligopoly as opposed to opening up the market.

Alan: 36:17

So, absolutely. I mean, we talk internally all the time that, you know, had we tried to start SmithRx today, I don't know that we could've got it off the ground. Yeah. Just due, you know, being licensed in all 50 states and the cost and the overhead to be able to do that is just, it's a very different world than it was 10 years ago.

David: 36:33

Okay. So if SmithRx and the other folks that you've, you've, uh, characterized as the Good Guys succeed, how is it gonna be different for patients, for employers, for, you know, especially, uh, independent pharmacies?

Alan: 36:47

I think what what ends up happening right in, in this world is um, you know, you see a place where everybody exists kind of fairly ine equitably, right? Pharmacies are reimbursed for the work that they're doing. Um, I still think there's some work to do on, and I understand it, but the inherent distrust that pharmacies have on saying, you know, this is what I'm actually buying the drug for, 'cause. They're scared that once we have that information, then we're gonna reimburse 'em less. And so there's, there's a lot of, I think, trust gaining to be built in saying, Hey, look, we're gonna reimburse you a fair dispensing fee for the work that you do. We recognize that, you know, it's not just, you know, throwing some pills in a bottle and kind of sending it across the aisle. Like there's actual clinical rigor that exists here, and we wanna reimburse you fairly for that. Um, but on the flip side, we also don't wanna overpay you for the medications you're buying. Um, and so in a world where we succeed, I think pharmacies continue to, to thrive and, you know, have viable businesses. Um. They're not gonna be, you know, making money hand over fists on every medication, but they're gonna be reimbursed fairly, right? It's gonna be a, a business that can, can stay and exist on the patient side. I think, um, similarly, I think, you know, medications, cost money, drug manufacturers put in a lot of upfront dollars and research to bring drugs to market. Um, and so they should be again, reimbursed fairly for the work that's done there. Um, and patients as a result of kinda lowering the costs, should have equitable out-of-pocket costs. Um, I think in this world as well, by lowering the cost for employers, that employers would be. More open and willing to remove some of that cost share that's been pushed onto patients. Right? There's, there was this kind of movement with HSA plans and, uh, kind of the high deductible craze of, Hey, if we put all the cost share on the patients and give 'em a debit card, they'll make wise decisions. I don't know that that's necessarily played out because of the complexity that exists within pharmacy benefits. Right. If I said, Hey, David, here's five ways to get this medication, like. You're, you understand the space and you probably still have a hard time saying, okay, well how do I get, you know, option A to work? Right? And so, um, I think there's a world where, uh, employers are willing to remove some of that cost share, right? And, and take on that burden if patients are able to make, you know, wise choices and are directed down that kinda lowest cost pathway.

David: 39:08

Terrific. Well, that's it for another episode of Care Talk Executive Features. My guest today has been Dr. Alan Pannier from SmithRx. He's been helping us understand the pharmacy benefit landscape and where it's headed for a modern era. I'm David Williams, president of Health Business Group. If you like what you heard, please subscribe on your favorite podcast platform. Thank you, Alan.

Alan: 39:31

Thanks David. Appreciate the time.