David 0:00

What insights can we take from the Jumbo Group Market and from folks who are looking at all of that data in a very different way? We'll find out on this episode of Shift Shapers.

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Change either paralyzes or energizes. The choice is yours. You're listening to the Shift Shapers podcast. You're about to learn firsthand from businesses and entrepreneurs who have successfully shaped the shifts in their industries. Get ready to become the change you want to see. This episode is brought to you by Shift Shaper Strategies. In sales, if you confuse, you lose. Clarify your message so you win more clients, crush your sales goals, and build your practice. Learn more at ShiftShaperStrategies.com. And now here's your host, Storybrand Certified Guide and Chief Transformation Strategist at Shift Shaper Strategies, David Saltzman.

David 1:03

And joining us is Greg Baker, co-founder and CEO of Msana RX, a pharmacy benefit manager created by and for employers, which is kind of interesting and refreshing. And welcome, Greg. Thanks for joining us.

SPEAKER_01 1:17

Thanks for having me, David. Looking forward to our conversation today. My pleasure.

David 1:22

Would you maybe tell us a little bit about your journey? How'd you get to where you are and what you're doing today?

SPEAKER_01 1:26

Yeah, I'm a pharmacist by training. Spent a lot of years just doing community pharmacy, but over about the last 10 years, uh got the distinct opportunity to work with jumbo self-funded employers more on the healthcare side. So I would run pharmacies at like Walt Disney Company, Microsoft, so these big organizations. And as we were doing a lot of work with them, they started saying, hey, our pharmacy costs are really expensive. Yes, we've got you helping on site, but we've got all these other problems. And we spent a lot of time then helping them understand their PBM contracts, looking at their data. And that's where it really became evident to us. Well, we thought there was a big problem within the jumbo self-funded world, is it related to PBMs? That experience just galvanized that there was a big problem that needed fixed. So as COVID was really hitting and travel was stopping, I went from traveling all the time to being at home all the time and ended up getting connected with Elizabeth Mitchell and the purchaser business group on health. They're a business group on health that represents 40 of the largest employers. These employers have 21 million lives under benefit that they cover, and they spend about $350 billion a year on healthcare for those lives. And they really looked at the industry and said, it's not meeting our needs. We need something out there that's going to meet our needs differently. So, long story short, here we are. We created a PBM. We report directly to the members of PBGH. So we're trying to say, let's look at this in a different way. Let's not create another profit-driven solution to drive healthcare costs up, but let's create a solution that really meets the needs of jumbo employers and their employees and dependents.

David 3:11

Let's dig into that a little bit. And I know this is kind of a loaded question, but what's wrong with PBMs in what most of us think of as the current model?

SPEAKER_01 3:21

And I think just healthcare in general, if I was to say part of the reason we have these cost problems and affordability problems in healthcare is most of healthcare is run by for-profit companies. And the reality is those for-profit companies are emboldened to the shareholder. Their job is really not to save somebody money, it's to make more money this year than they made last year. And next year they need to make more, and next year they need to make even more. So as we really look at it, you could probably argue that these companies are doing a really good job because they're making tens of billions in profit a year. They're paying out a ton of money to their shareholders, but we feel the pendulum has swung way too far. We don't have a problem with organizations that make money. But when they're making so much money that it's now raising premiums at an excessive level for these um jumbo self-funded employers and then hurting American families at the pharmacy counter with the high costs that are being pushed down to them, that's where something needs to change. So it really, I think, starts with the fact that a for-profit company needs to drive more profit, but then it's all of the little decisions they make every day that continue to make this industry worse.

David 4:30

What's the scope of the problem that you all are dealing with? I mean, give us a sense of the size of the monster.

SPEAKER_01 4:37

Yeah. So from, and we look at it just from a self-funded space. So my comments do not reflect anything towards Medicare, Medicaid, fully insured groups, just self-funded. And that's about 160 to 180 million lives, depending on what number you want to look at. You know, it's going to be about a $500 billion problem by 2027. So, you know, as we continue to look at this space, you know, costs are going up much faster than just about any other healthcare cost. And we haven't even hit the cell and gene therapies that are going to be coming out. One just got approved last month for $3 million, $2.8 million, I rounded up a little. But, you know, I think these costs are going to continue to blow up. And the way that formulary decisions are made on higher cost drugs being preferred over lower cost drugs, we just continue to see this problem exacerbating in the future.

David 5:32

We thought for a while that moving people to generic drugs would solve the problem, but clearly it hasn't. Why is that?

SPEAKER_01 5:40

The organizations that make the decision, which is the PBM, on what drugs get approved, they make a percentage of revenue. So I think a really good example we always allude to is there's two products on the market called Truvada and Discovy. So both of these are on the market for HIV prep. So if you think, you know, somebody who is living a lifestyle at high risk for getting HIV, if they take these products, they basically have like a 96% chance of not ever getting it. So incredible drugs, really good for the American public. Truvata is a generic drug, which you can find online for about $25, $30 now. There's two active ingredients in Truvada. Well, Discovy has the exact same two active ingredients, but this is a brand drug that came out in late 2019, right before Truvada went generic. And the only difference is they changed the salt on one of the compounds in Discovy, and it might absorb better for somebody with late-stage renal disease or osteoporosis. So when I think of those two, you think older American adults. So probably not somebody who's living a lifestyle at high risk for HIV. So if you really look at the clinical criteria and let that drive your decision making, 99% of people in America would be on generic Trovata. Well, the reality within these self-funded claim files, we see up to 60% of the drugs being dispensed as Discovy, not as generic Trovada. And the reason the PBMs like that is because Discovy is about $2,200 a month. The manufacturer is giving, call it $600 to the PBM. They keep a percentage of that money, anywhere between $50 and $100. And then they go to the client and they say, hey, I used my great size and scale as a PBM to save you $500, aren't I great? So here's this $500 rebate check for you. So they've portrayed this system where they're buying down costs, but it's really, if they can make $50 or $100 every month that Descoby goes out the door, that's really good for their finances. Where if generic Trivata goes out the door, there's no extra money for the PBM to make. So they're not financially incented to drive down costs. They're actually incented to drive up costs and move that money over to their shareholders.

David 7:58

Was that kind of the same problem with pharmaceutical equivalents? I think it was the University of Arkansas that did a lot of work on pharmaceutical equivalence, and that's something that doesn't seem to have caught on either.

SPEAKER_01 8:07

Not at all. Yeah, I agree. And and there's just case after case where a lower cost drug comes out on the market versus higher cost competition. And the higher cost competition continues to be the drug that gets dispensed. Another interesting example is the hepatitis C drugs. Those were the drugs that came out in 2015, the really high cost drugs. You know, before if we saw a five or a $600 a month drug, everybody freaked out. And then here come these hepatitis C drugs at about $75,000 for a 30 or well, 90-day supply, say. Well, Gilead made those drugs. They've got three of them in the market now in Savaldi, Harvoni, and Vosevi, all of them really in that $75,000 range. Abvi had a great idea. They could bring out a drug for about $30,000 and they could cure people with hepatitis C in eight weeks at $30,000. Now, Harvoni, Savaldi, and Vosevi take 12 weeks to get cured. So if you ask any doc in America, do you want to cure somebody in 12 weeks or eight weeks, knowing that adherence is always a challenge, everybody's always going to pick the eight-week cure. But as we sit here today, no PBM really uses Maverick, which is the AV eight-week product. So it's been one of the biggest failures ABVI's brought to market because they just don't get any uptick on this, but everybody continues to prefer these higher cost drugs. So, you know, again, and it's all based off the rebate dollars on the back end that are driving these decisions.

David 9:36

So the pharmacy side, it sounds like, not unlike the medical side, as we started our conversation, is suffering from some misaligned incentives. Couldn't agree more. So how do you create a PBM that's unconflicted, to use the word that you guys use?

SPEAKER_01 9:51

Yeah, thank you for asking. We've been very thoughtful about that. And I think there's a couple things that come to play to make sure that you are a completely unconflicted organization. First, it was our incorporation structure. So interestingly, when you create a company, everybody tells you to go to Delaware and become a C Corp. So we went to Delaware, we became a C Corp. And as we were putting together our articles of incorporation and our bylaws, we would have conversations in front of our corporate attorneys about we're mission-driven, we're not profit-driven, here to do the right thing. And at one point in time, the main corporate attorney we were working with said, Hey, like, time out, guys. Like, I want to be real honest with you. That's sweet and wonderful that you don't want to make money. But as a Delaware Bay C Corp, your job is to make as much money for your shareholders. So as board members and officers of the company, that's your legal and fiduciary responsibility. And we were all like, oh, well, that's not the goal here. So we did a lot of research and figured out there's a concept out there called a public benefit corporation, currently recognized by 37 states in the United States, including Delaware. So we converted to a public benefit corporation. So now we can make decisions that don't just drive shareholder value, but actually meet public good of driving a better clinical experience and outcome for the American public. The other thing that we've been very thoughtful on is private equity investment. You've got the biggest PBMs that answer to the shareholder already through their stock price, but then even these newer PBMs are taking on hundreds of millions of dollars from private equity. In my experience working with multiple private equity backed companies, they don't give you a couple hundred million dollars and say, hey, we're gonna come back in four years and see how it's going, enjoy our money, right? It's how do you make money now? How do you make a lot of it now? And oh, by the way, I want to turn this thing in three to five years for about a, you know, 4x. So let's go, go, go. So again, when money drives all your decision making, bad things really occur if you're trying to improve this pharmacy benefit space. The other thing that we've really been thoughtful of is how we get paid, right? You know, when you're a PBM who makes 7%, do you want to make 7% off a $5,000 drug or do you want to make 7% off a $50 drug? So again, their incentives are to drive up costs to maximize shareholder value. We said, let's not get paid like that. We looked at a PEPM or a PMPM model, but as we were working with the members of PBGH, what they told us is in a given year only about 60% of their population utilizes their pharmacy benefit, which means 40% never touch it. So we didn't want to get paid like that, because then we're taking money from a bunch of people who don't use the benefit. So what we landed on was a dollar amount per net paid claim. So if a claim hits our system, whether it's a three-day supply, a 30-day supply, or a 90-day supply, you just pay me a dollar amount. So that way, if it's a $50 drug that's clinically relevant versus a $5,000 drug, I don't have any incentive to do anything but the right thing by our client. And there's times probably the $5,000 drug is needed. So we're not shying away from always using highest cost drug, but we want to make sure clinically what's the right thing for the member and then have that drive your decision making and not some back-end financial decision.

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David 14:11

So as as long as you've taken us down the tactical road, let's talk a little bit about formularies and what kind of an effect the a formulary can have, good, bad, indifferent, and how you build them so that they actually work for patients.

SPEAKER_01 14:23

Yeah, that's a great question that I don't think enough people ask. Usually when we're working with even consultants and self-funded employers, they immediately go to what's my 30-day, 90-day specialty rate and what do I get in rebates? And that's going to somehow drive savings or cost. And the reality goes, David, exactly to your question. The formulary that's designed drives more cost and problems within the system than anything else. So what we've done is we've taken an extraordinary step, frankly, of saying, hey, we're a PBM, right? We're just like everybody else. Every other PBM says they create formularies that meet the needs of self-funded employers. And we're echoing that. But we wanted to say, but we want to do it different and make sure that we build a level of trust into our formulary design that we don't see anywhere else. So we've gone out and partnered with the Cleveland Clinic because 12 years ago, the Cleveland Clinic in-sourced all of their pharmacy medical benefits for their own employees and dependents. So they've got this 12-year history, all of these clinical criteria, and they are solely focused on the clinical value first. And then if there's a couple drugs that are all clinically the same, then let's look at cost and figure out what's lowest net cost and then build a formulary design around that. Now, we don't just take everything the Cleveland Clinic's done because with their ability to purchase drugs for themselves, their costs are very different than what a self-funded employer's cost would be. The other reality is when you think formulary design, I always think of it like a pendulum. You can bludgeon people with, you know, this very draconian, narrow formulary, save a bunch of money, but it usually causes a decent amount of disruption within that population. And there's a lot of employers, as we think, you know, coming out of the great resignation, trying to be employer of choice, you know, they don't want that level of disruption. So they kind of want to be more over on this side where, hey, I want a formulary that is right, clinically relevant, meets my needs, but I don't want a bunch of disruption. So, you know, you really have to talk to each individual group and say, what are your goals? What are you looking to achieve? But here's the formulary that makes sense. And also there's these things that should always fall out of the formulary. Like there's a lot of wasteful drugs on the market if we think duexis, VeeMovo. So, you know, duxis is my favorite. It's ibuprofen and pepsidin one pill. You know, you can buy that for call it 30 bucks a month over the counter. And yet that's about a $3,500 a month drug if you get it as a prescription product. So no matter where the client falls in the pendulum, that should never make the formulary. So we really try to be thoughtful about that, how you, you know, look at that disruption within the formulary design, but then always carve out those bad drugs.

David 17:06

Well, and also if you go to the bludgeon side of that pendulum, don't you risk running up medical spend?

SPEAKER_01 17:13

I couldn't agree more. You do. And even with some of these high deductible coinsurance plans, when like the Discovy-Truvat example again, if you're on a high deductible plan and you go to the pharmacy counter and Discovy's preferred, you're going to pay thousands of dollars. So at what point in time does the person standing at the counter go, either I can't or I don't want to afford that, that's too much, and the prescription gets abandoned. And all of those then decisions, you're right, lead to higher medical costs and lower quality of care down the road. So absolutely agree. How do you build a formulary that looks at that holistic view of healthcare and not just the silo of pharmacy?

David 17:53

We've got a few minutes left. One of the things that I think is interesting in your model is that you've separated fulfillment. Why was that choice made?

SPEAKER_01 18:01

Again, as we think about trying to create a completely unconflicted PBM, the reality is if you take a step back and think about these huge vertical and horizontally integrated organizations that are out there today, they basically are an umbrella organization with multiple business legal entities in there. So a PBM happens to just be one of those legal entities. But then they also have their own specialty pharmacy and their own mail order pharmacy. And those are different. So when the PBM is under that umbrella of those two, it's usually saying, hey, if you do your specialty through me, here's what we'll do, and we'll carve in this exclusive specialty agreement. But then the PBM gets to decide what it pays itself. And when we see PBMs getting to decide what they pay themselves, amazingly the costs continue to creep up and it gets more expensive. So we did not want to be in a position where we own fulfillment and we could say, well, I'm the PBM. I get to decide what I pay for this drug because then I'll just pass the cost to the self-funded employer. And, you know, again, bad things will happen. So we feel vertical integration is not always the best thing because there's a lot of very good specialty providers out there that are not affiliated with their own PBM. So let's break these things up in chunks that make sense so that the specialty pharmacy is doing right by me as the PBM. I'm doing right by them and the client and member, and we can create incentives that make sense in that world versus just this umbrella world where all of the money flows into the parent organization. We're just trying to maximize that as much as we can.

David 19:35

We've got just a couple of minutes left. So I'm I'm interested in your view of when you see these kinds of ideas that you guys are working on filtering themselves down into the ranks of the mere mortal-sized corporations, you know, the 500 to 2000 or the 250 to 500. How do you see that happening or do you at this point?

SPEAKER_01 19:54

Yeah, that's a good question. I don't have a good answer for that. It here's how we look at it. Again, we're trying to say, let's not use a ton of money and resources too. You know, it's always frustrated me working with these large consultant shops where we would go on behalf of our clients. And, you know, if you're meeting with them, it's in New York City, you know, right by Penn Station on the 56th floor of some office building that costs millions of dollars a year. And it always frustrated me because I thought, how do you bring a client into this space and have them go, well, clearly I'm overpaying for your services because this real estate's really expensive. So that's been part of our lead to say we don't want to just blow resources onto things to spend money. So let's make sure that we're driving down costs, using our clients' money as best we can, and always making kind of a better decision versus just, you know, having all of this waste in the system, too. So we're very thoughtful about how we do all of those things to make sure that our costs, what we're charging, and you know, the system then is really just more aligned and makes sense.

David 20:58

And that's a great place to leave our conversation for today. Greg Baker, co-founder and CEO of Msana RX. Thanks so much for sharing your expertise with the Shift Shapers audience.

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