Congress: PBMs Harm Pharmacies and Patients | Antonio Ciaccia, Luke Slindee, & Benjamin Jolley

Speech to text:

Mike Koelzer, Host: Antonio Benjamin and Luke, for those who haven't come across you guys online, introduce yourself to our listeners.

Antonio Ciaccia: My name is Antonio Ciaccia. I am the president of 3 Axis Advisors and the CEO of 46brooklyn Research. I'm a drug pricing nerd for a living.

Benjamin Jolley: I'm Benjamin Jolley. I'm a pharmacist. I live in Salt Lake City. I run a consultancy called Apex Pharmacy [00:01:00] Consulting. And I am a Senior Fellow for Healthcare Policy at the American Economic Liberties Project.

Luke Slindee: I'm Luke Slindee. I'm a second generation pharmacist from Minnesota, and I'm particularly interested in how market power affects the pharmacy industry and anti competitive business practices.

Mike Koelzer, Host: So I'm at work today, screwing around and I'm watching some of these Senate hearings and congressional hearings. I was listening to something yesterday too. I forget what it was and the whole damn time, they'd ask a question and these people would say, Senator, every response, they'd say Senator, it was annoying and frustrating because these people didn't say anything tomorrow morning 10 o'clock There's this congressional hearing right for the pharmacy benefit people are we going to see all that stonewalling stuff going on or if they do that is there going to be big trouble?

Antonio Ciaccia: So tomorrow the three CEOs of [00:02:00] the largest pharmacy benefit managers will be testifying in the House of Representatives Oversight Committee. The Oversight Committee today is going after the Secret Service and issues that have to do with the assassination attempt on candidate Trump and the same committee, and tomorrow they will turn their attention to.

The world of prescription drug pricing. And ask the big three CEOs of the large PBMs, how is it that they operate and might they be engaged in certain practices that run afoul of the expectations of Congress?

Mike Koelzer, Host: All right, so They're going to get up there and say no. And everybody says, okay, that's a wrap. What are these guys going to say? they're going to stonewall the whole time. They're not going to say anything of substance. And when they don't say something of substance, is that proof [00:03:00] to the oversight committee that they're just more obfuscation and smoking mirrors and things like that?

Is it almost a good thing that we don't get a lot from them?

Antonio Ciaccia: I would argue that we'll probably see a lot of context free information from the big three PBMs. The truth is, on paper, PBMs provide a tremendous savings and service to the overall healthcare delivery system, but that exists in a context free world. What we know about PBMs is they provide a significant amount of savings of prices of medicines that they are partially responsible for inflating in the first place.

My pessimism about the hearing is that the system has become so complicated. that committee members who are very well intended Are focused on a lot of other things including, assassination attempts, coronavirus, etc That as somebody who spends every waking hour learning about the maze of drug [00:04:00] pricing Even I don't have all the answers and so in many ways the complexity of the system Has left not just committee members in the house But really any policy or any regulatory agency relatively under equipped to do their necessary role of oversight and accountability.

Mike Koelzer, Host: Do you think that if the average independent pharmacy was thrown into that role to ask questions of these three, might they do a better job or where would you rate these Congress people in relation to the average knowledge of an independent pharmacy owner, 

Luke Slindee: This is Luke. I would say that obviously the independent pharmacy owner is going to be able to ask more nuanced questions than your average house representative. But that being said, given the amount of interest on this subject, I'm guessing that many of the representatives tomorrow will [00:05:00] have done a decent amount of preparation in the lead up to this hearing and will likely have solicited questions from independent pharmacy owners.

And so my Suspicion is that you will get lots of questions from representatives where the questions have been either written or influenced by pharmacy owners. So that's my hope, at least for the hearing.

Mike Koelzer, Host: We're going to be sitting here with the anticipation of what's going to be said and all this stuff. I always relate this to judges in courts, like. It's always a lot of emotions for the people going after these things, but it's just another day for them.

Is this just another day for Congress? I mean, the emotions that we want to bring to it. It's like, this is just another thing for these kinds of hearings. Is this up a notch or is it just an average day of questioning?

Benjamin Jolley: That's a good question. One of the things I learned since I took this job at AELP [00:06:00] is that you mentioned judges and it's like just another day for them. Judges are faced with the same exact problems as we're describing Congress people as having, where You know, they do not have specific expertise in the area that they're asked to adjudicate.

 Most of the time. But they still do it, and basically anyone who follows courts for long enough knows what a friend of the court brief or an amicus brief is, where an interested party that's not actually either the litigants can just say, Hey, judge here's some information that you might find useful about these companies or about the context here or whatever.

One of the things that I did not realize happens, but apparently happens all the time, is that Interested parties can just email the Congress people and their staff and say, Hey, here's some information that you might be interested in. And so, in the lead up to this oversight hearing, I actually worked with [00:07:00] my team to write a little policy brief for the Congress people that says here's who CVS is, here's who UnitedHealth OptumRx is, here's who Cigna slash Express Scripts is, here's how much money they make, here's what kinds of things they do.

And here are some questions you might want to ask them. And I didn't realize that this was a thing before I took this job, but I've written like five of these briefs for different committee hearings now. And I feel pretty darn good about the one we wrote for this particular hearing. we Wrote some rather pointed questions that I'm hopeful that someone on the oversight committee will actually engage with, 

Mike Koelzer, Host: Benjamin, might there be 30 companies sending in the same stuff you sent to them? Or does yours float to the top for any reason?

Benjamin Jolley: It's Really just do they align with our policy goals, like, AELP is devoted to Breaking the power of monopolies. So, if [00:08:00] a congressperson is interested in that, then great, we float to the top for that congressperson. Otherwise, there's written testimony submitted by the witnesses.

There's information submitted by the companies themselves that are getting scrutinized here. Like, for example CBS put out a response to the FTC's interim staff report on their 6B study that was context free, I think, to borrow Antonio's phrase there. 

Mike Koelzer, Host: We're looking at the big three tomorrow. Is there any fourth or fifth that are kind of wiping their brow, thinking that they didn't have to be there? Or is this an oligopoly of these three? Is this like far and away the only three that you need to talk to in this thing?

Antonio Ciaccia: In general, I think that there's probably a plan like Humana that is happy to not be there. I think it's important to remember [00:09:00] is that we think of PBMs as PBMs, so we think of three companies that make up 80 percent of the PBM marketplace. The reality is that a number of large health plans will outsource and white label different services and functionality that large PBMs offer.

So you can think about Prime Therapeutics, which they use. ESI's rebate aggregator. They use ESI's pharmacy network contracts in certain states. So, you have competitors in name, but in practice, many of the, quote, competition are relying upon Core functionality from the big three PBMs. So while it might appear as though three PBMs make up 80 percent of all transactions, you move a layer up to the GPO level, the rebate aggregator, you'll find that three companies make up around [00:10:00] 95 percent of that marketplace and other quote competitor PBMs are essentially subcontracting to those large three to provide rebate aggregation services and manufacturer negotiations.

So, yes, we have a number of, quote, logos who are probably happy to not be part of it. But the reality is that indirectly, almost every PBM will be represented in some way, shape, or form by the big three CEOs being there tomorrow.

Mike Koelzer, Host: All right. So these CEOs are sitting there, putting themselves in the shoes of the Congress people. What questions? Are you going to ask them? And then you guys being devil's advocates to each other, what answer are you going to give as the PBM and where does it go from there? Does it [00:11:00] pull the wool over the eyes of these Congress people or what happens after a response like that?

Luke Slindee: For me personally, I am obsessed with the concept of price discrimination. And just to be clear about what that means, it's an economics term that basically means that a seller of something. will charge different prices to different buyers for the same exact product and in pharmacy, we're not talking about one hamburger compared to a different restaurant's hamburger.

I mean, we have the FDA that ensures that a product, if it has the same national drug code or NDC code and it has the same lot number I mean we are literally talking about identical products. So it's kind of an economist's dream from the perspective of having products that are Completely identical to each other at the NDC level.

And yet we see all these situations where there [00:12:00] are so many different prices being charged for the same product. And so I personally believe that a lot of the power that PBMs wield simply comes from the fact that there is so much variability and so much price discrimination that exists around. The pricing of prescription drugs.

And so that's where I would generally try to place my focus would be to ask probing questions about exactly how that process of price discrimination works. On the brand side, it would be focusing on the system of rebates that exist between brand pharmaceutical manufacturers and PBMs, rebates that are paid in return for formulary placement and things like that.

You have variable rebates off of a list price that create a tremendous amount of price discrimination on brand drugs. And then on generic drugs there's different dynamics at play, but again, [00:13:00] as has been shown, very avidly in a lot of the 46 Brooklyn and Three Axis Advisor reports that, PBMs on the generic side, PBMs really ultimately have control over the pricing of the product.

And they use that pricing power to price discriminate in a very elaborate way, really charging any price on any given product to any buyer in any way that they can kind of manipulate it for their own benefit. So I would try to focus my questions around the concept of why there are so many different prices for an identical product and see what they say.

Benjamin Jolley: In the FTC's interim staff report, it has been reported that some PBM that each of you maintain over 100 maximum allowable cost lists, and one of you maintains over 10, 000 such different price lists. Why do you have so many [00:14:00] different price lists?

Luke Slindee: would be a great way to address, especially on the generic side.

Mike Koelzer, Host: How are they going to answer that?

Antonio Ciaccia: Well, I think it's kind of hard to reconcile an answer to the question with the rhetoric. That PBMs are put out. Right now, if any of you that have been to Washington DC at any time recently, you'll find advertisements that are being run by PCMA that say drug companies and drug companies alone set and control prescription drug prices. If we believe that to be true. that only drug companies are responsible for our end drug pricing experience, then theoretically there should be no such thing as multiple prices. Furthermore, PBMs say that they work to achieve the lowest cost [00:15:00] possible. We released a study today at 46 Brooklyn where we were examining prices of medicines in Medicare Part D. As an example, you will find CVS Health. As a parent organization of many plans in the Medicare Part D program, within all the plans that CVS Health manages for generic Gleevec or imatinomacillate, as the generic is known, CVS Health has created 597 different prices for that drug. The ranges of those prices go from over 2, 000 per prescription all the way up to over 8, 000 per prescription. Mind you, this is a drug that is sold by Mark Cuban and Costco for less than 40 a prescription. So not only are you seeing them set [00:16:00] 597 prices for something that somebody else is selling for 40. Arguably, CVS Health has the most leverage in the marketplace to negotiate a quote, fair deal. But I would ask the question, if drug makers and drug makers alone are the ones who set and control prices, and if you in fact are always working to get the lowest cost possible, how can you explain 597 prices for the same drug across your parent organization? When the lowest of them is 66 times higher than companies who are significantly smaller and maybe less sophisticated than you.

Mike Koelzer, Host: Antonio, carry that out one step further. Why are they doing that? And you and I have talked before, why do they have so many different prices? 

Antonio Ciaccia: can only speculate because I don't know the internal [00:17:00] and rationale for why they would do such a thing. What I do know about publicly traded companies is that it is incumbent upon them to be efficient, and when you think about what an efficient administration of pharmacy benefits looks like.

I think it begs a very logical question. Is it more efficient to run thousands of price lists relative to one? I think that answer is very straightforward, that it would be more efficient to have one price list. So then it begs a second follow up question, which is, what sort of economic return is there for doing something in such an inefficient way? And I think the answer becomes pretty obvious, is that it is more financially lucrative to the enterprise as a whole. To maintain a disparate pricing experience and a moving target of price such that the ways and methods with which are used to set a price are less [00:18:00] straightforward and subject to traditional forms of competition. 

Benjamin Jolley: I'll throw another question to ask about PBM, brand pricing. Brand name reimbursements to pharmacies for the last several years have been substantially below the national average drug acquisition cost. Brand name drugs. do not generally contain meaningful off invoice discounts to pharmacies.

And so, when a PBM offers a contract that is below NADAC, they are knowingly underpaying that pharmacy. And so, when I look at this last week CVS Caremark pushed out a commercial contract for next year that says, Naac minus 1.25% for brands. Another contract is express Scripts put out a contract that says for this year's Medicare plans that says a WP minus 26.3% [00:19:00] contextually NADAC is a WP minus 20%.

And so my question then is for the CEO there at Express Script specifically. Or any of the rest, but specifically Express Scripts is, Why do you offer pharmacies contracts which normalize counterfeit drug prices? The price 3 is not a price that is obtainable from any wholesaler for any business.

You can maybe get that price once for a single drug, when you buy it from another pharmacy in the gray market, but you can maybe get that product once from some wholesaler who's trying to offload the product. It's not possible to have a consistent supply agreement that is at that very low price point.

And so, that makes [00:20:00] pharmacy operators vulnerable to this concept, because everyone assumes that PBM sets prices based on some kind of survey of the market. And so, If I'm paying a pharmacy dramatically below actual acquisition cost, when some counterfeiter comes to them and says, Hi, Pharmacist Steve, I have this product for AWP minus 30 percent.

Do you want that? Do you want it? The pharmacist is going to say, Ah, this is where they got that Eloquist reimbursement from. It's from this company. Yes, I'll take five cases, please. Little do they know that it's not Eloquist that they're buying. It's a bottle filled with sawdust. That, to Me is the core issue.

So why do you normalize counterfeit drug pricing through your contract negotiations with pharmacies? Yes.

Antonio Ciaccia: Mike, you had asked for how somebody might respond. I'll tell you how they should respond, but probably won't. It is [00:21:00] that the proliferation of 340b and contract pharmacies has created a new normal in the marketplace. So Ben is correct that your typical wholesaler and your typical retail pharmacy would never be able to purchase the drugs at least at a sustainable rate relative to the contract terms that he just delineated .

However, what is happening is that there are a number of pharmacies that are able to purchase drugs for pennies on the dollar through the 340b program. Whether they are a health system, they're acting as a covered entity, or a contract pharmacy working on behalf of that covered entity. The truth is that the 340B program has grown so much, and has created such large financial windfalls for those that are participating, it is creating a new normal in the pharmacy marketplace, such that the marketplace in aggregate is going to be tolerant of such unsustainable rates.

However, that aggregate look at the marketplace is really a tale of. Two worlds. Those that are living in a fictitious reality [00:22:00] relative to others, where they're buying drugs for low, really low rates, and selling them at super high rates and getting the benefits of those spoils. And other pharmacies are not getting proportional access to the 340B program and thus are on the opposite end of the spectrum and are struggling significantly.

The reason that you won't hear PBMs talk about that tomorrow is because PBMs themselves make a tremendous amount of money off the 340B program and aim to protect it in the way that it is built today.

Mike Koelzer, Host: I just give you a synopsis of 340B and let me see if I've got this. I thought the 340Bs was sort of to spread the good will or the benefit of the hospital to areas.

Where there might be indigent people that can't get the health they need, and it sort of gives a little bit of governmental help to people that maybe couldn't get this stuff [00:23:00] otherwise. But it's like a lot of federal programs, it's gone astray and people are abusing it.

Is that even close?

Antonio Ciaccia: I think the 340B program is providing the positive value that you describe. Is that these hospitals and these hospitals directly and indirectly through their contract pharmacies. Are getting massive amounts of financial rewards with a lot of those dollars being invested in Care for those who otherwise would not be able to get it without question.

I think that it is Accurate to say that there is some waste in that program, but let's just pretend as though there isn't okay So what i'm saying is that if you are a pharmacy And you're able to act as a contract pharmacy on behalf of a covered entity The financial rewards are plenty We have a public facing 340B contract with a large chain pharmacy that shows that [00:24:00] pharmacies can get 65 dispensing fee and 15 percent of the gross cost of a medicine in exchange for every bounty that they provide to a covered

entity. Mike, you've been around pharmacies for a long time. There ain't no 65 dispensing fees out there, and you're not getting 15 percent of gross cost on top of it. Our research shows that pharmacies are lucky to get about 10 in margin per prescription, and what you can see within 340B is that 10 can quickly turn into hundreds of dollars in margin for those that are getting access to it.

As a result, if you have the benefit of getting a part of that, again, your tolerance for aggressive brand payments will be different than other pharmacies who are not getting access to those monies.

Mike Koelzer, Host: All right, so let's say Antonio that there's little, let's just for the sake of argument, let's say there's not a lot of abuse. Let's say the program itself [00:25:00] is a big profit maker for people involved, notably the PBMs themselves. What does it take to not stop nefarious things, but just bring the program into line with regular economics. Who's going to do that if it's not just the general public? Because the PBMs make out, the customers slash patients make out, the pharmacies make out, manufacturers are still getting their drugs out there.

Who's smart enough or cares enough in the general population to make A change. In general, who's going to raise this awareness up to the legislator and teach them about this, that is a whole hell of a lot more complicated.

And it seems like there's less victims. as easy to see the victims as the monopolies of the PBMs in just the general things, not 340B.

Antonio Ciaccia: Well, this is [00:26:00] where I want to bring it back to the discussion we're having, which is that PBMs have effectuated a very inequitable experience in the marketplace. They're providing different prices to different people. They're providing different compensation to different people and on different drugs.

And so really what's happening in pharmacy in an aggregate sense is that there's a highly differentiated experience from pharmacy to pharmacy based upon certain access to special drugs. Or special treatment that other pharmacies are not able to receive. What we see is that public policy sometimes can be that determinant.

But what we also see is that TBMs can effectuate that different reality as their role as price setter and price taker. TBMs have a competing interest in the pharmacy marketplace and have every incentive to try to create a different reality for competitor pharmacies relative to their own. Furthermore, they have every incentive to try and take [00:27:00] liberties with the plant sponsor who's ultimately paying the bill.

I mentioned 340B as an answer to Ben's question, but again, part of a larger theme that I think we need to be talking about in pharmacy is that your pharmacy's experience is different from Ben's pharmacy experience. And every pharmacy in the marketplace is dealing with a different reality that oftentimes has financial rewards that have very little to do with the underlying quality of the service that pharmacist and pharmacy are offering, but instead are a result of circumstances, whether or not they are a favored pharmacy of the PBM or a favored pharmacy of public policy, is that we have a system that does not push true value based compensation, but instead effectuates very different realities that have very little to do with the quality of the pharmacist or pharmacy involved.

Mike Koelzer, Host: Maybe this is too simplified, but you take that away. Now you've taken away the benefit to the customer Because if I'm [00:28:00] competing with somebody across the street from me, and I know now that we're making the same amount of money, I might give better service.

But if I'm raking in a hundred times what the people across the street are, and I can sit in the back of the pharmacy and smoke my cigar, the customer. Patient gets hurt. Is that any part of that discussion of why you want competition still in the market?

Antonio Ciaccia: I think the issues that you see with pharmacy closures and pharmacy staffing are a natural fallout of this problem. Financial rewards are not reaped based upon the quality of the service that's being offered or the degree of customer service that is being provided to a patient.

Instead, much of this marketplace has been Arranged for the entities that are doing the arranging and not necessarily reflection of the demands and desires of the patients themselves.

Luke Slindee: I cannot emphasize how important what the dynamic that Antonio [00:29:00] was just describing in that, I think most people would say that they are in favor of competitive markets. but then the question becomes, what is it that we're actually competing on?

 And I think a lot of naive pharmacists, including myself when I was younger, would have believed that we were competing on things like service and access and relationships with patients and things like that. unfortunately, due to just general industry consolidation, monopolization, plus perhaps perverse incentives that are built into some government programs that we've discussed.

We basically have built a business model where the only meaningful competition exists in who can buy the drugs for the cheapest amount and turn around and sell the drugs for the highest amount. And so, 100 percent of the game is oriented around creating that delta or that spread between [00:30:00] buy low, sell high, and frankly, the service and the access and all these other things are just simple externalities.

They really don't matter at all in terms of the way that we've structured these markets. And so, as Antonio stated, these outcomes that we're seeing with respect to, worker unrest, chain pharmacies, independent pharmacies closing entire geographies in the United States, that in a rational marketplace would absolutely have a pharmacy in that geography now are not.

 And so, there's this concept of. And again, I absolutely view all of that as downstream of the fact that we've turned pharmacy into completely a buy low, sell high business. And it's an inevitability when you do that, that we're going to favor those that can buy lower and sell higher.

Which [00:31:00] specifically is going to be organizations that are. generally larger, more consolidated, have more access to, proprietary pricing information, and of course that's what we see. And then we also see, these unintended consequences of government programs like 340B, where if you're, you know, one of the special anointed pharmacies that's able to purchase drugs at, abnormally low prices, That is, again, going to give you a significant advantage in the buy low, sell high mentality.

 I really take issue with this consistent pattern of. PBMs put out studies where they make claims about counting independent pharmacies.

 I just want to be really clear in that they never provide any actual details with respect to exactly which pharmacies are closing and which pharmacies are opening. they just point to totals at given points of time and [00:32:00] then come to conclusions. I am someone who interacts with databases related to how many pharmacies there are, whether it be the NPI database or the NCPDP database.

There is this phenomenon related to 340B that we mentioned earlier. where there has been an explosion of the increase of pharmacies that are owned by 340B covered entities. And with very few exceptions, for whatever reason, when it comes time to categorize themselves in databases, these pharmacies, which are owned by hospitals, health systems, federally qualified health centers, almost always code themselves as independent community retail pharmacies.

And so they are getting counted as new independent pharmacies that are opening all 

the time. And I can tell you that they are not, that is a deliberate misrepresentation of what constitutes an independent pharmacy. And so I'm 

[00:33:00] is going to be trying to do some work on this and maybe putting some data out where people can look at individual pharmacies and come to their own conclusions.

But I did want to specifically address because recently there's been another round of PBMs making claims about whether pharmacies are opening or closing or whether there's been a stable amount of independent pharmacies. And this is one way that the data is massively skewed and massively misrepresented.

And I just want people to know that. 

 I think one of the things that probably unites the three of us as guests on this call is that we all I think would like to move to a place where there basically is a quote unquote market clearing price for a drug. And that is a single price that all market actors would have access to.

And if you get to a place where that is no longer a variable, the ability to buy lower or sell higher is no longer a variable. That would return the pharmacy profession to a place where we actually are competing on things like service and access [00:34:00] and taking care of patients. But until we fundamentally change the business model away from one of price discrimination and just the ability to buy lower and sell higher, these outcomes are not going to change.

Mike Koelzer, Host: There are other places in industries where there are indexes, gas prices you can actually see them up on the sign down to the 10th of a penny, how much those are.

And similar to the prime rate and Visa and MasterCard, where you're all dealing with something that's very indexed. And then the profit of that comes from. Fees, not the way the PBMs define fees, but actual real fees and small percentages that are all based off of a basic index available to anybody.

Benjamin Jolley: Yeah, I mean, this is a standard populist demand from the late 1800s. The demand to have a publicly posted price, [00:35:00] for services that are to be rendered is a standard populist demand, and it dates really to railroad regulation. I think that you're Robber baron era, railroad companies are a really great analogy to what PBMs do.

They would have a different price for every farmer that wanted to ship on their rails. And I mean, it doesn't work like, I think it's not accidental that in the world of payments like credit cards, debit cards, et cetera, those are described as rails. you move the money across the debit card rails.

You move the money across the credit card rails. In pharmacy, we move all of our payments across the PBM, NCPDP rails. They are very similar to the railroad companies that would charge different prices, give secret rebates here, there, and everywhere.

there was no publicly posted price. [00:36:00] Congress created laws that forced companies to set rates and publish those rates. people would be able to be certain that they were accessing the same rates. This is where the concept of a common carrier comes from, is that same era. of the issues that I perceive in pharmacy is that there are no prices.

there are amounts paid, but there are no publicly posted accessible prices for drugs because the price that is paid, the cost that is paid for a drug is a different amount for every PBM pharmacy drug combination and how much money each entity makes is different, and even based on the patient, like, is the patient in the deductible phase or not?

 Do they have coinsurance or copay? there are so many different amounts to be paid, so many different price lists, that there effectively are no prices which is very reminiscent [00:37:00] of what we saw with the Railroad Barons and one of the things that I think is also significant about that same era, that same kind of issue, one of the, Possible solutions is so called structural separation, where you say, look, if you're going to be this kind of company, you cannot be this other kind of company, and in banking in the 30s, during the Great Depression, one of the perceived issues was that people were taking a deposit bank and using that to fund an investment bank.

And so they were taking my money that I'm saving up for my house and using it to bet on Wall Street. And the laws that were created out of that were called Glass Steagall. It said you can't be both an investment bank and a deposit bank. A community bank and an investment bank have to be two separate lines of business.

You have to raise your money in a separate way. And I think that in pharmacy and in health care generally, We would really benefit from [00:38:00] a, what I'm going to call a glass eagle for healthcare, where we say, to borrow Antonio's term, you can't be a price setter and a price taker. Or to use a different term, you can't be paying people with other people's money, i.

1. an insurance company or a PBM and also be a provider, a physician, a hospital or a pharmacy because the opportunities for you to manipulate the market to your own end, to your own benefit, at the expense of both the providers and the people that are ultimately paying you, your clients, are far too prevalent and so I think that as a matter of public policy, The big solution that I see is that you should not be able to be in both markets.

you have to be two separate companies. You can't be Express Scripts that owns Accredo Specialty Pharmacy and Express Scripts Mail Order. Accredo Specialty and Express Scripts can be one company. Express Scripts PBM can be another. Similarly with [00:39:00] CVS and Caremark, as the same company is the same concept, you would cut along that line.

Caremark, but not their mail order pharmacy, can be one company. CVS, on the other side. That I think is like, the big policy fight that I think is like, the solution to a lot of this. Most of the incentive to play these games goes away, in my mind, if you do make that separation. And you say you have to be two separate companies.

Could be wrong, but that's how I view the world.

Mike Koelzer, Host: If the PBMs try to dumb this down and they're going to try to pull one over and everybody and say, well, of course there's a different price. We can't speak to all the thousands you claim, but of course there's a different price. We're the big three and we get the best prices.

Would they not do that because that's digging their own grave? Could then the Congress say, Well, that's why we're trying to break you up. If it's as simple as you say that this is just a quantity [00:40:00] discount and nobody else can compete, that's good enough reason for us to get in here and break this up.

Antonio Ciaccia: I don't know if I have a good answer to that question, Mike. I think it's important to consider that there are multiple factors that have resulted in the marketplace becoming the way it is today. Market concentration, at least at a horizontal level, is not the only problem. It is a system that has been enabled in many ways by public policy failures, but also a lack of transparency, which one could argue is also a public policy problem. This marketplace is not operating in a functional way because there is not Equitable communication on both sides of a transaction between the underlying value of what's being bought.

Let me explain. In the stock market, we have brokers, you can go to a broker, Or, somebody who helps manage your stock portfolio. [00:41:00] And there are buyers and sellers on both sides of a transaction. The market works because there is an underlying truth to the value of the underlying commodity that's being bought and sold.

And that value is known on both ends of the transaction. Brokers are not volunteers, they get paid, and they get paid a transparent markup. They have different fee schedules. But regardless, their compensation is not buried underneath the underlying value of the commodity. The stock market only works if there is trust on both sides of what the value is of the stock being bought and sold. Look at the drug market, we don't operate that way. The companies that we hire to essentially get us to help us buy and sell medicines, are burying their compensation in the underlying cost of the drug. And doing so in a conflicted [00:42:00] manner, if the broker made more money off the selling of one stock versus another and could hide their compensation We would obviously say that well, of course a broker is not going to have our interests at heart They're going to want us to buy and sell the stocks that provide the greatest value back to them And since their compensation is hidden Who cares, 

We should be applying similar fundamentals to the buying and selling of medicines and using PBMs as an intermediary in that fashion. This is why I like what the cost plus pharmacies are doing, not just Cuban, but the independent pharmacies as well. There is an acknowledgement that there is a conflict if I'm just inventing the prices of what it is that I'm selling you.

And since nobody knows the real price of a drug, it is obvious that a pharmacy could take liberties, and one could argue that in the past pharmacies did. But you have folks like Nate Hux at Freedom Pharmacy. You have folks like Kyle Blueberry. You have folks like Cuban who are saying, I bought the [00:43:00] drug for this price, and here is how I will derive my compensation on top of it.

If PBMs, as they exist today, were to adopt similar philosophical approaches to the pricing of their goods and services, I would argue it become a house of cards for them, that employers and government programs would have a much better understanding of not just the cost of what it is that they're buying, but the incentives that are driving their vendor's behavior. With a clear understanding of those things, the purchasers are better equipped to navigate the marketplace.

Mike Koelzer, Host: When you say the Antonio kind of makes me think of like buying my car insurance term life maybe is easier cause either you're dead or you're not, but the car insurance, it's a little bit murky, are they going to cover this or not? And then if you get this, you might get a better, Estimator coming out and there just seems to be a lot of moving parts.

And I think that is gradually going away with a lot of these internet [00:44:00] places. You can buy car insurance with a push of your thumb on the phone. I think that's getting better, but that's because it's getting clearer. I think. Yeah.

Antonio Ciaccia: the sale of something is, the more advantageous it is to the seller. 

Luke Slindee: I'd like to make a plug for, uh, a magazine called the American Prospect which has been around for a long time. And they put out a special issue in June of this year specifically just about Pricing. It is a whole issue just elaborating all of the ways of what Antonio just said.

The more complex you make the financials around a transaction, it's always going to create an informational asymmetry and benefit the seller at the detriment of the buyer. And that issue of that American Prospect magazine does a [00:45:00] fantastic job of cataloging all of the different ways that mindset is now unfortunately escaping out into the wider economy.

We are very used to all of this pricing awfulness and subterfuge within the pharmacy space. Instead of, unfortunately, pharmacy getting better and moving more towards normalized public pricing, the rest of the economy, unfortunately, is actually becoming more and more like PBMs. And so you can look at things like Uber surge pricing, or junk fees, or what they're now calling personalized pricing, 

The one that fascinates me the most is that McDonald's is now trying to get as many of their transactions as possible to facilitate through your smartphone app. And so, if you're placing your order at McDonald's via your app, as opposed to looking at a menu that is, either in the drive thru or, [00:46:00] above the workers heads on the inside, number one, that allows them to capture all kinds of information about you.

That would allow them to make more nuanced decisions as to what price they want to charge you. But then also, if all of the pricing is available only on your phone, then that makes it very easy for the four of us to all go to McDonald's and be charged four different prices for the same thing.

Because there is no more board that is static that we're looking at, on the screen. So, unless we are explicitly talking to each other, we don't even know if we're being charged different prices for our hamburgers at McDonald's. and this whole idea of trying to run everything through the app and kind of creating this informational silo where you only see prices that are applicable to you.

Is something that terrifies me and it kind of feels like something that's like very PBM ish, but is now escaping out to the rest of the economy. So again, I really want to plug that issue from the American Prospect magazine around [00:47:00] pricing. And I just think it's really important for us to all keep an eye on this across every industry.

And to really bring back that concept of what Benjamin said earlier about the importance of public prices that is a singular price that everyone can see and everyone pays. I mean, that is something that is, I would argue, fundamental to American belief in markets. And if we don't have public prices that everyone pays, then it kind of just descends into misery.

And, ultimately, I think that system will collapse.

Mike Koelzer, Host: That's really fascinating, Luke. I didn't think about it that way. I didn't think about that as not seeing the board on those. I know Wendy's had bad press about a month ago because they came out and they're going to start having different times of day for different menu prices, which, again it's Not so bad.

Maybe if you can see the boards and things like that, but there's a lot of them, are they going to give that to everybody? And then they backtrack and said, well, we weren't [00:48:00] going to raise the prices, we were going to lower the prices to everybody. It kind of sounds like the PBMs are doing that whole game.

So that's really fascinating. I didn't think about that. Not seeing the board.

 I know some of you have been in front of Congress or the Senate or whatever. It seems like those people are rude as hell and they're able to be rude as hell. I like to be in conversations where the conversation itself matters.

The information that is in the conversation. It sounds like what they're doing a lot of is. Almost on purpose. They're going to ask a question and cut you off to show power or to show that you're not cooperating and different stuff like that. It almost seems like there's a whole rhythm to that. Antonio, what has your experience been with sitting there and have you always felt like you were a welcome guest or did you get some of those arrows shot at you?

Antonio Ciaccia: I think sometimes the theatrics of [00:49:00] Congress and politics in general can be nauseating, and in general, I'll just loosely say that they're bothersome and unproductive. But I think that, in general, Congress has at least a scrutinizing eye And maybe, not necessarily wants to be friendly.

a good thing, 

Antonio Ciaccia: This industry is a mess, and I think it is deserving of pointed arrows at everybody, If they had, I don't care if they had wholesalers, drug companies, PBMs, pharmacies, independent pharmacists, I don't care, like the end of the day, the system is designed today.

It's totally inadequate, and I think that it needs a significant change, whether that's public policy or market based solutions or both, but regardless, I don't think anybody should be celebrating what it is we see in front of us today. And so, I think the Congress is well within its right to [00:50:00] pressure for better answers than what is currently being provided.

Now, in my experience, I would consider it very favorable. Okay. I came into a hearing with Congressman James Comer who was running the committee and Comer has been quite skeptical of the way the PBM industry is designed today. The hearing that he hosted I got to be a participant in was very much focused on, I would argue a lot of the negative aspects of how the PBM industry is operating today. So I have certainly been involved in state legislature hearings where they are not so friendly. But I love that. I'll be totally honest with you. I like it. The debate. Greg Reibel, always says pressure burst pipes, if we don't have good pressure, whether it's me or the next person who comes up to the podium, we'll never get answers.

Mike Koelzer, Host: Well, Tony, you and I have talked about this. One of my biggest complaints and you mentioned it is the health insurance brokers, where you've got this really [00:51:00] complicated insurance stuff going on, PBM stuff going on, and then you have corporations are trying to buy this Insurance and you've got these brokers in the middle the brokers have nice smiles and they're friendly and they're taking you to lunch And they're doing this kind of stuff for you.

The last thing you want is a congressional hearing where people are kind of Sucking up to people because of who they are, maybe in the corporate world. The brokers are good at that I agree with you, you need some of those terse comments and things like that, kind of to show them you're not going to put up with their crap and who's the boss 

Antonio Ciaccia: Without question, I mean, the industry is ultimately guided and governed by deception, it's lying about drug prices.

Mike Koelzer, Host: Yeah.

Antonio Ciaccia: If I'm a congressional member and I have the CEOs of PBMs coming before me, sure there's some bones I would pick, but more so than anything, I want information, 

pBMs are the only ones that have [00:52:00] complete information around the underlying costs of drugs. They know the rebates, they know the pharmacy UNC, they know the negotiated amount with the manufacturer, they know the negotiated amount with the pharmacy. They have their own pharmacies. They know how much it costs to inventory a product.

They know how much the patient gets charged. They know how much the employer gets charged. They live as the nucleus of our transaction, and so, scorn to the industry aside, if I had the opportunity, right, and I had truth serum in the CEOs, I would look to them for answers. The problem is I think in general, they don't want to provide them because they alter the answers, lead them.

Not just to PBM, nefarious deeds, but to the nefarious deeds of everybody. But they won't answer because they'll get swallowed up along the way. And to be clear, every member of the drug supply chain would operate the same way in a congressional hearing like that, as long as [00:53:00] they get through unscathed, Who cares how much information is shared? The top priority of anybody who's hauled before Congress is to get by unscathed, and so regardless of how much information they give or don't give, their top priority is to avoid the blade, success for them will be judged by how easily were they able to walk out of that hearing without any bumps or bruises or anything that could compromise the way that their business is operating today.

And again, that's not just true for PBMs, it's every member of the drug supply chain. They will be judged based on how well they can keep their secrets.

Mike Koelzer, Host: judged by the Shareholders

Antonio Ciaccia: Yes,

Mike Koelzer, Host: Hide stuff. That is not best to be out in the public

Antonio Ciaccia: I've told you this before, Mike. With mystery comes margin. Maintain the mystery. Maintain the money. 

Mike Koelzer, Host: Not going to pick on those three, but do you think people lie when they're in front of Congress? Or they don't have to lie by just saying, we'll [00:54:00] get back to you with that report, and we're still studying that, that kind of stuff where they are not offering all the truth. Do you think lying in front of these congressional hearings happens quite often?

Antonio Ciaccia: I know I've heard lies in hearings before, but in general, lies do not rule the day. Mike, I have four kids, which is a fraction of the amount that you have. When I go to my kids, and I ask my seven year old Marco, did you hit your brother? He said, no, I didn't. And then you find out he kicked them, so, there's lying in the real sense, and then there's lying conveniently leaving out information, or a context free response.

In my experience, watching members of the drug supply chain get hauled before Congress, what you get are partial answers, or answers that aren't answers but instead move to a different topic. Again, because this stuff is so complicated, [00:55:00] It can be quite easy for anybody in the industry to navigate around pointed questions.

I guarantee you'll hear a lot of that tomorrow.

And you'll hear it a lot more in the future. And you'll see it more in the press releases that everybody sends out after the hearing. Again, not just PBMs. Every advocacy group specializes in this theatrics of how to put to paper, such that they can make everybody else look rotten.

Luke Slindee: Talk about how much I appreciated the metaphor that Antonio has presented previously around the concept of the puzzle pieces. And, theoretically no one has access to all of the pieces of the puzzle, but the game is won or lost based upon how many of the pieces you have. And To follow that metaphor and to follow on what he was saying earlier, I mean, I don't know that I would [00:56:00] definitively say that PBMs have all of the puzzle pieces to the given puzzle, but they absolutely make sure that they have more puzzle pieces than anyone else does of the overall puzzle.

And so again, it's really all about informational asymmetries and how that can be leveraged. With respect to the public scrutiny and the congressional hearings and things like that, I completely agree that the pharmaceutical supply chain has to own some dirt.

It's not accurate to point to any one of them and say, it's these guys' fault. Unfortunately, we have a system where all of these different Supply chain actors have co evolved around each other and they've all co evolved around a very toxic dynamic. And, typically whenever there's any of this type of [00:57:00] scrutiny there's a lot of deflection.

There's a lot of blaming. Well, it's not us. It's the other guys. It's the manufacturers or it's the pharmacies. I mean, it's just, it kind of becomes this circular firing squad. And from my perspective, we, and when I say we, I view myself as part of the overall supply chain that includes all of that, 

like the big picture, inclusive of everybody, manufacturers, wholesalers, pharmacies, PBMs, health plans, everybody. When I look at the summation of all of that as it exists currently, we, including myself, are failing the public. And that's just the way that I look at it. I certainly think that it's fair to assign more or less blame to different individual actors within this pharmaceutical industrial complex, but that doesn't change the fact that everybody that's involved.

At the summation level, [00:58:00] overall, we as an industry are failing the public, in my opinion. And so, I personally try to do what I can to fail less, or to give the public opportunities to win. They are being taken advantage of or failed or what have you. But for me I just really don't have much time for the endless, finger pointing and deflection because at the end of the day, the entire supply chain as a whole is just failing at what our mission should be.

And so, I look at it as more of a truly dysfunctional family where everybody owns, their own weird twisted, elements of all of this, as opposed to just pointing to one family member and saying, Oh, it's all your fault, so I just wanted to just be clear about that, these hearings

they try to simplify and deflect and all that stuff. And I think, if Congress is doing their job, they really should try to zoom out as much as possible and frame this in terms of how [00:59:00] the entire supply chain through its perverse incentives and bad behavior is failing the public, in my opinion.

Mike Koelzer, Host: If you think back, I mean, PBMs in the first place came probably because some of our pharmacy forefathers were throwing out price wise about what they wanted to do with the insurance companies and things like that. Here's a question. If we all know, there's a lot of that in Congress about just getting out unscathed and things like that.

What is a congressional hearing? Is it almost like a. A deposition where they're trying to catch people in a little bit of this and that. And then ultimately, I guess the committee sends a report and the Congress people read it and then maybe decide to make a law out of it. I mean, what's the goal of these things if there seems to be so much theatrics?

Antonio Ciaccia: I think that's a good question, Mike. I will speak [01:00:00] from experience having provided, question and answer support to, several committees at the state and federal level over the years. The truth is they don't have all the answers. So part of the reason they have these hearings is to get more of them. Despite what we might think about Congress for many things, there are thoughtful, deliberative processes.

There are people who are just dug in, there are people who are like members of Congress, who I'm a PBM guy. I'm a health plan guy. I'm a pharmacy guy, those people don't need any more convincing.

They've already chosen their teams.

Mike Koelzer, Host: Yeah.

Antonio Ciaccia: Then you have committee members, you have committee leaders, you have staff that are really trying to get to the bottom of what's happening, such that they're better informed. to shape public policy around eliminating the things that they feel need to be fixed .

So sometimes the theatrics of a committee are for, personal, personal promotion, [01:01:00] sometimes a point of a committee hearing is to try to create support, create momentum, such that even though they may know the right policies, They know that their constituents or members of the media don't know enough of the answers, and so they hold hearings such that they could demonstrate the why that they're doing something. One could argue that's politics. I would argue it is. But don't think that's necessarily the nefarious politics that we usually think of, but I think there's a cluster of reasons why they do hearings like this, but to be honest with you, if you made me pick one, it is genuine that members of the committee And members of their staff genuinely want more answers for why the system is the way it is.

Mike Koelzer, Host: And it's easy for me to watch these things and think I have all the answers. But there's a ton of stuff that if I was a Congress person, I wouldn't know a damn thing about farming [01:02:00] or amusement park laws or whatever.

I wouldn't know anything about that. And I don't. I'm not stupid. I could read body language. If someone is stonewalling, I can kind of tell. And just like the Congress people say, they say, okay, you didn't answer it. That's a no. We're able to pick up on that kind of stuff.

So I think a lot more information comes out of it than I realize. It's just that when you know the information already, it seems to be a waste of time, but. There's not many things that I know a lot about except if I was in there for pharmacy stuff.

Antonio Ciaccia: You gotta remember, Mike most of these people didn't know what a PBM was six years ago. Everybody's on a little bit of a different learning curve.

Um, those that are, advocates for change, those who are advocates against change, and everybody in between, so, I think that the fact that so many committees are digging in, is indicative of the problems that are plaguing the marketplace that have become more and more obvious.

Mike Koelzer, Host: But I also think [01:03:00] it's also, hey the threat of public policy in this space is real. And as a result, they want to make sure that they have the most information possible before they decide on where policy lands. If you guys had to do an opening statement Luke, I liked yours about, we're all kind of to blame in some regard, would you say that in front of a hearing like that? Would you try to nail the PBMs at the end if you were given some summation tomorrow or what method would you guys take on that?

Luke Slindee: Personally, in my opening statement, I think I would focus mostly on incentives and how we can, Recognize the existing incentives that are currently in place and acknowledge how those incentives lead to the outcomes that we currently have. And then orient that around, if [01:04:00] there is a series of outcomes that really nobody wants or the majority of people really don't want, then we have to be introspective and ask ourselves, how can we reorient the incentives so that we ultimately achieve different outcomes?

Now, that doesn't necessarily exonerate individual bad behavior. Lord knows there's been plenty of profiteering and just what I would categorize as anti-social behavior in search of just making more money. So I'm certainly not trying to forgive and forget anything that has happened with respect to personal decisions.

But at the end of the day, it really always does come back to the incentives. And so, how can we simplify? Obviously everything involved in our supply chain is overly complicated, more than it needs to be. So how can we simplify, and how can we align the incentives such that All of the individual members of the supply chain are doing the original purposes that we [01:05:00] need them to do, and the public is receiving the medication that they need to achieve the health outcomes that they need, and they're doing it ideally at, a low enough price where everyone in the supply chain can get paid and raise their families and what have you, but the public is spending the lowest amount of money where that is true.

Mike Koelzer, Host: Antonio, what would your statement be to this group 

Antonio Ciaccia: and foremost, I think that a hearing is only effective if we're operating in a world of honesty. And 

the first thing I would

to do to level set is to say look you say this However, this is what happens you say This however, your company does something else as an example you're telling People In Washington, D.

C., the drug companies and drug [01:06:00] companies alone set prices. And I'm staring at Medicare data that you supply to Medicare that says you set 600 prices across the different plans that you run, you say you offer pass through contracts as a choice to your plan sponsors, yet what I see here is a postal workers union audit that says that they were in a pass through contract and you withheld 45 million dollars of discounts, so do you offer pass through contracts or not, or do you just do it on paper and then still essentially engage in arbitrage? You say that you treat every pharmacy equally and that independents are doing well. Well, tell me, who's filling all the 5, 000 markup drugs? Is it predominantly your pharmacies or is it those independent pharmacies, 

again, not meant to be attacking, although it very much obviously sounds like attacking, but Again, discussions are not productive and fruitful if they are not [01:07:00] founded in honesty, and if they're engaging in this kayfabe, right, or this game of pretend where, hey, it is not the way it actually is, then it's a waste of everybody's time, 

At that point, all you can do is try and get things on record that you hold against them later. But even that isn't all that great, because again, The entire relationship is built on lies at that point. So any opening that I had would be about essentially getting rid of the bullshit right out of the gate, right? To say, are we going to have an honest discourse here, or are we not? 

Mike Koelzer, Host: Well, Golly Benjamin, who we lost just a bit of go through a technical glitch, Antonio and Luke. Boy. Good to have you guys.

I told people I was interviewing the big three, and they're like the PBMs.

I'm like, And they're like the three major wholesalers. said bigger, and they wanted to go for the three chains. I said [01:08:00] bigger. And finally we laid it to them that you guys you're the big three in our book. 

Antonio Ciaccia: Bless you, Mike. Thank you.

Luke Slindee: Yeah, it's a fantastic opportunity. 

All right, thanks for all you do guys. Look forward to talking again real soon. 

You've been listening to the Business of Pharmacy podcast with me, your host, Mike Kelser. Please subscribe for all future episodes.