AH067 - Aligned Health Benefits and the Freedom to Unbundle, with Kristin Begley, PharmD

Transcript

Lightly edited for clarity.

[00:27] Justin Venneri: Hello and thank you for joining us for this episode of the Astonishing Healthcare Podcast. This is Justin Venneri, your host and Senior Director of Communications at Capital Rx, and I am so happy to welcome Kristin Begley back to the studio. Kristin was our guest for episodes 10 and 31, which were both in 2024 and were heavier on the PBM cost related discussion. We spent some time on how to hold PBMs accountable for their forecasts and for their services, PMPM, and the this one's a little bit more educational and I think a little bit more interesting about an important trend of unbundling and what that means for the PBM model.  

Kristin, so glad to have you back.

[01:05] Kristin Begley, PharmD: Thanks so much for having me, Justin. Thrilled to be here.

[01:07] Justin Venneri: Okay, starting high level. We know what a pharmacy benefit manager does – PBM. We administer the pharmacy benefit. But what are some of the hundreds of little things that AJ always talks about, and you always talk about? Anyone who's new to our show, we say this all the time: there are all these little things behind the scenes that PBMs are responsible for.  

How do you describe what a PBM is and what a PBM does to your friends and family?

[01:30] Kristin Begley, PharmD: Well, I think this is a good way to start, you know, with the history of the PBM industry and what PBMs used to be, what they've migrated to, and what we think the future of unbundling, or as we like to call it in our tagline, Never Move Again™, can be in a more agnostic model.  

So historically when PBMs entered the market, really in the early ‘90s in a heavier way, they were very independent and non-vertically integrated, which is just a fancy word of saying they didn't own mail order and they didn't own retail. And their fees were flat fee just for processing the claims, to be the benefit administrator, the way the employer, or the union, maybe the health plan wanted it.  

And they did not earn any profits on drugs. So nothing off of discounts at retail, no clawback fees from retailers, they didn't own mail orders, so there was no spread or specialty utilization. They just administered the benefit, which means they were fully aligned to their client. They didn't have a secondary customer, they didn't have pharma, where they were making money off of rebates. They focused on efficient claims processing. And frankly, when they entered the marketplace, there wasn't the high-cost drugs that there are today where you could have very big swings.  

And then along the way, PBMs morph because, you know, prescription drugs was maybe 5% of total healthcare [spend] or even less. And then it migrated to 10%. And so, they were giving away, quote unquote free admin fees and started to take a little piece of the drug value in the supply chain. They became vertically integrated. So they started owning retailers and they started owning mail order facilities. And so the more someone spent, the more their customer spent, the more they actually made, which is a pretty big conflict. But because prescription drugs wasn't that expensive, nobody thought much of it. And they said, I have a free admin fee. The PBM just figures it out inside of the total cost of the drugs.  

So they started controlling multiple profit centers and really kind of expanded their breadth. Also they were really kind of altering utilization patterns. So again, the more someone spent, if they had more expensive drugs and the PBM was making a spread on that, or they had a big rebate tied to that drug that the PBM got a piece of, they started making more money. Or if they put more units out the door - so if you auto refilled more often and you owned a mail or retail facility, you started making more money.  

And the systems over time got outdated and fragmented because these things were also built in the ‘90s and nobody really updated it because as AJ, our CEO says, there's no reason to improve. You just keep consolidating the market.  

So we decided, number one, to be agnostic and be only aligned to our customers. Don't make money when they spend more money. Don't make money off of drugs. Don't make money off of rebates. If there's a better monetary value in the supply chain, it should go back to the customer because they should pay us on a full and fair admin fee. So, we joke and we say we're going back to the ‘90s, the way an administrator should be. And frankly, we only have one client. And so, we're agnostic to where our drug is delivered, who fills it, wherever the best price is, and the right drug for the right person at the right time.  

So that's kind of a long route of old way, to current way, to why we think it should go back to the old way. And some really interesting things I'm sure we'll jump into today.

[04:43] Justin Venneri: Okay. We just saw some more news at the state level recently regarding delinking or the separation of the pharmacy benefit management administrative function from the delivery of medications or the retail side of things, being not owning pharmacies.  

It seems like there's a lot of momentum there that delinking almost passed at the end of last year at the federal level. So, it seems like there's a lot of push toward a world where PBMs just administer the benefit. What's your take on breaking apart the vertically integrated model? I know we could spend a ton of time on this, no pressure. Just curious for your thoughts on the movement toward the separation of church and state.

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[05:20] Kristin Begley, PharmD: I think that through the FTC investigations and some of the drill downs that they've done, they've seen a clear line or correlation to the fact that when you own any sort of distribution, you're more incentivized to get drugs out the door rather than finding maybe the safest, most economical fill for a patient, which is concerning. And I guess the reality of this is prescription drugs has been an unregulated industry for many years. There's probably nothing so large that's unregulated by the government.  

I think there'll be more momentum there. And certainly there's a lot of pharmacies that feel that their businesses are infringed upon by the forcing of mandatory mail or encouragement to use certain retail distribution channels that are owned by PBM. So there's a lot of state level influence there where they're trying to push away from that. And it will not surprise me if they are forced to delink.  

[06:14] Justin Venneri: To follow up on one thing related to the structure of a plan, whether it's carved in or carved out. And I'm asking this because I think there's some confusion around common terms. And it could just be me, which I'm not embarrassed to admit. But what's the difference between those?

[06:28] Kristin Begley, PharmD: Historically, “carve in” means that medical and pharmacy are administered by the same entity. And “carve out” historically is meant that the medical is administered by one entity, but the PBM had a focus, and it was carved away and wasn't administered by the same entity. So that's the general historic way that we've heard the terms carve in versus carve out.

[06:52] Justin Venneri: Okay. And then I think within the pharmacy, certain things can be carved out from there further too, right?

[06:58] Kristin Begley, PharmD: Correct. Some people have thought about carving out maybe specialty medications, and I think this is just a symptom of a system that's broken and the lack of control. Some people have thought about carving out clinical programs. And I think they weren't getting what they wanted when the fox was watching the hen house, right? The PBM decided what drugs someone should have, how many drugs, and all the while they were making more money when they made those decisions relative to formulary and which drugs were preferred, et cetera, et cetera.  

So you've seen people start a la carte breaking things away from the PBM's holistic view.

[07:33] Justin Venneri: And how, in unbundling – and you can go top down if you want – high-level unbundling, is that similar or what does that mean in the context of this discussion and where the pharmacy benefit or benefit administration world is going?

[07:47] Kristin Begley, PharmD: So when we thought about unbundling, we really looked at it as treating an employer just like we treat our health plans. And many, many health systems already do this today because, as you can imagine, a health system typically owns their own pharmacy. So they often like to have drugs and the pricing control at their own pharmacy. Health plans may have one group that is a rebate aggregator, not through the PBM, because they're negotiating their own formularies.

So we wanted to offer this concept of unbundling or what we say, Never Move Again™, because if the infrastructure and software was there for you to plug-and-play the pieces of the PBM or the pharmaceutical supply chain, your retailer you could pick, the best-of-breed specialty. If you could pick those pieces that you wanted and you had an agnostic partner, you could “never move again”, and we consider that unbundled. But this is exactly what health plans already do today.  

And in the employer segment, when I think about unbundling, I think about the fact that it aligns well with CAA compliance. So you have an aligned financial model that you can test the different pieces: retail, mail, specialty, and make sure that you're getting the best price. You don't have to go all in one package.  No conflicts of interest. All the members receive the same price. They can have full access to their claims data, full rebate payments, full network reimbursement under, you know, the model that we have today. And they can test that model against other entities that are out there.  

Data storage, the way we see it in unbundling, it's unlimited data storage. It's not behind a wall that you can't get access to. It's live at any time. Pharmacy and medical data can be stored in the same place. Total cost of care reporting, full data ownership, back to that CAA.  

HITRUST, NIST level security SOC 2, SOC 3. We're also moving to FISMA level and we're going to push beyond that to FedRAMP. So the highest level security that's out there in data storage.  

Another piece of it being you can use any clinical service. You can use ours or somebody else, any point solution, SSO with anybody. So the best of breed that's out there, it's not one package from a medical PBM integrated model.  

And then last but not least, customer service. I think the biggest hurdle for HR people is thinking, oh my goodness, I have to send out new ID cards and there's going to be all this member disruption. So if you had a solution, a technology platform, that you felt confident that you had the best pricing, the best clinical service, it could be plug-and-play, your vendor partner was agnostic to you taking things in or out, you would never have to change member cards again because technically the employer, the union, the health plan, they would own that piece of it. And they were just plugging the different component parts like Lego blocks into the technology platform. You'd never have to change call centers again. And we do have best in breed - not to be in sales here - because of Judi®, our call center have full visibility. They're not logging into seven different platforms. So why you would ever change that would be a mystery to us.  

But I think one of the biggest hurdles you could get away from is not changing those cards and that fear of disruption. You just plugged in a new eligibility vendor, if you had it.

[11:04] Justin Venneri: Or their own point solution or something that just makes sense for their population is something it sounds like would be easy to plug-and-play.

[11:10] Kristin Begley, PharmD: Exactly.

[11:11] Justin Venneri: Thanks for explaining that. You described what can be unbundled. Can you go a little deeper here? Maybe starting with the incentives or the work required from a fiduciary's perspective, the plan sponsor's perspective? And what do you think the best examples are of things that a benefits team could start with or explore? Is it the network or is it like a point solution or something else?

[11:32] Kristin Begley, PharmD: Yeah, I would say the first place that you should start is during procurement and making sure you find a partner that is willing to allow you and each of those components stand by itself, so that when they give you their financial offer, it's not contingent on you buying all services from them, that each of their financial offers stands alone and it's allowed to be modular.  

So getting that into your contract would be very important. Obviously, for someone who runs an RFP or they're with Capital Rx, they're allowed to do this anytime they want for groups over 10,000 lives. It's easy to run a procurement and ask this question, "Am I allowed to unbundle?"

Do your financial guarantees stand in this proposal or in this RFP process, procurement process? If the answer is no, you have to think hard of, you know, where's Waldo? Where's the money? Where's the financial alignment here? Because likely there are many other customers besides you in the legacy PBM model, so there is no financial alignment.  

This is no different than running your typical PBM procurement and then adding a question of will you allow each of the independent variables of the model stand by itself? If the answer is no, do you really have a partner? If the answer is yes, you know you're set up for success.  

So rather than running a bid every three years, maybe next year you check specialty pricing or you check the retail network. And if you feel that there's a better partner out there, you are allowed to carve that portion of it out and plug in a different vendor that maybe is the next generation best of breed.

[13:03] Justin Venneri: Very interesting. Okay. What else should people consider relating to this unbundling concept? Is there anything you think maybe isn't fully appreciated about this approach?

[13:13] Kristin Begley, PharmD: I think people don't realize that they can change anything with their plan at any time. Employers are acting like little health plans, whether they like it or not. You can have unbiased, aligned, and professional consultation. We truly are aligned to our customers. So if they want to carve out rebates and they want us to show them what our rebates are, we'll help them make the best decision. And if that is a direct relationship with pharma, they are absolutely allowed to do that.

[13:40] Justin Venneri: So with the flexibility that you can potentially have, does this require more resources on the plan sponsor side or on the benefits team side to actually look at unbundling? If it's really just about asking whether you can unbundle?

[13:51] Kristin Begley, PharmD: Definitely no other resources required. But I would heavily suggest that when you're going through your normal procurement process, that 99% of people do hire a consultant partner, that you make sure that the RFP that they standardly have asks really strong questions around formulary. What does your PBM do to manage drug mix? Unless they've brought in a third-party partner, you need to make sure that your procurement digs into the details of NADAC versus AWP, digs into the details of what's the rigor of the clinical programs, how strong are their prior authorization criteria, what is the approval rate by PBM?  

For more on clinical programs, check out:

• AH035 - Pharmacy Benefits 101: Clinical Programs, with Bonnie Hui-Callahan, PharmD

But these are things that you should be doing part of your normal RFP process as it is because truly 50% of your future drug costs are really related to what the clinical rigor of a PBM or a clinical partner can deliver. And back to clinical rigor - or AKA drug mix - how aggressive or clinically tight is the formulary? What are the clinical protocols? What are their refill rates? What are their standard protocols? Is it to maximize cost or is it to minimize costs while providing good clinical outcomes?  

So this is something that you should be doing for your standard procurement process anyway today. So no Chief Medical Officers is needed at employers or unions who would normally not have one anyway.

[15:18] Justin Venneri: Got it. And you mentioned everyone gets the same price earlier. And I was just thinking about that in the context of like the network option as part of this package. Forgive me if this is an elementary question, but when you're thinking about that, we have our NADAC-based, you know, our national network, 62,000 pharmacies. If there are independent pharmacies or other quote unquote access points where a plan might recognize that its members like to get their medications a certain way, is that part of the package that someone can plug and play?

[15:46] Kristin Begley, PharmD: That's part of the Capital Rx retail network package. If they chose a different retail network or negotiated their own, they would have to work on that NADAC. But as far as from Capital Rx, if they choose to use our package, every drug for every client, it doesn't matter you're for 50-life client or you're a 500,000-live client. The price is the price. It doesn't fluctuate. So, with our package, that is exactly what you get. But if they choose to negotiate a different direct retail network and plug that into the unbundled model, or what we call Never Move Again™, if they move beyond a NADAC network, you would still have that level of variability between pricing.

[16:24] Justin Venneri: Okay. And last question. You've helped sell and implement some pretty substantial accounts over the years. Hundreds of thousands of lives. What would you say is the most interesting, surprising, or astonishing thing that you've seen related to the topic we're talking about here today: unbundling, carve in, carve out.

[16:39] Kristin Begley, PharmD: Well, an executive order was put out there to establish Most Favored Nation pricing by our administration, which is very astonishing. And I can tell you, every vertically integrated PBM, pharma, everyone is quaking in their boots. But what's interesting about that is it doesn't matter to Capital Rx because we don't make money off of rebates, we don't make money off of supply chain, there's no spread. Every client has the same price. We charge a full and fair admin fee.

So if this doesn't get beat up by the lobbyists and actually comes to fruition, this makes no difference in our business model. And I think that is a true testament, and I think through this whole podcast and many of the other podcasts you've done, it just shows how important that alignment is between your client and a vendor.

[17:26] Justin Venneri: Makes sense. Thank you so much for joining us today, Kristin. Hope you have a great rest of your day.

[17:30] Kristin Begley, PharmD: Thank you so much Justin. Pleasure being here.

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