AH076 - PBM 'Boogeymen' & Stopping the Madness Out There, with Jeff Hogan

Transcript

Lightly edited for clarity.‍

[00:27] Justin Venneri: Hello, and thank you for listening to this episode of the Astonishing Healthcare podcast. This is Justin Venneri, your host and Senior Director of Communications at Capital Rx. And with me in the studio today is Jeff Hogan.  

Jeff is a returning guest. Most recently, he was on for Episode 57, where we were talking about how first movers in the health plan space are taking control of their plans. And we discussed some key priorities for this year, including fiduciary compliance, the removal of gag clauses from contracts, greater transparency and broker compensation and such, and overall, just a discussion about better alignment and achieving better alignment between healthcare purchasers and providers.  

Jeff, thanks for joining me again today.

[01:06] Jeff Hogan: It's great to be here again. Thanks for having me.

[01:08] Justin Venneri: So, the catalyst for this episode was some recent news at the state level, and then some feedback you provided following our Judi Health™ webinar.

Before we get into it, you want to just give a quick background for anybody that hasn't heard you on the show before, or doesn't know Upside Health Advisors?

[01:22] Jeff Hogan: Sure. I've been in healthcare for forty years. Apparently, the most distinguishing aspect of my background and career in healthcare is I've worked in pretty much every area of the healthcare ecosystem. For 30 years, I managed a very large block of employer self-funded health plans here in New England. Had an overlapping career running a national health care advisory firm focused on care delivery and the supply side of health care. I've worked in 39 states, including on very large employer health plans and Fortune 500 companies as well, primarily focused in the value-based health care space and this mysterious alignment of supply and demand in healthcare.

[02:10] Justin Venneri: Got it. Now, starting off with some of the recent news. I know there's been some movement in Connecticut. Just within the last 24, 48 hours, we heard Arkansas' law was blocked by a federal judge. Louisiana has had mixed success getting bills through. Iowa and other states are trying to promote acquisition cost-based models, NADAC.  

What should plan sponsors prepare for or take away from all the recent movement that we've seen? If you want to start with Connecticut because that's your home state, happy to hear that feedback. If you want to just talk more broadly about how to think about what they need to do to manage their plans effectively when there's all of this noise out there at the state level?

[02:50] Jeff Hogan: Yeah. So, I think you're talking about health policy in particular. And for most employer healthcare purchasers, health policy is kind of an esoteric idea. For most people, they don't trust government to do anything well. And especially in health care because of its complexity, most CEOs and CFOs of companies have completely given on health care. Even in their own plans, they've thrown up their hands and given the duty for their health plan over to HR or someone else in their organization to manage, just fully expecting that the costs are going to go up by high single digits or double digits every year.  

And having been in healthcare for forty years, I'll tell you that the federal government has generally failed us on health policy. Just look at the quagmire in Washington right now. I've been down there, I think, six times since December on health policy issues, trying to deal with various measures and what have you.  

To your question, most of the action in health policy is occurring in the states. And unfortunately, most of the states are ill equipped to fully comprehend all of these health care issues, but they're much closer to their constituents and therefore want to do something. And I will tell you around the country, you know, many, many states are focused on not only health care costs, particularly PBM.

PBM is just seen as a kind of a boogeyman, if you will, something that is driving a predominant amount of health care costs and is the cost category that has the largest trend or inflationary line item in their health care spend.  

So what we've seen around the country, particularly in the last three years, are initiatives coming out of the states. By the way, it didn't start with PBM. It started with anti-competitive steering of providers. Connecticut and Texas, by the way, believe it or not, in the same year were states that actually passed anti-tiering, anti-steering, anti-most favored nation language, basically to give the employer those rights and not health systems and BUCAH Health Plans the rights on steerage and in their network. So that was kind of the first move. And since then, we've seen a lot of movement from states, Pennsylvania, Florida, certainly here in Connecticut, and other states to do the anti-tiering, steering, most favored nation type things in PBMs as well. And some of them are succeeding.

Some of them are kind of overstepping in the spaces. We've seen some states like Florida, for example, who are demanding employer data even though they don't have a right to demand that data as well. So it's kind of all over the place right now. But like I said, the states have been the ones to initiate action where the federal government has really failed to pass substantive legislation along these lines.

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[06:25] Justin Venneri: So, since you've been down there so frequently presenting, talking to people, what's the mood like around this? Is there optimism that something can get done? I think if I read between the lines on your statement, you have to run your plan and you can't rely on the government to help and try to figure out how to take care of your plan members the best you can in the current environment. Then if something good happens, great.

[06:47] Jeff Hogan: I find describing Washington DC as something out of an urban Mad Max movie. The politics and the influence and the lobbyists and what have you. I mean, it's all over the place. My most recent visit to DC was after the passage of the Big Beautiful Bill.

And if you look, there's winners and losers in everything, and I'll move you to a different topic here just for a second, with the cuts in Medicaid, even though they'll be phased in because of the way this got passed. The house passed it through and then the Senate rushed through some very rapid changes and things like this. There really wasn't time to do an estimate of the second order effects of Medicaid cuts, for example. People in your audience may say, all right, well, we're managing commercial populations, how does this affect us?  

And curiously, it will affect you. And particularly since claims and acuity of claims have been increasing fairly significantly over the last 18 months, we now see states that extended their Medicaid benefits or expanded them, I should say, facing some real challenges, if you will, those persons with expanded benefits losing those benefits. And often those folks had waived off of their commercial plans.

So what happens? They go back on to the commercial plans in waves. And what are the second order effects of that? What is the risk that comes on to those plans? Have we thought about that at all?  

I was in a state recently, probably not very far from you, with a very large population, 700,000 on a particular group plan, that faces some real challenges in this space. And, unfortunately, you know, many of those folks that were on expanded Medicaid or even some of the base Medicaid benefits are in rural areas with very limited care delivery. So that risk coming back onto the commercial plans is substantial.

So you asked a very specific question. What is the mood? It is confused, dazed and confused. I mean, that's the best way to describe it.

At the same time, we've got some new folks in there trying to do some things with metabolic health and rural initiatives and what have you. As with anything in federal health care policy, it's a political scattershot, not necessarily strategic, and not typically well thought out. Hence, why we come back to the states to say, how do we solve some of these problems in the states?

[09:28] Justin Venneri: Got it. You did steal the question from later on about DC and the One Big Beautiful Bill act. The other part of it though was most favored nation and drug prices and some of the chatter we're hearing just out of pharma about potentially going direct and what that would mean.  

Curious for your reaction to that and the buzz around drug prices and what can be done from a potentially material shift in the marketplace.  

[09:56] Jeff Hogan: We're seeing an awful lot of this suddenly. Obviously, we've seen some of these initiatives over the last two years with drug companies saying, hey look, we want to cut out the middlemen who are obscuring our message or the efficacy of our drugs and things like that. So I just saw a piece drop today from Roach about cutting out PBMs altogether and going direct in the marketplace.

I'll tell you that for the first time in my career, again, four decades, we are seeing more and more of these types of initiatives. And, curiously, because of the financial pressures on employer plans, number one, number two, because of compliance requirements coming out of CAA, we're actually seeing employers finally starting to get the data on their groups that they've never looked at before. The unique data on their population, the prevalence and acuity of disease process, the lack of quality, the variability in cost and quality episodically.

And for the first time, we're hearing that voice, if you will, of the employer relative to the things that are most important to their groups, you know, and trying to procure in the best interests of their plan members. Why? Their plan members are contributing to the plan 20, 30, sometimes 40% of the cost. And it's critical that employer fiduciaries use their data to make decisions around procurement and contracting and accountability as well.

As we said at the beginning of this discussion, one of the biggest drivers of cost in the plan, obviously, are drugs. And it's not just PBM drugs. It's med pharmacy drugs as well. The effect of 340B, the effect of rebates, all of these types of things are affecting employers in a big way.

What do they want and need relative to this risk and this variability? They want predictability. So if in fact they are able to purchase certain types of drugs in a predictable, fixed way for their populations that they know need it, then it's an opportunity, if you will, for that.  

Think about GLPs. We've seen a lot of this attempt at direct contracting in the world of GLP because it's an outsized risk for most employers at this point that they weren't used to managing and is still a ball in motion. And if in fact they can purchase it in a predictable way, as well as the services can manage it, that's something that an employer wants to do. In fact, they have to do it as part of their fiduciary duty.  

So what do I think about it? There are a lot of ways to think about it. Think of the largest diagnostic cost category for most employers in their spend, it's oncologics. And we know that oncology, again, has outsized cost aspect, including catastrophically. And often members are not following standard of care for specific types of cancers and what have you.  

Many of the cancer pharmaceutical companies that don't necessarily have agency in the conveyance of their drugs get very upset when they have really great immuno-drugs for a specific diagnosis, but the person never gets to those drugs because they're going through "Cancer Inc.," which is care delivery that is set up to make money on chemo and what have you, which may not be best practice in that space.  

So the comment is simple. I like direct-to-employer where the employers have the ability, the resources to actually evaluate both efficacy, accountability, cost, and quality as well.

[14:05] Justin Venneri: Got it. And that's actually a pretty good transition, I think, as we, Capital Rx, as we transition to health benefits from just transparent, clearly priced, passthrough pharmacy benefits and the infrastructure to support that, what do you think are some things that are important, or ways that benefits directors or their teams can approach enhancing their plans to gain that predictability you talked about when we're thinking about the opportunity to pull pharmacy, medical, vision, and dental ultimately all together on one platform?

[14:37] Jeff Hogan: It's a great question. If you think of it via the mindset that the existing opaque PBM marketplace, meaning, they, employers, have no idea, absolutely no idea what's in their contracts. They don't know about spread. They don't know about the effect of drug mix.

They don't know about rebates and how middlemen do admin credit offsets that don't represent the value. So just so many layers of complexity. That's really what Capital Rx did in the marketplace, said, hey, we're gonna go in, we're not gonna make money on your drugs. We're gonna help you to coordinate. We're gonna look for efficacy and outcomes. We're gonna measure those in your population with Judi, a platform that not only does the adjudication, gives you insights into the needs of the folks that are in your group as well, and then tie it to a pricing benchmark that's recognized and deflationary.  

So my answer to you as you get into the brave old world, I call it the brave old world of healthcare, the Ancien Regime, pre–French Revolution France, the landed gentries, it's even worse on the medical side.

And it's a very similar mindset that employers should bring to the medical side. And what does that mean? Before you can figure out what is being done to you, you have to decipher it. So most employers have to look at their contracts, all of them, that they have with admin meaning the administrative services agreements that they have with their payers, their stop loss agreements where they apply, the broker agreements, the summary plan descriptions, and their PBM agreements to look at the provisions that they're paying for. Are they appropriate? Are they benchmarked?  

And this is where you discover the schemes that are occurring. Is the broker making a $1.75 per script? Are they taking rebates? Is the payer taking 40% of your rebates or a vendor? So literally step 1.0 is having your contracts analyzed to find out these problems.  

You cannot get rid of gag clauses and all of this other stuff until you've analyzed your contracts and see what is in there that is preventing you from getting your data, that is causing you to pay too much in fixed costs and variable costs that's already in your contracts that you have contracted. Those have to be looked at and fixed as part of this process.

[17:17] Justin Venneri: So if that's step one, I mean, it does sound intense because it's bad than just pharmacy in terms of the complexity and the opacity, and then now it's medical and dental.  

[17:27] Jeff Hogan: It's everything. So literally, if you are able to go in and decipher what you have, whether it's adequate and appropriate, which it generally isn't, and to find those things that are spiriting money away from you, your plan, your employees, their dependents, and what have you, and fix that. And it's not very hard to do. It's just that most people have not done that first step. They have their broker go out and circulate an RFP starting in the next two weeks for a 1/1 effective date that has all of these defective provisions and terms in the contracts already. You're just perpetuating the same thing that you've been doing. This is madness, perpetuating this insanity over and over and over again, instead of looking at what your existing contracts say, which have caused the problems that you have in your spend as well.  

I'll give you an example of this. So most people relative to pharma focus first on the PBM, which is really important and obviously solvable.

But for many of the groups that we look at, 52%, 53%, 54% percent of their specialty, the big driver of pharmacy in general is medical pharmacy. We see often in the states that I'm in where health systems are charging 300%, 400%, 500%, 600% of Medicare plus a facility charge for things like chemo, where infusion is just ridiculously expensive. And again, outsized value on med pharmacy of the costs are the size of the charges, you know, $300,000 or $400,000 or $500,000 dollars.  

I worked on a group this week with a pending CAR T where they were being quoted $3.2 million for one year episode of CAR T. And right down the road in Maryland, it was $600,000 for the same CAR T.  

So these are these are big things. And, unfortunately, most employers have not had insight into these things in the past for their own populations nor were they attributed the responsibility for those things. But now employers are able to be market makers to literally direct contract for these things into the marketplace on behalf of their plans.

[19:43] Justin Venneri: Okay. And so, by adding medical, that seems complementary in some ways to the large cost drivers. And then adding dental and vision, assuming having all of the patient's information in one spot, and a reduction in the duplication of efforts out there, whether it be additional overlapping clauses and contracts or services, what have you, there is a path to streamlining the health benefit for employers.

[20:08] Jeff Hogan: Streamlining is a nice word. I call it alignment. We've never had alignment of supply and demand in health care before because we didn't have functional marketplaces.

Once an employer is aware of those features of their unique population that they need, which include volume and for episodes or lack of clinical integration and fragmentation, they can be better consumers. They can express their needs to a marketplace that has never been receptive to those things in the past. In fact, the BUCAHs and networks have simply dictated their networks back to these populations. Take it or leave it.

Guess what? That relationship, that sort of dysfunctional relationship is getting broken in the marketplace. This is the opportunity with, obviously, what's been created with Judi to have a platform where the employer can use that platform for adjudication and data and accountability and plug in the health services that they need that are appropriate to their population.  

[21:12] Justin Venneri: But step one, dig into those contracts and see what provisions are in there.

[21:16] Jeff Hogan: Critical step one, dig into the contracts and pretty much see what's being done to you and fix those things via an RFI or RFP, number one. Number two, once you get your data, having a great analytics vendor to help you get insight into what matters most, that becomes your strategy for procurement and then having the fiscal controls to make sure you're getting what you're being charged for. That's the accountability for these things.

[21:44] Justin Venneri: Okay. I have two more quick questions for you. Thank you so much for taking the time today.  

I think the level of activity, if measured by RFPs is highly encouraging. We're busy. Lots of people out there are doing more work, willing to explore new partnerships. Why do you think, we’re relying on Adam Fein's data as the source of this, it looked like independent or smaller PBMs lost, like, a percentage point of market share, so a hundred basis points of market share last year, year over year.

Is the mid-tier winning? Are there some shifts among the big guys? Is it just a function of there's so much space for a transparent PBM model to grow that it's going to be kind of unpredictable? I mean, I would think given what we see and what others are seeing that more and more plan sponsors are willing to kind of put the status quo in the rearview mirror and try something new.

[22:33] Jeff Hogan: Yeah. So there's going to be volatility in this space and realize that the entrenched players aren't going to give up easily. In fact, many of them or most of them, most of the big BUCAHs, you know, the integrated players have made huge investments into the PBMs. And in fact, most of them have also put those companies into separate holding companies for health services.

Many of them are pretending that they have transparent PBMs or virtue signaling that that's the case. So they're not gonna give up.  

Bottom line, don't plan on it. So relative to some of the other players, I'm finding that the predominant transparent PBMs have really had to make huge investments into technology and what have you.

So it's a handful of those that are winning in this space, and those that don't have that technology and accountability are gonna lose. And it's a big investment. It's hard to disrupt, and that's kinda how I'm seeing it in the market.

[23:36] Justin Venneri: Yeah. Seems like no easy wins, but more appetite.  

So last one, you know, we had you on the show back in early March, as I mentioned at the beginning of the discussion. What's the most surprising or astonishing thing that you've seen or heard in your travels since then that's safe to share, of course? Send us off with a good quick story that the audience will appreciate as it relates to what we've been talking about today.

[23:57] Jeff Hogan: Yeah. The most interesting thing, I would call it astonishing too, is that the health systems, nationally, especially the big ones, have awakened to their opportunity potentially to disintermediate the predominant carriers in the space, and they are doing things to make themselves more relevant directly to employers. And this is nationwide, by the way. Curiously and perhaps most ironically, these same health systems are the largest employers in their communities, and many of them use their own facilities and try and steer their own employees' independence to their own facilities.

And it's been my experience that they are also the ones who haven't examined their own contracts within their organizations to see, one, how they're being treated by their own payer, which is a huge surprise once they do it, okay, because that's their partner. And number two, because their plans have been managed internally, not necessarily by their care delivery people themselves, they really don't know what their costs are themselves for their own employees.  

And that's a you know, it sounds like a a gross generalization, but those big health systems that are going through this process are suddenly, you know, drinking the Kool Aid and seeing the opportunity to use their size and scope and ability to go out to the community to other employers to do this direct contracting as well.

So a little bit of irony and strangeness there, but many, I will tell you, more than ten are engaging in this type of exercise right now.

[25:38] Justin Venneri: That is fascinating. And it's a nice actually, you know, I can reference the episode we just did with Lindsey Butler at Lockton and Chris England, and they were talking about this exact thing with, you know, how the health system kind of treats its own people across business groups and doing the right thing and being fair in that regard. And I'm sure some of those numbers are shocking when they dig into them.  

[25:59] Jeff Hogan: That's the right word: shocking.  

[26:00] Justin Venneri: All right, Jeff. Well, thank you so much for taking the time. Really appreciate you joining us again and look forward to staying in touch.

[26:05] Jeff Hogan: Thanks so much. Thanks for having me again.

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To learn more about Upside Health Advisors, click here, or you can find Jeff on LinkedIn.

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