AH100 - The End of the Age of Confusion, It's Time for Acceptance, with AJ Loiacono

Transcript

Lightly edited for clarity.

Justin Venneri: Hello and thank you for joining us for this episode of the Astonishing Healthcare Podcast. This is our hundredth episode, and I'm joined in the studio today by AJ Loiacono. He said he'd be back for the hundredth episode on the first episode, and here we are two years later. AJ, thanks for joining me in the studio today.

[00:40] AJ Loiacono: Well, first off, Justin, congratulations on your 100th episode. I think it's great. We both have our jobs, so we're both doing something right here. So this is great. We could celebrate that as well. You know, the other thing is I am dressed today in the Charlotte Hornets jersey. I am wearing number seven because the Hornets have actually won seven games in a row. So I thought it was fitting: 100th episode, wearing number seven, seven-game win streak with our partner, the Charlotte Hornets. I am nothing more than an obsessed fan, super supporter of the community, the staff, the coaching, as well as the players. Incredible organization, young team, really exciting to watch, and we're excited to see where the team goes.

[01:23] Justin Venneri: You are all in on the Hornets, and unfortunately for me, I have my [NY] Rangers hat on and they are… they're in trouble this year.

[01:29] AJ Loiacono: It's early.

[01:30] Justin Venneri: It's a rebuild. 🙁 So this episode, I think we'll just have a casual discussion because - why not? Nine years we've been on this journey. You've been on this journey for nine years. I've been here for going on four, which is a little bit crazy to think about. Tell me, what's changed? What are you seeing? What are we seeing? What have we learned over the last two years? And if you want to take a further step back, how do you see the industry has evolved since we've been at this and transitioning from pharmacy benefits to health benefits?

[01:56] AJ Loiacono: Yeah, I mean, I think the first thing you gotta recognize is the transition or evolution of the organization. When we started this company, I often say we had two main principles. The first one is: don't make money on drug spend. It's a natural conflict of interest. The moment you make money on your drug spend as the administrator, the more expensive the drug, the more money you make, the more fraud, waste, and abuse. You're the beneficiary of those dollars. You know, so we wanted to set the record straight in the industry and be like, why don't we remove that conflict? And what’s fascinating about it is it fell upon deaf ears with that principle.

Hand in hand came with, we needed to create a more efficient operating platform, we needed to reduce overhead, we needed to administrate a claim 60, 70% cheaper than our competitors to compete at the highest level. And again, people felt that that was an absolute impossibility. The number of people that have tried to create a modern adjudication engine and failed with much more money and time… you know, were many on that path? And so we took a step back and said, you know, let's begin as we enter into this industry as the transparent PBM and let us educate people on the importance of this mission and our principles. And I call the first five years of our journey the "Age of Indifference." Nobody gave a crap.

[03:24] Justin Venneri: And it was tough, right? I mean, you're competing against the largest companies in the world.

[03:29] AJ Loiacono: Yeah, you're competing regularly with three Fortune 15 companies on the PBM business side. And what I try and point out is we'd go in there and we would make our pitch and our appeal oftentimes coming from, what I would say, the bottom quartile of performance in the RFP evaluation. And you're trying to educate them on the importance of drug mix, the importance of classification, the importance of waste that you're seeing in refills. This is just adding to your trend and cost. And for the first five years, not all consultants and brokers, but the vast majority didn't care. They're like, give me your little violin and play me your sad little song and tell me how you're going to improve healthcare better than these multibillion-dollar companies.

And you don't give up. I mean, I think this is one of the principles that I talk about with our entire team. It was easy. Everyone would do this. But if we wanted to affect real change, if we wanted to truly elevate and evolve this industry, we had to stay true to our principles because it's easy to take the gray dollars. It's easy to become what so many other PBMs had become over time. And I refused. We refused. And so, you know, you talk about this Age of Indifference, but thankfully you were able to find some brokers and consultants that appreciated the message, appreciated the service, became references, those clients became references. And you begin to build a book of business.

The Age of Confusion: Exposing the Flaws of the Traditional PBM Model

[03:29 cont.] AJ Loiacono: You know, you get to around what I would like to say 2022 into 2023, and we enter what I call the "Age of Confusion." The Age of Confusion is really, you start to see the press demonize established healthcare companies. They start to pick up on these threads of "this doesn't sound right." Like, these drugs have lots of variants in their price. This generic oncology drug that's been off patent for 10 years, it has a list price of $200. Why is it being priced at $5,000 or whatever it may be? And you know, you start to see the government lean in. This is state legislation, state regulators, federal legislation, federal regulators, and they start to push a little bit more during this period.

On the commercial side, you begin to see employers ask some tough questions like, "Well, wait a second, maybe this isn't about discounts. This is about trend." And I think you're seeing during this period—and certainly today—a lot of educated and what I would say intellectually curious HR executives saying, "I've been promised 15% savings on every RFP. I've been promised 12% savings on these RFPs, but my trend is single-digit or double-digit positive." And so if someone's promising you 12%, 15% savings and your trend is plus 10%, what's the 20% swing here?

And what I often say, and when we look at the Age of Confusion, is I start to insert actuaries into the conversation because actuaries are doing professional assessments and you know, there is a level of liability in their assessment. So they take their job very seriously. But I often say, actuary and their certification and training aside, if you asked someone to use any predictive analytics or modeling, and I have three positive numbers—you know, plus 7% trend, plus 10% trend, plus 9% trend—I can't give you negative 15. No one is going to write to that number. No one's going to write to zero. The safe bet's going to be like plus nine. That's in the realm of probably what we're looking at. And suddenly people are picking up on this thread. This analysis isn't demonstrative of the result.

The other thing you start to see here is you see pharma rebelling in, I would say, if you follow the supply chain politics and power dynamics. For most of the 21st century, the PBM industry has been in charge of the supply chain. They've had, what I would say, an outsized amount of power and they've asserted it through formulary dominance and formulary selection and what we would call more "pay to play" economics of placement. But what you start to see unravel, especially with GLP-1s, is you start to see what we would say asymmetric pricing emerge, that perhaps when you look at net-net, you don't have to go through established GPOs and players. You're starting to see leakage there. And this would be something that pharma would never want to do, because I often say pharma behaved like they were in the witness protection program. They didn't want anyone to know that they existed or what they were. They just wanted to kowtow to the PBMs and maintain their formulary placement.

And now, you know, you're starting to see lobbying against the PBM industry by the pharma lobby. You're starting to see also direct-to-patient offers, more equilibrium in net costs. So it's not just through the funded benefit, it's through cash pay. And so what you're starting to see is this unraveling in the Age of Confusion. You're starting to see brokers and consultants ask more pointed questions and kind of change their whole philosophy and start to think through, "How do I capture more of this net cost, net trend, real trend discussion?"

The Era of Acceptance

[05:00] AJ Loiacono: And the last piece that I felt was the most heartening to me is when you see established players, these are the incumbents, and they start to emulate the challenger. We started to see the largest healthcare companies say, "Hey, we're just like Capital Rx. Like, we could do that, we have that, we could build that, we could do that." And I always say, when the incumbent starts to emulate the challenger, it's not the beginning of the end, it's already over. That end of the beginning. That first chapter is complete. And the example I always give is something like BlackBerry. The first two years Apple came out, BlackBerry was like, "You don't need that smartphone. We're the enterprise solution that is great for business. And we have this keyboard and it's amazing." And for two years they held that line. And then going into the third year of Apple, they were suddenly in panic mode. They're like, "We're smart. We have a smartphone. We can be smart. Like, we'll develop a smartphone."

[10:08] Justin Venneri: We needed a touchscreen.

Related Content

• Replay - Unifying Medical and Pharmacy Benefits: The Blueprint for Better Employee Health and Wellness
• Judi Health’s Capital Rx Surpasses Five Million Contracted PBM Lives as America’s Largest Employers, Unions, and Leading Health Systems Evolve Their Health Benefits Strategies
• AH095 - What's in Store for the New Year? A Special Round-Robin Episode of Astonishing Healthcare
• Health Benefits 101: Service Excellence & Scaling an Award-Winning Call Center Model

[10:09] AJ Loiacono: And in that third year… so think about that. Someone who had built a dynasty on being the brand that they were was suddenly emulating what the challenger was. And they were saying, "I could become that, I could be the challenger." And it was too late. By that third year, Apple sales had eclipsed BlackBerry and never looked back. And I think this is what I'm seeing in this Age of Confusion is suddenly you're seeing longstanding, established healthcare companies say, "I could be transparent, I could provide alternative pricing, I can be more flexible. I'm giving you all the rebates. I do these things." And I'm like, it's too late. And I think we're starting to see that their power dynamic and their market penetration is starting to slide.

And this enters 2026. And I call this the "Era of Market Acceptance." And market acceptance is a reflection of organizations like Capital Rx, Judi Health are not viewed as these upstart challenger brands that are disruptors. They're viewed as the model in which we should all be operating with. That this is the new standard. This is not disruption. This is just a better product. This is better for our patients. This is better for our service models. This is better for our budgeting. And so this is what I'm seeing over these nine years, you know, these chapters of Indifference, Confusion, and now Market Acceptance. And I think, you know, we're already seeing it. This is going to be a significant year for organizations like us and others as we continue to pick up material market share.

[11:50] Justin Venneri: It's been an amazing shift over the last couple of years as that power dynamic has changed. Ryan mentioned it, you've talked about it a lot—the need to evolve the technology and the platform we have. But also something like a GLP-1 comes out and we're like, "Wow, this medication is revolutionary. The data is phenomenal." More come out now. We have an oral GLP-1, and it really did shift that power dynamic to pharma in a way, and changed a lot of the behavior in the market. It's funny that, you know, a diabetes drug turned weight loss drug got people asking a lot of questions and got people focused on price more than anything I can recall. Can you talk to me a little bit about the acceptance of the model and what underpins that? Because going back to Ryan was on in the first 10 episodes also, and he quote-unquote famously—because I don't know that this is a famous podcast, but, you know—he said, "We're going to build this. We're going to build unified claims." I remember when we were very excited that we started processing government claims successfully and then a year and a month ago started processing medical claims successfully. So talk to me a little bit about that and how you see the platform evolving and this accepted model evolving from here.

Judi Health: Aligned Health Benefit Administration

[12:52] AJ Loiacono: Well, let's start with Capital Rx. Pharmacy benefits is our roots. It's the foundation of everything we do here. That's also the entryway into what I call payer workflows and benefit administration. I often say, what does a PBM do? And a lot of people take exception with traditional PBM pricing and traditional PBM tactics. And that's a pricing model issue. But I always want to tell people, we don't really care what the pricing model is or the partners you want to choose. We think that's awesome. We give people choice and acceptance and we're supportive of those selections. Our point is when you start to look at the industry and you start to say, "Hey, like, how do I make this framework better?" You're looking at pharmacy benefits. And we obviously came at it from a technology side because we needed to reduce variable costs, we need to reduce that operational expense. But the other part of it is we stayed true to our principles.

But it's an evolving principle which is, hey, we want to support our customers and help them make informed decisions. You know, it's funny, I was talking with a potential customer before this podcast. I was wearing something different, of course. But my point again was that they were asking about partnership. And I said the definition of partnership is we're a strategic advisor that's helping you understand everything you are doing and shall do. And so when someone goes, "Hey, I want to consider, let's just say a program that involves, I don't know, distributed pricing through mail and specialty. I want to have multiple mail, multiple specialty partners. How does that work? Talk to me about the member abrasion. How do we program? What is the savings? Are there diminishing returns after how many vendors? What's a reasonable thing?" And what I have people understand is this is what partnership is and there's nothing proprietary. Pricing isn't proprietary. There's no conflicts of interest when people are talking to us. And this is so critical in the success of our model.

So we're having people really understand what is possible. And we're unlocking for a lot of our partners what I would say clinical capabilities that they may even have. So if I'm working with a health system and they have some really strong and wonderful ideas they want to deploy—people have resources of on-site care clinics or pharmacies—again, how do we integrate that model more effectively? And I feel like a lot of healthcare, particularly in the PBM world, has been purchased and acquired like it's copy paper, you know, like, "How many reams? What's the discount? Great, we're going to go with this copy paper." And this is such an important framework.

But pulling it all back is what a PBM does is we provide administrative services. We're doing your eligibility, we're doing your accumulators, we're managing your plan design, we're doing your clinical reviews, such as drug-to-drug interaction and prior authorization and approvals. We're also doing your network management, your billing, your reimbursement, your audit and compliance functions. Hundreds of administrative tasks from high and low, from call center to our general counsel. We're here to serve our customers. And creating a framework of excellence that can provide these services from commercial self-insured to Medicare to Medicaid was critical for us. And this is what made us evolve as a one-of-one organization.

And I talk about this quite a bit and this is another important point, which is we're the only company that built their own tech stack from the ground up and is your PBM. We're the only one that processes commercial and government claims. And why is government claims such a big deal? Anyone who's ever processed a Medicare claim will tell you it is 10 times harder and more complex than a commercial plan. It's not even remotely close. In addition, you obviously are working very closely with CMS for the oversight and audits there and you have to pass all of those things and operate at the highest level of standards.

And the third leg to that stool is security. We're the only health technology company in this industry that we know of that operates not just at, yes, SOC 1, SOC 2, HITRUST, but also we operate with FISMA, the Federal Information Security Modernization Act standard. And also moving to FedRAMP. You know, the people that operate with FedRAMP security are people like Boeing and Lockheed. And why is that so important? It's because unfortunately for employers in health plans, data breaches have become as common as sending email. It just happens every day and people deal with it and they've become numb to it. And for us, we've never—knock on wood—had a major breach. But this is a discipline across your entire organization. It's not just technology, it's the operations. And your entire framework has to be built for this. And so, you know, I talk about the evolution of the industry, I talk about the evolution of this company and capabilities in delivering a superior product to the market that's unrivaled from a technology and service standpoint. And so that's what I'm most proud of when we talk about that Capital Rx. But it leads to what I think is the next part of your question, which is getting into Judi Health.

[18:04] Justin Venneri: I think one of the most fascinating things for me to watch coming into this industry was the way that the technology supported the member service. I mean we built the contact center from scratch too, alongside this, and having our colleagues have access to that information on the fly in one system, the efficiency there has been incredible. And then rolling that into the new program, Judi Health, it just seemed like a very natural experience, which sounds too good to be true. But I mean, tell me a little bit about that from your perspective in your seat. What have we learned? What do you think we can do better?

The Four Pillars of Insurance

[18:35] AJ Loiacono: Well, I mean, I think this is a five-year mission. So when I originally went to my board and I said, "I'm looking at this concept of unified claim processing," when you get into claim administration, workflows, working with employers, self-insured groups, you begin to see these spaghetti charts of all these vendors and sub-vendors, secondary and tertiary workflows. And I often say if you do something twice, at best, it's twice as expensive. And you know, if you think about just the most basic workflows in healthcare, when you process a prescription claim, it goes on its own journey with its own set of vendors. If you process a medical claim, it goes on its journey with its own set of vendors. But at the core of it, it's still one singular health benefit. When someone's saying, "Hey, I need healthcare," you know, they don't necessarily think about prescription, dental, vision, medical. It's just care for me, my family, my dependents and loved ones, et cetera.

And so one of the things that we started to look at, which is why are all of these things separate? And what you just realize is the systems were never built that way. There's never been a system that is going to process medical and pharmacy, let alone dental and vision as well and other ancillary benefits on one platform. And I felt this was critical because the one thing you could always say about the mission of this company is we are here to evolve healthcare, change healthcare. You could say, disrupt healthcare. I just think it's build a better product. You know, I love when people be like, "You're a disruptor." I go, "We build better products," and that's what we're—better services, better outcomes, better experiences.

And so when we looked at this, my board was not excited. They were like, "Build a great PBM. That sounds like an awesome 20-year mission." And I am like, no. And you start to talk about what I call the "Four Pillars of Insurance." Insurance in the sense of claim administration. You have someone who's providing a benefit and what are the services, and they're in these buckets with lots of sub-routines. But I often say the first one is eligibility. This is what I call the genesis of all benefits. Are you in or out? And what are your dependents? And what are the functions around that? Because it feeds, empowers everything. The next leg of the stool is plan design, both clinical and financial. What are the rule sets? What's the copay? What's the access model? What's the network? What are the rule sets here? There's billing. I need to bill clients for these services, and I need to account for all of that information. And then there's reimbursement. I'm reimbursing networks and other partners that are providing services to the plan sponsor.

These are the four legs of the stool. But we've got one stool for pharmacy, one for medical, one for dental, one for vision. And even when someone says, "Hey, I'm using one vendor," I'm like, "No, you're not. There are dozens of vendors underneath that people don't even know about." And each time someone touches a claim, they're adding costs. I was on the phone with a large employer the other day, and the head of HR was completing my sentences. He's like, "Yeah, we're paying, I don't know, seven, eight dollars PMPM over there. We're paying 10, 12 over there. I'm paying three to four over there." And it's just stacking costs. And then there are hidden costs like shared savings, point solutions. There's a litany of things that are going on, but the result of it is because no one had ever created a single operating system and platform.

And so this isn't easy. This was something that was going to take years and hundreds of millions of dollars of time and effort. And we were able to attract the investors that believed in this mission. Like, yes, you're a sound business, sound operating company, but I like investors that stand for and represent—they're making changes in industry. And these are people I'm going to give a quick shout out: Edison Partners, Transformation Capital, General Catalyst, B Capital, F-Prime, Alumni Ventures. These were companies that came to us and just said, "Hey, like, I love what you're doing. I appreciate what you're doing." But even large financial institutions like Wellington looked at us and said, "I love this mission. I would like to be involved with this. I would like to see you succeed. Because I think this is critical for us getting better care in this country."

And this is the thesis. You know, you talk about Judi. Care is… we're over $5 trillion of cost for healthcare in this country. We pay four times the amount of any other developed nation. And yet we have the same life expectancy or worse. We're not getting four times the result here. And one of the things that I point out is the inefficiency. There's a trillion dollars with a "T" of waste in this country. Just unnecessary vendors having unnecessary workflows with unnecessary costs, with member abrasion and friction points throughout the administrative cycle. Because no one has ever put this together. And for us, I call it a privilege, and I've said this so many times when I've had a chance to speak to people, is it is an absolute privilege to be put in this position to make this transformational contribution to healthcare. Other companies are contributing on this journey. Ours is going to be the infrastructure that this country runs on. You know, that is the mission of Judi Health: to change the way drugs are priced and patients are cared for. That's where we started. And then we moved this and evolved the mission to give our country the infrastructure we need for the healthcare we deserve. Because I make this point anytime I talk, which is we could think of 20, 30 brilliant ideas to improve pharmacy benefits, medical, whatever the benefit is. Good luck implementing it on our aging infrastructure.

[24:21] Justin Venneri: And so definitely heard you say that a few times.

[24:24] AJ Loiacono: That's exactly it. And so here we are, we're now operating at scale on pharmacy, at scale. We're moving to on the medical side. We're operating tens of thousands of lives. We're expanding that to hundreds of thousands of lives this year, which is super exciting. And every time you have someone see the system, this unified infrastructure, they're mesmerized. You know, we did a demo yesterday for an incoming group and they were blown away by the capabilities. One of my favorite functions on Judi is Judi Live, which is a live dashboard that shows you claims coming in across the country. It gives you full information on your call center, wait time, service level, types of questions that are being served up to the call center. It's amazing. It's going to go through your PAs, your PA queue, the number of PAs that are in queue, the average turnaround time… They looked at this dashboard and they're like, "In 30 seconds, I can understand what's going on with my plan. Good, bad, indifferent. Are there wait times? Not wait times, you know, whatever it may be. And it's clear as day, and this is real time and it's my data and I could log in here at any time." And I'm like, yes. You can't do this without a unified approach.

And then you bring it full circle on the front end. One of the things that we saw was that originally we took an approach, and we still take the approach, of use whatever front end you want. But more and more of our customers are asking us for that same unified backend on the front end. And so with the acquisition of Amino becoming our Judi Care platform, which is care navigation, it's been a tremendous addition to our solution set because we've now integrated that into the back end. And what's really exciting is the release of pharmacy and medical, dental, vision—all of your benefits on this one platform—but it's being fed by that single source of truth with no gaps in data. So I always want to say our organization is focused on providing the services our self-insured and health plans need. Those could be tool sets that we license, that could be direct servicing to the community, that could be TPAs, that could be large self-insured partners. But our goal is always to be evolving and providing the products they need to deliver better care at a lower price.

Reflections on Growth - Thought Without Action is Just Daydreaming

[26:42] Justin Venneri: All right, AJ, thank you so much for spending the time with us today. I'm not going to ask you the most astonishing thing you've seen because it's too easy. Kidding aside, I'd love a reflection on the growth from you. Like, take a step back and think about, wow, this has been a heck of a journey. What's one of the top reflections when you just sit back and say, "Okay, I see what we've done, I see where we're going." What pops into your mind when I ask for the top reflection or a general reflection on growth?

[27:06] AJ Loiacono: Yeah. You know, it's easy to go to the evolution of our client base, our technology, the size and scale and scope, but it's been a little bit more personal. I think right now, this reflection for me, after nine years… And I think one of the things that I think about is people ask me, "How are you able to grow at this pace? How are you able to innovate at this pace?" And a lot of it is attracting that nucleus, you know, people that believe in the principles and philosophy and they will attract their following as well.

But the other part of it is we talk about the ability for people to take advantage of their autonomy and really make a difference day to day. Every role is a changemaker in this company. We try and have people understand that. And short of fraud, I often joke, you can't break the company with your decision as long as you put equal amount of thought and heart into it. We are in healthcare, so your heart does play a role. This isn't just icy cold logistics, but the point of it here is if you take action without thought, that becomes an operational nightmare. At one point if you just have intellectual curiosity and you're just processing thought without action, you know, that's just a pleasant daydream. You're not doing anything, you're not executing on what you're seeing or believe is going to be helpful.

And so the synthesis of thought with action, I think, is one of the most important DNA characteristics of anybody in this organization is that they're constantly thinking about: What am I seeing? How do I make this operational? How do I execute on how I continue to move? Because we are moving in lots of areas at an amazing scale and we continue to deliver absolutely superior customer service scores. I mean, one of the things I'm most proud of here is our Member SAT scores. And I'm talking Member SAT in the call center. You want the barometer of care? This is that pressure of our satisfied customers coming out of your call center. Most people that enter into a call center are not coming from a happy place. And if you can get net promoter scores north of 80—I think our present one is 86—that's world-class in any industry. That is absolutely heroic in healthcare. And I think this is a reflection of everything we've talked about on this call today. It's a celebration of this company and I think what's going to make us successful for another 10 years.

[29:41] Justin Venneri: I just get fired up when you're talking. I got like, I just lost my train of thought.

[29:45] AJ Loiacono: Let's go, let's go. We're going to end on that. We're going to go through a wall together. But that's what healthcare is. I think, Justin, you've been here long enough to know is we do go through walls for our customers. You know, we are going to change this industry. There are going to be naysayers, there are going to be friction points. There are going to be people that want to cling to the past. There are people that can defend the past and that's okay. But I think if they're not careful, they go extinct. And so we're going to be us. They could be them. What is it? "Let east be east, let west be west and let they never meet in between," you know, whatever. And so I think that's just it is we have our philosophy, Kipling, I think there is the quote. But the point of it is we're going to go in our direction, they can go in their direction. And that's what makes evolution happen in healthcare versus stagnation. And yeah, that's what we're here to celebrate.

[30:37] Justin Venneri: Yeah. It's funny. I don't think I've been stumped like that in a hundred episodes, to be honest. Like, going back and thinking through the conversations. And the reason was because I was like, I'm fired up and my wheels are spinning about the next way I can try to explain what we're doing to people so that they can just kind of think through what they can do better, even if they don't, you know, use us. I mean, I hope they do, but as long as we keep moving forward,

[30:59] AJ Loiacono: That's what we're here for. I say that all the time.

[31:01] Justin Venneri: Thank you, AJ for joining us in the studio today. Look forward to another year of growth.

[31:06] AJ Loiacono: Hundred more, Justin. Hundred more. No, you're setting the bar for yourself.

[31:10] Justin Venneri: All right, I. I think we're going to do a wing challenge in the mix here. So that's going to be a live one. If we get Ryan for it, do you think? Will Ryan eat the hottest wings or no?

[31:19] AJ Loiacono: I love wings. I love hot wings. And so what better way, I think, to have a live episode? I'm. Sign me up.

[31:27] Justin Venneri: All right, we'll figure it out. Have a good rest of your day, AJ. Thank you.

[31:31] AJ Loiacono: You too, Justin.

‍

‍

Interested in transitioning to an aligned and transparent pharmacy and health benefit partner? Click here to get in touch with our team!

‍