In this episode, Michael introduces A.J. Loiacono, the CEO at Capital Rx, a pharmacy benefit manager seeking to create the first efficient and transparent marketplace for prescription prices and ultimately reduce prescription costs for employer groups.
A.J. has over 20 years of experience in pharmacy benefits, finance, and software development. Although he never thought he’d end up in the same industry as his father, he loved the nature of pharmaceuticals and recognized the inefficiencies within the system. He realized that, although every other industry has changed massively over time, pharmacy benefits have gone largely unchanged for over 20 years.
The problem with the pharmaceutical industry is that buyers (employers) and sellers (pharmacy stores) haven’t been able to communicate freely about pricing. Instead, they communicate through a PBM that inflates and distorts the true cost of the drugs. Capital Rx’s mission is to redefine the way prescriptions are priced and administered in the U.S. so there is more transparency and directness between buyer and seller. They do this through their proprietary Clearinghouse Model℠ that uses NADAC or National Average Drug Acquisition Cost to eliminate prescription drug price variance that is standard when using the AWP (Average Wholesale Price) + discount model. Capital Rx prides itself on its focus on administration and care, not price manipulation and setting. They have a high-touch process that both employers and patients appreciate and an NPS score of 92 to prove it.
The Capital Rx platform is designed to create maximum value for the employer and employee and includes low net cost formularies, simplified/transparent contracts, and rebate guarantees, and high touch service and reporting for both the employer and consultant. With success stories abound and a transparency-based model, we’re excited to see how Capital Rx continues to redefine the pharmacy benefits space long into the future.
Here’s a glance at what we discuss in this episode:
- 01:00 - Introducing AJ Loiacono, his background, mission, and work in the industry.
- 04:10 - He read about software conversions for pharma in Forbes and was intrigued.
- 06:30 - He’s studied the pharmacy supply chain and understands the drug pricing.
- 07:30 - The shift from volume to value; We give incorrect value to pharmaceuticals.
- 08:55 - Drugs are inflated and pharmaceuticals have an inelastic demand curve.
- 10:30 - The haziness around drug pricing controls the supply chain.
- 11:10 - PBMs and carriers adopted one formulary for the best rebate.
- 12:40 - Buyers (employers) and sellers (retail pharmacies) should freely communicate on price, but the PBMs prevent it, which is problematic.
- 15:10 - AWP Data says in the second line that it shouldn’t be used as a price point.
- 16:30 - They use NADAC pricing; they find it more transparent and contrasting with AWP.
- 18:40 - Price only changes if CMS sees a +/- 2% shift; many states use NADAC.
- 19:06 - Capital Rx is the only PBM that built a network around NADAC.
- 21:00 - NADAC is a closer approximation to what the pharmacy actually pays.
- 22:05 - Pharmacies are hesitant to reduce the price because the savings never make it to the payer; the artificial variability doesn’t come from the pharmacies.
- 23:30 - There’s no crazy price fluctuation in the Capital Rx model because they use the same benchmark across the board.
- 26:50 - Inflation in the NADAC model in relation to the AWP; NADAC deflates 10%/year for generics, it was deflating in AWP as well, but the consumer sees an increase.
- 29:50 - It all goes back to a lack of communication between the buyer and seller because of that middleman that pads profits.
- 32:45 - They have value-driven formularies and are focused on value, precision, and removing waste.
- 38:10 - They quote their rebate guarantees on a per-member per-month basis; why this method is better for the employer
- 41:20 - Consultants need to be willing to ask the right questions.
- 42:05 - There is an inherent conflict of interest when PBMs get profit based on a percentage of drug prices and can make additional money on the spread.
- 45:50 - With high-touch PA they make three calls; one to the patient, one to the physician that prescribed the drug, and to the pharmacy to ensure inventory.
- 47:15 - People appreciate their high-touch, proactive process, and outreach; they’re paid on administration and care, not price manipulation and setting.
- 53:14 - Results and savings: On average, their clients see an actual PEPM savings of 13%
- 57:30 - We get so caught up on reducing the cost that we forget that healthcare is an investment.
- 01:01:45 - Success stories: They helped a company get rid of its 30-day waiting period. With the savings, they expanded paid-leave for some exempt employees.
- 01:03:00 - They always ask, “What are we solving for?”
- 01:30:30 - The future of pharmacy benefits; care and treatment will become more personalized.