Transcript for EP423: Maximizers and the “the Drugs Aren’t Covered” Schemes Employers Use to Save Money (or Not) on Pharmacy Benefits

Introduction and Overview

[00:00:04] Stacey Richter: Episode 423, “Maximizers and the “the Drugs Aren't Covered” Schemes Employers Use to Save Money (or Not) on Pharmacy Benefits. Today, I speak with Joey Dizenhouse. 


American Health Care Entrepreneurs and Executives You Want To Know. Talking. Relentlessly Seeking Value.  


Understanding Pharmacy Benefits and Copay Assistance Programs

[00:00:35] Stacey Richter: For a deep dive into the way back backstory here. Listen to the show with Dea Belazi. That's episode 293, and it's entitled “Game Theory Gone Wild,” because gone wild is what has happened with pharma manufacturer copay assistance programs. 


Don't forget that the original intent of the first chess move here was by pharma manufacturers to circumvent basically PBM formulary restrictions. Because the leverage PBMs have is access and patient out-of-pocket costs. And let's focus on the out-of-pocket costs right now. If a drug is on formulary, patients can get said drug for a lower relative price. 


Drugs not on formulary are abandoned at the pharmacy counter quite often because patients cannot afford them and this is by design.  


The Role of PBMs in Drug Pricing

[00:01:27] Stacey Richter: This patient abandonment of their prescriptions is what gives the PBM leverage when negotiating with pharma. If pharma doesn't play by PBM rules, they get kicked off the formulary and then patients can no longer afford to get their meds and pharma market share tanks. 


So, the original intent of copay cards was for pharma to say, Ha ha, talk to the hand, you PBMs. You cannot put us on formulary if you want, but I'm gonna lower the out-of-pocket costs all by myself with me copay cards. If you PBM forced a $300 copay or whatever, which is way too high for most patients, I Pharma will pay $275 of that or maybe all $300 a month on the patient's behalf with my copay card program. 


So, patients are now left with a reasonable amount that they should be able to afford and my pharma, drugs, market share is unhindered. I think one thing to keep in mind here as we evaluate the net impact is that not all situations are the same. Let's say there's two main scenarios and keep both of these in mind during the conversation that follows with Joey Dizenhouse as you consider the impact on plan sponsors and patients vis-a-vis their premiums and also on patients slash members in the short term. 


Here's scenario one. Let's say there's one drug out there for a particular condition, one drug, and on some plan that one drug has a ridiculously expensive out-of-pocket cost, say $8,000 or something like this, whatever the deductible or the max out of pocket is for that particular member on that particular plan. 


And this is $8000 every year, if this is a chronic condition, which makes it different than someone hitting their deductible this year because they had a knee replacement or whatever. In this first scenario, we're talking about patients or their kids who in perpetuity need a drug and who effectively just had their salary reduced year over year by $8000 or whatever. 


If they want the med, they have no other option than this huge out of pocket. That's one situation. Here's scenario two, though. Let's say there's another really expensive drug. But in this scenario, there's a generic equivalent, or there's some other brand that costs like 70 bucks and works for most patients. 


So yeah, now we have patients who get a copay card and are thus incented by their low or no out of pocket to get a drug that is effectively a rip off. So now the plan is paying something upwards of $8000 instead of $70. And it's not like the patient got a better product. It's upwards of $8000 wasted plan dollars that really don't accrue any better health. 


And so this is really where our story begins.  


The Impact of Maximizers on Drug Pricing

[00:04:12] Stacey Richter: A couple of definitions here. Maximizer refers to the entity running a maximizer program. It's a noun. It's a who. Oftentimes the maximizer is the PBM, but not always. Joey talks about two kinds of maximizer programs. One is what Joey calls a spread model, and then there's also the transparent model. 


We also, in the podcast that follows, we talk about a scheme. Which is often pitched to plan sponsors that I'm going to call the, the drugs not covered approach at the end of the show, we come up with three bits of advice. And here they are. Spoiler alert. Piece of advice.  


The Dangers of Misaligned Incentives in Pharmacy Benefits

[00:04:47] Stacey Richter: Number one, buyer beware if you're a self-insured employer or some other entity who is purchasing these maximizer programs. 


Purchasing due diligence is required. If your vendor makes more money, the more a drug costs, yeah, you have misaligned incentives and the chances of you, the plan sponsor and all of your members getting screwed is on the high side. Here's piece of advice number two, As Lauren Vela said also in episode 406, "Everybody Always Thinks That Their Contracts Are Amazing. It's everybody else's contracts that suck." You ask a room full of HR folks if their PBM contracts are above average and the whole room raises their hands. This ain't Lake Wobegon, folks, don't kill the messenger. And here's number three piece of advice. Get on the ground and actually talk to plan members who are taking these drugs or who have kids taking drugs that are covered by these maximizer\ programs or covered by the "It's Not Covered" alternative funding programs. 


I certainly hope no one listening is taking the word of the program sponsor on how satisfied plan members are, especially with all these class action lawsuits afoot.  


Advice for Navigating Pharmacy Benefits and Maximizers

[00:05:59] Stacey Richter: My guest today as aforementioned is Joey Dizenhouse FSA, MAAA. He is an actuary by background. He serves as CEO of SlateRx, which is a pharmacy benefit experience provider, or a PBX, as they call it. 


He's also head of HealthTrust, IHP. My name is Stacey Richter. This podcast is sponsored by Aventria Health Group.  


Interview with Joey Dizenhouse

[00:06:21] Stacey Richter: Joey Dizenhouse, welcome to Relentless Health Value.  


[00:06:24] Joey Dizenhouse: Hi Stacey, thanks for having me.  


Understanding the Origins and Implications of Maximizers

[00:06:25] Stacey Richter: Do you want to maybe just talk about, say like, the first iteration of Maximizers and how they were conceived? 


[00:06:31] Joey Dizenhouse: I think that the Maximizers were primarily initiated and have continued under the auspices that the manufacturer is willing to make more money available than the patient's out of pocket. For example, if the patient's copay is $100. But the manufacturer will make available up to $1000 per month, then the patient pays the $100 copay and the manufacturer only spends $100 with their program. 


But if the patient's copay is raised to $200 or $500 or $1000. Then more money comes through the Maximizer. In my example, the $900 of additional manufacturer money will generally go to the plan sponsor and then whoever administers the Maximizer program is going to be paid for their service and how they're paid is a fairly important point because there are some differences there.  


[00:07:27] Stacey Richter: You mentioned plans are hyper aware. The manufacturer is willing to pay more money. I mean, if you think of, if you talk to pharma people, they're like, okay, well, this is rebate number two. We're already paying rebate number one to the PBM and now basically they're extracting what amounts to another element of this gross to net bubble. 


You know, there's one they pay on the back end and then this one they're paying on the front end because the plans are, they're looking into how exactly much pharma is willing to offer here. In some cases, there's actually a negotiation, like they negotiate for the rebate on the back end. They're negotiating and saying like, oh, hey pharma, you need to pay whatever thousands of dollars on the upfront if you want to even be on our formulary. 


In ways that may or may not accrue to the patient, and when I say in ways that may or may not accrue to the patient. Do you want to maybe explain that a little bit better?  


[00:08:18] Joey Dizenhouse: Yeah, so let's come to the very top of this complicated framework. Pharmaceutical manufacturer brings a drug to market. They have pricing strategies they have to choose between giving money to the patient, to the plan, to the PBM, and to the pharmacy. 


PBMs negotiate with manufacturers and they do, as you noted, things like leverage formulary placement to receive additional money. The biggest issue to me is where that money goes.  


The Role of PBMs in Maximizers

[00:08:46] Joey Dizenhouse: Because if the PBM is retaining that money, you have a misalignment of incentives problem. This is probably my number one issue. 


If the PBM, and the Maximizer Administrator is usually the PBM, if the PBM makes more money when one drug gets dispensed over another, that could mean that the Maximizer decides to push for a different drug. One that's much more expensive for the patient, much more expensive for the plan. But creates more revenue for the maximizer and maybe pharma does well in it. Maybe it doesn't.  


[00:09:18] Stacey Richter: Okay. So one problem that could potentially develop here is misaligned incentives between the PBM and the plan sponsor and the patient. So PBM/Maximizer has negotiated such that they are able to pocket some of the back end rebates. But also, they are getting a piece of the action on the front end when they take copay program money from the pharma company and then do not pass it along or do not pass all of it through to the patient due to these Maximizer or other programs. 


So PBMs make more money this way on certain drugs. So now suddenly, PBM formularies include some strange and expensive bedfellows. Like, so many people will write to me exclaiming that some generic is not on their PBM formulary. Yeah, it's because the PBM is making way more money on the branded drug from rebates and maybe their Maximizer program. 


I mean, why the heck would they let the generic on their formulary and then lose all of that revenue?  


[00:10:19] Joey Dizenhouse: It also creates a problem if the maximizer receives more money or front loaded money by accelerating use of the manufacturer money. In other words, if there's $12000 of money available on an assistance program for the whole year and rather than wait and take $1000 a month, I'm going to take $6000 in January and $6000 in February and then run out the card so there's nothing left, but then I have the money as the maximizer, I have the money sooner. 


Time value of money. Interest rates are growing now, so that's worth something. But then the poor patient has used all the money in the card, and then March comes around, and they might have out-of-pocket exposure that they wouldn't have otherwise had.  


The Impact of Maximizers on Drug Pricing and Patient Access

[00:11:01] Joey Dizenhouse: So, no matter what, whether you like these programs or not, I'd always encourage you to come back to the underlying incentives and how the program is structured. 


So that at least we don't have an additional issue that the Maximizer administrator, which is usually the PBM, is misaligned for the outcomes with the actual plan sponsor and patient.  


[00:11:22] Stacey Richter: I think what you're describing there when you're talking about Maximizer acceleration is that they make the patient responsibility like, oh, coincidentally, $12,000. 


And then the copay is, and I'm simplifying here, $12,000, right? So with that right up front, the plan is taking the pharma money basically as fast as possible. But then what winds up happening on the back end is now the patient has used up all of the pharma money. There's no more available. So now for the remainder of the year. 


The patient is fully responsible for whatever the out-of-pocket limit is, which might be up to their deductible, which as aforementioned is very high. So you wind up with a situation where those pharma dollars that are being paid in are going into the PBM's pocket, maybe the plan sponsor's pocket, maybe some combination of both. 


But the patient is still left with the problem that the manufacturer assistance was supposed to solve for. So the manufacturer assistance is helping the plan, it's helping the PBM, but not necessarily this particular patient. Did I get that right?  


[00:12:26] Joey Dizenhouse: Exactly. Yeah. Well, well said.  


Different Models of Maximizers: Spread vs Transparent

[00:12:28] Joey Dizenhouse: So you have two kinds of maximizers and I call them spread model and transparent model. 


And I choose those words purposefully because most of us are used to those words in this industry where we talk about spread pricing and transparent pricing. So there is an analogy here in the maximizers, a spread model, which is the bad model, as you would expect. The spread model is where the maximizer, for their role, they get a piece of the action. 


They're making more money when a more expensive drug is intervened with and or more of it is intervened with. That's the spread model. The other model, which I'm calling the transparent model, is just to say that the maximizer function, it's just an administrative function, performing a service, helping patients enroll in manufacturer programs and administering a secondary payment. 


That's all it is. So for that service, they should be paid a flat amount, an amount per case, per member per month, something like that. And just that subtle difference between the spread model and the transparent model is tremendous if you think about all the things we've talked about so far, where the incentives lie, how the patient could end up, you know, being left holding the bag. 


Maximizer programs, whether you like them or not, whether you believe in them or not, they are not created equal.  


[00:13:47] Stacey Richter: Yeah. And certainly I could see that the spread model, which was the first one that you mentioned just exacerbates all of the rebate fandangos that are currently going on. It's just basically another front by which all of that arbitrage can happen. 


Then the transparent model, you do not have these perverse incentives as you, as you put them, or misaligned incentives where you have drugs on formulary, which are specifically selected to be on formulary because they are the best way to arbitrage additional dollars. And if you're sitting in the middle, that is a fantastic business model if you can figure out how to do it. 


So the transparent model is just more like, look, this is what we're doing. We're administrating a transaction here. This is the fair price to administer that transaction. And I will let you know what all these drugs prices cost and we will select drugs to put on formulary because they actually are high value drugs, not because these are the ones that we can maximize profits. 


[00:14:52] Joey Dizenhouse: That's right. For reference, the way that we do it is there is a fee that we use a third party to administer the program for us, but they receive a fee, a flat fee every time they administer this for a patient and there has to be a demonstrated return on investment every single time they do it. Not in total. 


Every single time they do it, there has to be a multiple time return. So they focus in the right places. So in setting up the program, there's lots of ways to do it. There's lots of vendors out there that do it. But if you decide that a maximizer type arrangement is something that you want in your plan, if you're a plan sponsor, then I think the next best question is to think about the model that it is, ask the questions, how do you make money? 


Prove it. Too often in this industry, a very small fraction of the economics are actually known and shared. The onus is on the plan sponsor. To ask the questions if we want things to change.  


[00:15:46] Stacey Richter: Absolutely. To apply purchasing discipline, to apply diligence to stuff like this because there's lots and lots of dollars that are flying around in the second biggest expense that most self insured employers have after salaries. 


Andreas Mang talked a lot about this in episode 419. You said something intriguing earlier. If you start thinking about these maximizers and I'm assuming that we're talking about the spread model here, but if they're deployed in a certain way, then they are basically maximizing the PBM's ability or the maximizer's ability to make money maximally. 


And that doesn't seem very mysterious how that operates, but you also said that pharma can make more dollars depending on how these are set up, which is question mark for me. Pharma so often complains about these maximizer programs. How does that work?  


[00:16:44] Joey Dizenhouse: Let me give you a specific example while not picking on any particular agent or manufacturer. 


When a new drug comes to market before it's reached the formularies of the major PBMs because they'll have new to market exclusion criteria likely that'll make it six months or so. And during that interim period, the manufacturer will often put a different kind of coupon on to the drug to interest patients in taking it. 


Let's say the drug, let's say the drug's $1000 a month, but that's the price it's going to be, but for the first interim period, there are these coupons and the patient can get the drug for $25 bucks a month or $50 bucks a month. So the manufacturer is implicitly putting in their own sort of unlimited or very large amount of assistance defined by the full difference between the cost of the drug they're going to charge, the full price and whatever the amount they want the patient to pay $25 bucks. It's a very small amount. And then patients start taking the drug.  


[00:17:45] Stacey Richter: So let me just interject there and make sure I, that I'm keeping up with your math here. So drug costs $1000 a month. This is a newly launched drug. So poof, out of the gate, lots of ads on TV, etc. Now patients are interested in taking this drug, but it's not on any formularies yet because it's a new drug and the formularies are only reviewed once a year or something like that. 


And this is prior to that review period. So like, there's no coverage. So, patient goes to the doctor. Doctor has been given these gigantic copay cards it sounds like, so that the patient copays only $25 bucks, so basically the pharma is bucking up $975 dollars in this example per month. Are we on the same page? 


[00:18:27] Joey Dizenhouse: Correct. Exactly. So now we fast forward, it could be six months, could be eight months. And now this product is starting to reach the formulary and the manufacturer will then discontinue that special kind of copay assistance or copay card for the patient. Replace it with more traditional ones. And now the patients are taking this product. 


They're not treatment naive, right? So if there's five different drugs they can take, they're already on one. So it's harder to look at taking other ones. It may not even be ideal for them to take other ones, but now they are taking the drug. And as a result of that initial coupon, it becomes more difficult for the PBM, the plan sponsor to manage utilization. 


Let's try to pretend that in our example, the thousand dollar drug, it is one of many drugs in a class that treat a condition and with equal clinical efficacy. You got five different products to help you with your whatever. And your whatever is not life threatening at all, hugely inconvenient rather. 


And now you've got a lot of patients taking this thousand dollar version of the drug. Now let's fast forward. That coupon is gone. And it's been replaced with normal manufacturer assistance, like we've been talking about. But let's say now there's a rebate on the drug. Let's say that the manufacturer is now providing a $500 rebate to the PBM on that $1000 drug, and they provide another $100 up to through copay assistance. 


So in total, that means that now the old card's gone that gave the drug for $25 and it's been replaced with $500 in rebates and $100 up to $100 in copay assistance, which is $600, meaning if you use a maximizer and you get the rebate, you're paying a net $400 for that, for that drug, $1000 minus $500 minus $100. 


But what if another drug in that same class that's actively on the market and treats the same condition efficaciously is $100. Now you have a patient taking a $400 net drug, assuming you as the plan keep all the money and there's a hundred dollar alternative. So it sort of makes you the bad guy as a plan, trying to look out for your, you know, look out for your patients. 


It's bad. Let's not forget that plan sponsors are really in a dire place when it comes to affording pharmacy programs, which continue to increase it at rates much faster than inflation. So at some point the money runs out and so we have to make trade offs, right? And so that is where I think the PBM or the entity that's acting as the PBM can be more responsible in making sure that the lowest, as we talk about the lowest net cost product is the one getting used. 


And in this example we've been talking about, that's far from true. It was lowest cost to the patient for that interim period. And then from there, it became very expensive to the plan and maybe expensive to the patient. But at the end of the day, the patient has to pay for the insurance or part of the insurance that the plan is providing. 


It's not free. Payroll deductions will contribute towards the cost, typically, of that coverage. So it is complex and it is difficult to navigate, but, you know, to your point about Pharma, I'm not pointing fingers or saying who is guilty or who is innocent, but there are examples of pharma benefiting from this whole structure that we're talking about. 


[00:21:48] Stacey Richter: I think, you know, the more that we're having this conversation, the more I am convincing myself that this is very nuanced, right? Because like, let's just say that new drug that came on the market, the one that now costs $400. If that is a very, very good drug that is far superior to the $100 drugs based on some kind of value based purchasing computation, right? 


Like it actually does a far superior job curbing disease or whatever, mortality, morbidity is far better for patients. The burden of illness is much lower in a way that is truly impactful. Then you're like, okay, trying to help patients get it for an affordable price would seem to make sense. On the other hand, if this is a me-too drug that does not have any additional clinical efficacy, then that is now just not cost effective. 


It is not a value based purchasing. It is gamesmanship on pharma's part, and now we're just unnecessarily driving up playing costs and putting the plan in this position of being like the cops, you know, like trying to police provider decisions, which under no circumstance is a winning move for all kinds of reasons there. 


I really feel like in a lot of these conversations, there can't be, broad stroke, this is right, this is wrong.  


[00:23:19] Joey Dizenhouse: I would agree. And I'll give you an example of that. You're starting to hear a lot of banter around the industry. And I'll paraphrase it by saying big three PBMs, bad, everyone else good. And I certainly understand the logic in that conclusion, because there's truth to the statement, but it is far more complicated than that. What I mean by that is being a big three PBM doesn't make you evil, being someone else doesn't make you wise or altruistic or good or even okay. The bottom line is, and I'll be guilty of repeating this at least once, maybe at least twice, is you have to ask the question. 


How are you getting paid? Where are you getting paid? And show me. If you don't know where the money goes, then the chances are... there's the old expression, if you sit down at a poker table and you can't spot the fish. Then you are the fish.  


No one is saying that your PBMs partner can't make money. No one is saying that pharma can't make money. What happens in the industry today is about moving money around in surreptitious ways, and I promise you, if you're a plan sponsor listening to this, when money moves around in a hidden way, you are not benefiting. You are the fish. These Maximizer programs, if you believe you should have one and your PBM offers one, ask them the questions about how it's administered, how they get paid, ask for documentation, and ask yourself the question, does the PBM make more money? 


By a drug being dispensed that is different than the lowest net cost product, clinical, all to the side, no one would ever talk about, at least I hope not, talking about a patient being held away from life saving, life sustaining treatment that they need. These conversations are really focused on the example we talked about where you got five products that treat a particular condition and they all are equally efficacious or the recommendation is to move to a more efficacious one that is less expensive. 


Win, win. But as Stacey, as you very correctly surmised, it ain't simple.  


[00:25:28] Stacey Richter: Well, you know, I think you said something that was, well, you said a number of things that were very impactful. But the one thing that I do want to comment on is. It doesn't matter how efficacious the drug is, just take all that off the table. 


The relevant question is, is the PBM incented? Like does the PBM or the Maximizer, whoever's administering that Maximizer, do they make more money when the drug is the most expensive or when the drug is more expensive? Period. If the entity which is administering the pharmacy benefit is making more money by the more expensive drugs, at the end of the day, they're going to be working against the patient and the plan's best interest in ways that you're constantly going to have to police. 


So just don't do it.  


[00:26:12] Joey Dizenhouse: Yeah, I would, I would encourage you to look for an alternative. There we go. You can't win on that model.  


[00:26:17] Stacey Richter: So, all right, let's move into kind of a third goings on here, which I'm not exactly sure I would call it a maximizer.  


The 'It's Not Covered' Approach to Pharmacy Benefits

[00:26:26] Stacey Richter: I guess I probably wouldn't. I'm going to call it the, maybe it's an alternative payment approach or what I usually call it is in air quotes, the it's not covered approach. 


Do you want to talk about that?  


[00:26:39] Joey Dizenhouse: Sure. Yeah. It's difficult to think of how to name this other type of function. So sometimes we refer to these as foundation programs because that's usually what is underlying the money. Also sometimes known as free drug programs, which I suppose could be a bit misleading in and of itself. 


The Impact of Foundation Programs on Drug Pricing

[00:26:56] Joey Dizenhouse: But this other type of model that really isn't a maximizer, so we've moved on from there, is where the manufacturer has programs that are available for patients that generally don't have insurance. Typically, there's an income requirement, usually household income. So the patient's household income has to be less than, let's say, four times the federal poverty line, which is not a small amount of money, but not everyone would qualify for it. 


And if the patient doesn't have coverage from an insurance plan, or to the extent they don't have coverage from an insurance plan, and they meet the requirements such as their household income, they will receive the drug for free. This is typically how it works. The manufacturer has a relationship with a third party that's generally referred to as a HUB program and that hub program will offer the money to the patients by way of a number of different mechanisms and a specialty pharmacy. 


Because usually these are specialty drugs we're talking about here, a specialty pharmacy that they work with to dispense the product. It basically pulls the PBM out completely. So the patient doesn't get the drug from the specialty pharmacy of the PBM, like in the typical case. It comes from a separate channel. 


Working direct with the manufacturer and the drug is free. Now, the third party that administers this service is typically paid on a spread model, to use my earlier terminology, where they're getting a piece of the action, so to speak. So similar sorts of issues to talk about and think about. But in this case, the plan saves whatever the cost of the drug was minus what they had to pay the third party to get it. 


The patient saves whatever their out of pocket was going to be. The manufacturer gets nothing for the drug, but they do get goodwill, they do get tax deductions, and there are some other more complicated benefits that come from this related to separately reimbursable drugs. So you have this somewhat of a win-win-win or at least a win-win plan and patient. Maybe pharma will argue is under the right circumstances okay with the program. And then the PBM, the PBM would be the loser in this. Unless they're the ones administering this separate program and earning back a bunch of money for it. So the difference, the fundamental difference here is that the foundation, if you will, is paying because the patient is not covered for the drug and qualifies for the special program by way of their, mostly it's determined based on income. 


[00:29:25] Stacey Richter: So I was actually talking to Kollet Koulianos about these programs and she made some points, that I think bear mentioning, recapping what you just said and throwing in a couple of other things into the mix here. Pharma typically has patient assistance programs, these PAP programs, you know, the foundation programs to help those who are uninsured or underinsured, make sure that they get needed medications. So, what's happening is if a plan doesn't have the drug on formulary at all, these drugs are not on formulary, then all of a sudden the patient doesn't have access to that drug and they may qualify if their income is below a certain level for this patient assistance program, which the pharma is a hundred percent supporting there, right? 


Like talk about them paying copay maximizers or whatever, like this is pharma actually paying the total cost of the drug and maybe they get some benefits on the back end or whatnot, as you just alluded to, but like they're paying for 100% of the drug. You have these administrative companies who are coming in and they're in a way like they're making the spread. 


Because they are charging 30 percent of the drug cost, or whatever, to the plan sponsor for administering this program. So if the patient just went directly to the PAP program, then the plan sponsor would be paying nothing here. But because you have this third party administrator, which is, again, making more money the more expensive the drug is, so, you know, they may fail your test right out of the gate here. 


But they're taking what could be a large percentage of the savings and the plan sponsor might be thinking, Oh, well, I only pay 30 percent of the cost of the drug instead of whatever. But at the end of the day, like that's kind of the dynamic there. The interesting thing, if you think about this from a patient standpoint, is that first of all, these programs, they take a while to administer and the administrator has to get a power of attorney from the patient. 


And the patient has to send all this financial information over to that third party entity. You know, in order to get your drug, you got to give a power of attorney to this third party entity as well as all your financial documentation and your social security number and all this stuff, right? So like now, that could be a concern. 


And secondly, there's a health equity implication here, because the CEO of the company is actually not eligible for the PAP program. So the CEO of the company goes in to go get the drug. Oh, you're not eligible for this alternative funding program, right? So like, I guess we'll cover the drug. And the CEO of the company can just go get the drug. 


But if you're working in the warehouse, now you qualify for the PAP and you got to go through this whole other process and give the power of attorney and all your blah, blah, blah, blah, blah, in order to qualify for the drug. So like if you start digging in here, there's some patient concerns. What's your reaction? 


[00:32:23] Joey Dizenhouse: Well, you've pointed out a number of the inherent challenges of these types of programs. And no matter what, I would start by saying that my bias is that the right kind of program has been properly narrowed because if the administrator of the program is making a bunch of money, then the scope of the program is going to be way too big. 


It's going to apply to way too many drugs. And I suppose one could make the argument that there are some situations where there really is no other choice. So let me give you an example, a plan sponsor that has a thousand covered lives or belly buttons in their program. So they're spending probably about a million dollars, a $1.5m per year on pharma. 


They have a patient who emerges, who newly requires a drug that costs a hundred thousand dollars a month. This is not that outrageous or that impossible to find. I don't see it every day. I see it every other week, let's say. And so that literally that one patient is going to bury the plan sponsor. 


They may have to close their doors, stop, cease to exist as a business, change their health plan altogether. Versus if they can get that patient that single patient eligible for assistance after a short waiting period, they document that they don't cover the drug so that the manufacturer money is available through the hub. 


And then while the patient is waiting to be approved, they'll let a couple of claims in so the patient doesn't go without the drug, which so at least, at least there's that. But if they were to just stomach it and pay for it, then that plan sponsor could be out of business. That's an example where, you know, I think these types of programs being available serve a purpose. One that again, if the administrator is not making a bunch of money, like 30 percent of the drug costs in your example, which would still be hundreds of thousands of dollars a year. If they're not making that kind of money, then maybe that is a worthwhile place for a program like this to be. But there's all sorts of issues, not the least of which is there's an active lawsuit between at least one manufacturer and at least one provider in this space. 


And, you know, number two, you touched on the discrimination issue. Forget the moral applications, which I agree with what you were imputing in your example. I would submit that these types of programs have issues related to nondiscrimination in ERISA plans because of the exact reason you described. 


People who make more than a certain amount of money won't be eligible for the assistance, which means they're more likely to be getting the drug through the plan. People who make less money will be more likely not to get the drug through the plan. To me, that's textbook. So there's issues. But if it is a necessity to help the plan stay in the black to exist as a company, that's a question that needs to be grappled with if it's for some other drugs that are. 


Nice to have so that the plan can save a bunch more money and or that as administrator can make a bunch more money. I think it's a different question. But plan sponsors will each make their own determinations. Over time I've continued to notice that the uptake of these types of programs has not grown as quickly as some believe they would, which tells me that people are grappling with these issues and trying to avoid getting too far into them. 


But again, If you feel like you need to be finding ways to create value for the plan as a fiduciary or running out of money, if you will, then it could be an option for you. But one more thing to be mindful of, very similar to the theme that we've been talking about today, is just because It's a free drug program, doesn't mean that it's cheaper for you as the plan sponsor. 


[00:36:00] Stacey Richter: This seems logically, how does a free drug plan cost money? All right, lets, let's do this thing, Joey.  


[00:36:05] Joey Dizenhouse: Right, right. I'm going to give you real examples, but protect names and such. We have a drug that costs. 10,000 a month and the current rebate is 75%. So the rebate being paid from pharma to the PBM is $7500. 


Further we're going to assume that the PBM is not keeping any of that money because it is a full transparent pass through model. So the entire $7500 goes to the plan sponsor. Furthermore, that same drug has a coupon, copay assistance. That is another $1500 a year, just to keep the numbers round. So $7500 in rebates, $1500 in assistance. 


If all of that gets used by the patient and the plan, that's $9000, leaving you with a net cost of $1000 for a drug that started at $10,000.  


[00:37:01] Stacey Richter: Okay, let me just recap what you just said there, make sure I'm picking up what you're putting down. You've got this, what appears on the surface to be a very expensive drug, $10,000 a month. 


But by the time you calculate the back end rebate, the $7500 back end rebate, but then, you know, what I could probably call a front end rebate in a way. The money that's going to the patient and or the plan, depending if there's a maximizer, the drug actually winds up costing somebody, the plan and the patient together maybe $1000 a month. 


[00:37:35] Joey Dizenhouse: And so now if alternatively, the plan hires the third party foundation assistance group that goes out and gets the patient approved for the foundation money, the drug becomes free. The patient gets the drug for free. But the plan has to pay 30 percent of the cost of the drug to get it. So now it costs the plan $3000 in my example to use that foundation provider versus it would have cost the total plan and patient $1000 if they had stayed inside the traditional insurance product that they were using with the PBM and the full pass through that was available.  


[00:38:14] Stacey Richter: Wow, that makes a ton of sense. And this is if the patient just went directly to the pharma PAP program, then your example would not be the case because then the drug would be paid for a hundred percent. 


But when you start getting these. You know, these are not non-profits, they are for profit entities. When you start getting for profit entities in the mix there, in the middle, and they have an incentive to go with the highest cost drug or whatever, and they're taking a cut, then you wind up with weird situations like this, where the free drug is actually more expensive. 


[00:38:45] Joey Dizenhouse: That's right. And it all ties back to where are the incentives and how is that third party making money to misalign what their interests are from what the plans and maybe even the patient's interests are. And that's the key.  


[00:38:59] Stacey Richter: Yeah. Okay.  


Conclusion and Final Thoughts

[00:39:00] Stacey Richter: And if we're thinking about some advice here, and we have gone through a number of different things, but what this is all kind of summing up to, in my head at least, is exactly what you stated outright. 


That what is super important here is to ensure that the plan sponsor is applying purchasing discipline to all this stuff. It's caveat emptor in the biggest possible way. Look at these contracts, be mindful of like how exactly the incentives are working for any entity that you're hiring. Use vendors that you can trust, which have aligned incentives. 


All of this stuff is incredibly complicated, number one. But number two, it is like squeezing the balloon game for sure. So if you're not working with vendors that you can trust, you're going to react in order to close some loophole. And guess what? Just given the where there's mystery, there's margin truism, they're just going to find some other way to make money if their financial interest and the plans are not aligned. 


[00:40:06] Joey Dizenhouse: Yeah, that's well said. And we're not saying that they can't make money. We're saying how much money they should make should be a known quantity, not subject to manipulation, right? The exorbitant margins that exist today in the business that you see in all of the quarterly reports and earnings releases from all of the mega institutions. 


But it presents just real existential threats to the broader healthcare system, which I think people are starting to recognize. There is a limit to how long this can go on. One thing that I hear a lot is that individuals, individual plan sponsors, individual advisors, individual trusts will, you know, we'll say, yeah, we definitely have a problem. 


There's real problems in this industry with needs for transparency and alignment of incentives and all that stuff. But I don't have that problem. I fixed it with my own plan. So sort of like if 100 percent of new babies born are better looking than the average baby, if you survey, if you survey the moms, right, or the dads. 


So this is, we just need to open our eyes to this and recognize that the problem is bigger than everyone else. It affects me too, most likely. And I think that's the last step to getting a real groundswell in addressing some of what's going on. A lot of what you talk about on your show regularly and these maximizers foundation programs, they're a part of it, but they're really just one part of a broader ecosystem that includes plan design issues, clinical protocol issues, formulary issues, network issues and much more. So more fodder for podcasts for Stacey Richter.  


[00:41:47] Stacey Richter: Yeah, I'm looking forward to getting put out of business here. But yeah, okay. So our three things are purchasing discipline. It is required because caveat emptor, buyer beware is certainly a thing. Number two, recognize that yeah, you're not above it, right? 


Like everything that we're talking about here. If you are a plan sponsor in the healthcare benefits realm, this is affecting you, even if you've worked really hard to have it not affect you, it still is because tomorrow is another day and you know, new ways are constantly evolving. And when I say new ways, I mean new ways to take your money. 


And then the third thing that I could not stress enough is to really understand what the impact is on the patients of your plan, right? Like ultimately at the end of the day, there's a small C contract with employees that all employers have and that small C contract is to ensure if you're providing their health benefits that they are in fact able to access healthcare that is necessary. 


Something that I think may be with especially some of these Maximizer programs that should certainly be looked into and part of the decision making matrix or the decision making framework is actually on the ground what is happening with patients who may or may not be getting needed drugs. In a timely fashion, that would be my list. 


[00:43:11] Joey Dizenhouse: That's a good list.  


[00:43:12] Stacey Richter: Thank you. I appreciate how you have helped me to create it, my friend. Joey Dizenhouse, is there anywhere that you would recommend people go to learn more about the work that you're doing in your companies?  


[00:43:25] Joey Dizenhouse: Sure. Our website is www.slate-rx.com. Slate like a clean slate, contact information is there and happy to engage with anyone interested in these sorts of topics. 


[00:43:40] Stacey Richter: Slate-rx.com. Joey Dizenhouse, thank you so much for being on Relentless Health Value today.  


[00:43:47] Joey Dizenhouse: It's my pleasure, Stacey. Thank you for having me.  


[00:43:49] Stacey Richter: Hey, could I ask you to do me a favor? If you are part of the relentless tribe working hard to transform healthcare in this country, I don't need to tell you that we need as many on our side as we can get. 


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