EP435:  Optimized Pharmacy Benefits Are Required if You Want to Do or Buy Value-Based Care with Dan Mendelson

You can listen to the episode here.


[00:00:00] Stacey Richter: Episode 435, "Optimized Pharmacy Benefits Are Required if You Want to Do or Buy Value-Based Care". Today, I speak with Dan Mendelson. 

[00:00:20] Dan Mendelson: American Healthcare Entrepreneurs and Executives You Want to Know Talking. Relentlessly Seeking Value. 

The Intersection of Pharmacy Benefits and Value-Based Care

[00:00:28] Stacey Richter: This conversation I am having with Dan Mendelson, my guest today, all started with a post that he had written on LinkedIn considering how pharmacy benefits can or should be optimized within the broader context of value-based care. 

Total cost of care, value-based medical care, and pharmacy benefits. These worlds have to collide. 

There is just so much intertwined into all of this, which is why I pretty much immediately invited him to come back on the pod to discuss in greater detail.

The Critical Role of Pharmacy in Healthcare Outcomes

[00:00:57] Stacey Richter: A few years ago, I heard a doctor say that practicing medicine without considering pharmacy is like getting to the 90 yard line, putting down the ball, and walking off the field.

And yeah, when a patient gets to a certain point in a whole lot of disease progressions, optimal medical therapy includes pharmacy. It's a thing. Adherence is a thing. In fact, I saw a stat the other day that patients not taking their meds cost an estimated $3,874 PEPY per employee per year. Also half of all hospital admits are caused by nonadherence.

Those two stats, by the way, are from a post on LinkedIn by Brian Bellware, who was recapping a video from Dr. Eric Bricker. Link in the show notes. But also, as Barbara Wachsman said on the show, half, I think she said, of all ER visits are due to patients not taking their meds right. Olivia Webb was on the pod, if you want to go back and listen to that one, talking about how she spends hours every month trying to figure out how to navigate access issues to manage to get her Crohn's disease drug.

So yeah, one underlying reason why a lot of this stuff happens is that pharmacy benefits are purchased and siloed a lot of times. In fact, I have yet to see, really, any mainstream contract wherein a PBM is held accountable in any way for downstream medical costs, which may be incurred because of suboptimal pharmacy benefit design, right? And there are so many examples of bad downstream medical impacts. 

I really like how Dr. Mark Fendrick put it in episode 308. He said benefits, including pharmacy benefits, are like peanut butter and jelly relative to enabling high quality care. You gotta have both working in concert, like CMS or a plant sponsor just paid a ton of money to get a patient an organ transplant, and then the patient can't afford their transplant meds, which aren't on formulary and are really expensive, and therefore there's organ rejection.

This happens. Or a patient with uncontrolled diabetes with a huge co pay for insulin, doctor says, hey, you gotta take your insulin. Patient says, can't afford it, right? Like this makes no sense, and it's shockingly common. I'm thinking right now of that young man who died in the Midwest because he could not get his asthma inhaler. It wasn't on formulary.

Exploring Pharmacy Benefits Optimization With Dan Mendelson

[00:03:16] Stacey Richter: So here's the game plan. I talk with Dan about the five kind of vital considerations he had brought up in that aforementioned LinkedIn post when considering how pharmacy benefits can or should be optimized within the broader context of value-based care. Dan's advice for the pharma industry are woven in here as much as his advice for EBC's employee benefit consultants and employers.

Morgan Health's Mission and Healthcare Innovation

[00:03:40] Stacey Richter: I am sure that most of our listeners are going to be very familiar with Dan Mendelson, my guest today, and his work, but the quick background here is that he runs Morgan Health. The mission over there at Morgan Health is to drive innovation in employer sponsored healthcare, and they do that by investing and working with their portfolio companies in the context of the 300,000 or so employees over at JPMorgan Chase.

At the same time, Morgan Health also engages in policy discussions because, as Dan says, no one employer is going to control public policy. As a footnote here, I just will say that I actively seek out opportunities to listen to Dan Mendelson's thoughts. He has spoken a lot and really eloquently and with great insight about setting up the economic models for healthcare, not sick care.

Recently, actually, he was on a panel at the Milken conference. Along with Natalie Davis, Dr. Yele Aluko, and Dr. Henry Ting, there are definitely insights to be gleaned. I will link to that panel discussion in the show notes. My name is Stacey Richter. This podcast is sponsored by Aventria Health Group. 

The Conversation With Dan Mendelson: Deep Dive into Pharmacy Benefits

[00:04:47] Stacey Richter: Dan Mendelson, welcome to Relentless Health Value.

[00:04:49] Dan Mendelson: Great to be here, Stacey. 

[00:04:50] Stacey Richter: The conversation that I would really like to have today is connecting the dots between value-based medical care and then the buying of pharmacy benefits. 

What are your thoughts maybe on how these worlds collide, the pharmacy world and then the medical side? 

[00:05:06] Dan Mendelson: Well, look, value-based care is fundamental to everything that we are doing here at Morgan Health.
We believe our employees and their dependents need to get high quality and affordable care.

It really starts with having a clinical team that will help guide you and having a tool set so that you can be guided in a way that makes sense.

Pharmacy has to do the same thing. I mean, it has to be accessible to employees. It has to be managed by a clinical team and it has to be integrated into the overall context of their care. 

[00:05:42] Stacey Richter: When you say managed by a clinical team, so you mean that the formulary development needs to be managed by a clinical team? Is that your point there? 

[00:05:51] Dan Mendelson: It's not just the formulary, so when you are prescribed a medicine, we want that medicine to be the appropriate and rational medicine in the context of your condition. And we want it to be prescribed in as cost effective way as possible. 

So that becomes a target, you know, if you think about value-based care, if you're improving the affordability of care, you're improving the value.

Strategies for Optimizing Pharmacy Benefits in Value-Based Care

[00:06:13] Stacey Richter: You had written a post the other day on LinkedIn, which I thought was super interesting because it hits this middle ground that I think isn't explored a lot. It's this middle ground between how does medical care improve if pharmacy benefits are done well? Which sounds obvious on the face of it, just to say, but it really, we don't talk about it a lot.

[00:06:34] Dan Mendelson: I'd say one of the biggest problems that we have is that for most employers, the pharmacy benefit is really divorced from the medical benefit. They are two separate things, and they're really not being considered or managed together. 

[00:06:49] Stacey Richter: Yeah. And in their defense, the whole way that even data is collected, just the framework, the buying, the everything is, is so completely separate. You have the incentives. Like if you've got a pharmacy vendor who's thinking to themselves, well, my job here is to reduce pharmacy spend. Then they're going to do reducing pharmacy spend kind of things, even if those same things increase medical spending.

[00:07:16] Dan Mendelson: That system is increasingly difficult to swallow. Look, you do have systems, and again, I go back to Kaiser as my example of a highly managed system where pharmacy and medical are truly integrated. But you do have systems where things are integrated and when you look at those systems, when you analyze those systems, you see better generic utilization, you see more drugs being prescribed in general and more affordable drugs being prescribed.

We think about where things need to go for an employer and the work that we're doing right now in Columbus, Ohio with APRI, we have primary care clinics in the worksite. And the drug spend needs to be integrated. 

[00:07:58] Stacey Richter: You had written there are five points any plan sponsor might want to consider if they're interested in making pharmacy benefit decisions that are wise from both the plan standpoint, but then also a win-win with members that actually enable members to get, you know, the best possible health that they can and also align with value-based goings on elsewhere.

So I really want to go through these five points because I think they sum up a lot of wisdom. The first one that you offered was to have some kind of value-based component in the decision making process. One of the things that I would just say is that you can't do whole person health if we're making it really hard for someone to get a drug that they need or stay adherent to a drug that they need.

So your first point was to have some kind of value-based component in the decision making process. How do you think about that? 

[00:08:50] Dan Mendelson: Well, the most important starting point is when the physician prescribes a medication to the patient.

If she starts with a cost effective generic medication, we will get a more cost effective solution. If she decides to go immediately to the most expensive brand of medication, you will never go back. And then I'd say also kind of a second point here is that physicians often prescribe ignorant of the formulary that the patient faces and the prescribing has to be done in consultation with the formulary that the patient faces.

[00:09:25] Stacey Richter: All right. So many questions, so little time. I know that every doctor listening right now, so I'm just going to hit the last one first, is like, I don't even know what insurance my patient has. And even if I did with all the carve outs, right? So like, oh, they have Blue Cross Blue Shield. Fantastic. Except there's some employer carve out that affects the formulary.

So how do I even know what this formulary is? How do you enable the information that's necessary at the point of care to be able to do something like that? 

[00:09:55] Dan Mendelson: This is one of the many reasons why a tightly managed environment can be better for the patient financially because the physician actually does know their way around the formulary.

I think that particularly when it comes to very expensive medications it is incumbent on the physician to understand the financial situation that the patient faces. And by the way, it's also associated with adherence. So if you prescribe a drug that is way expensive for the patient, they are much less likely to fill it and to keep taking it. 

[00:10:29] Stacey Richter: When you say a tightly managed environment, what does that mean?

[00:10:32] Dan Mendelson: It means Kaiser, you know, or something similar to Kaiser. There are really interesting startup companies. One of them is a company that we invested in, Centivo, that offers a tightly managed product for employed populations in places where Kaiser doesn't operate.

It's a managed network. So it's a narrow network product, and it's a formulary that is calibrated to cost effectiveness. 

[00:10:56] Stacey Richter: We had Ashok Subramanian, who's the CEO of Centivo on the show a couple of years ago. So the point that you're making is to have an entity wherein patients are navigated to high value providers who have proven their adeptness at delivering patient care that's both affordable as well as high quality.

The Future of Pharmacy Benefits and Employer Concerns

[00:11:19] Dan Mendelson: Yes, and I'll make the additional point that many payviders just haven't gotten to pharmacy yet. They need to, because it's 25 percent of the expense for the employer. And so when you think about managing cost effectiveness, they have to be dipping into that. And look, we're also looking at a world where increasingly the cost of medications are going up.

The pipeline is unbelievable. I mean, think about the, the GLP-1s are incredible technology. They also come at an incredible cost. I mean, we're looking at data that shows that some employers are spending up to 2 percent of their pharmacy benefit right now on GLP-1s alone. That's not tenable in the long term.

You think about cell and gene therapy, therapies for sickle cell and other genetic diseases. Those therapies are going to come to market with price tags between two and a half and 5 million dollars per application. And employers are going to have to figure out how to deal with that. And so when you think about what payviders are offering right now to the market, they have to be thinking about how to integrate the pharmacy benefit into the medical benefit.

[00:12:26] Stacey Richter: And when you say how to integrate it into the medical benefit, do you mean they have to be contemplating how they're going to be doing total cost of care stuff? 

[00:12:34] Dan Mendelson: Yeah, exactly. We need to be in a world where the employer can contract on the basis of total cost of care. 

Advice for Pharma Companies in a Value-Based Healthcare System

[00:12:40] Stacey Richter: If I'm a pharma company that's listening to this right now, there's pharma companies that have these pipelines.

I'm hearing you say that now we're going to have provider groups taking on total cost of care and really contemplating and having to think through what the impact is of some of these drugs that are prescribed. What's your advice to a pharma company? 

[00:13:00] Dan Mendelson: Well, look, what I would say is first, keep innovating because the benefits of pharmaceutical science are really driving what is improving medicine today.

And I wouldn't want anything that I'm going to say to be mischaracterized as against innovation. With that said, I think that the cost of new medications coming to market is incompatible with our current insurance system for a couple of reasons. First, it's just the quantity of innovation that's coming down the pike.

I don't think we'll be affordable at current prices to employers. And we have to be thinking about how to accommodate the costs into the system. I'd say also that there is a very strong interest going forward in figuring out how to share risk across multiple employers. We have to figure out ways to share the risk of these expensive medications across larger pools of employers. Otherwise, the employer based system will not work. 

[00:13:57] Stacey Richter: if I'm thinking about this relative to a pharma company, again, that's listening here, because, you know, like, pharma prices that are charged is kind of the elephant in the room. Like, we would not even be having this entire conversation if that wasn't on the table as a factor here. 

[00:14:14] Dan Mendelson: Pharmaceutical companies need to be prepared to contract on the basis of value. We haven't seen a lot of that in the market today. We've seen a lot of discussion of it, but if a new cellular therapy comes out. And it costs 5 million dollars. The employer is also going to want to make sure that it doesn't have to be repeated two years later.

[00:14:32] Stacey Richter: But, like, you don't see very many pharma companies doing very deeply collaborative kinds of things. 

[00:14:40] Dan Mendelson: You know, part of it is being ready to contract on the basis of value. Part of it is keeping up with what's going on in the delivery system. To date, I think that we've seen a lot of really excellent medical science come out. It's been released. It is paid for on the basis of how often it's used. It is not paid for on the basis of whether it works and what the value is ultimately to the patient.

[00:15:06] Stacey Richter: And I think therein might lie one of the rubs. Just it's really hard to be accountable for anything if there's no way to clinically measure what's happening.

Like if a health system, nobody can even measure the output of the care that's being delivered. Rik Renard was like 16 percent of care flows have any sort of evidence basis. If you're a pharma company and you're trying to prove the value of your drug or try to prove the performance of your drug, like, that could be a deal breaker.

[00:15:32] Dan Mendelson: Yeah, I think that's right. I think also, though, for example, in the GLP-1 class, Many of the drugs that are coming to market are essentially forever drugs. You will be on them forever once you start them. And that's the way that they're being marketed. There is one product, I believe it is an Amgen product, where there is a theory that you would be able to take that GLP-1 for a couple of years, it would change the signaling in your body, and then you would be able to go off the drug.

Employers are very interested in that kind of drug. The idea of starting on a therapy and having to pay for it forever is not as attractive as being able to cure the patient. 

Innovative Approaches to Managing Pharmacy Benefits

[00:16:13] Stacey Richter: So we've had a very robust conversation I think around the first point that you're making and obviously this is a topic that we probably could have a college curriculum on which is, have some kind of value-based component in the decision making process for pharmacy.

You have to do that. Otherwise, you're going to wind up squeezing the balloon. You're going to have higher medical costs. 

[00:16:35] Dan Mendelson: Right. And conversely, drug development needs to contemplate value. So, when you think about which drug is going to be successful in the market, choose the one that will bring value to the patient.

[00:16:46] Stacey Richter: And the conversation with Nina Lathia from several weeks ago, we did dig into this also. So if someone's looking for more information about this, please go back and listen to that. 

Engaging Patients in Pharmacy Benefit Decisions

[00:16:56] Stacey Richter: The second thing that you talked about was making sure that we're engaging the patient in this whole mix. What was your thinking when you listed that one?

[00:17:05] Dan Mendelson: Well, look, what immediately comes to mind is Don Berwick's statement, "Nothing about me without me". Prescribing has to be done in consultation with the patient. And for physicians who are working and living in a value-based environment, ultimately their success is improving the health of populations.

It's really making sure that it's done in a way that is cost effective for the patient and ultimately improves their health outcomes. 

[00:17:31] Stacey Richter: Nothing about me without me. Don Berwick. Don Berwick. Yeah. Gotta love him. Dr. Kenny Cole on the show a couple of weeks ago was talking about just the first step is this engagement and trust.

Some of the work that you're doing with advanced primary care, this is actually part of the whole gig. But I would strongly suggest that probably the ability to pull it off is limited across the industry. The engagement piece is something self insured employers, plan sponsors really struggle with, number one.

But so do health systems, for the most part. I agree. I agree with what you just said.


Experimental Drug Tiers and Formulary Design

[00:18:06] Stacey Richter: If we're thinking about the third thing, possibly designating a new pharmacy tier as experimental, that would have a much higher copay if there's inadequate evidence. And you had said let the market work. 

[00:18:19] Dan Mendelson: Yeah, this is another thing that employers struggle with.

There are drugs coming to market with very limited studies. It's a good thing that these drugs come to market, but the evidence could be limited. Or, such as in the case of the GLP-1s, we have no idea what happens after five years, but yet there is the expectation that patients are going to stay on those drugs for longer than five years.

There are drugs coming to market that you want them to be on the market, but you also want to, you want to be studying them. So, the idea of approving a drug with the proviso that it needs to be studied more extensively I think is ultimately in the patient's interest and it isn't a bad thing to designate that with respect to the formulary so that the signal can be clear to the patient.

When the drug meets the market, it should be so designated for the patient and for the clinician so that everybody has transparency about how that drug should be introduced. 

[00:19:15] Stacey Richter: And that is a nice follow on to Nothing About Me Without Me. Patients are in, a lot of times, a pickle, or the patient's parent.

They are struggling, they are facing some really, really difficult news, and then this drug is introduced, which potentially could help. Like a lot of times, you're going to do anything to try to figure out how to get that drug. 

[00:19:37] Dan Mendelson: One of the other issues here is the kinds of static formularies that we have right now where you know, you have generic, you have brand preferred, you have brand nonpreferred and specialty do not give the kind of information and granularity that patients need to navigate.

The other issue is we might want to be thinking about how the tiering is giving incentives to the patient and to the clinician to produce the optimal outcome. One of the things that we do in the JPMorgan Chase formulary is that preventive drugs are free and that's kind of a way that we operate here and if the drug is going to prevent illness, they are free.

So think about that as kind of an element of a formulary that ultimately could be used to bridge the gap between the pharmacy benefit and the medical side. 

[00:20:29] Stacey Richter: That's a really great example of an understanding that there is actually some ROI here, or whatever term you want to use. 

[00:20:36] Dan Mendelson: Right. And by the way, that includes insulin.

The idea of putting a big hefty copay on insulin is crazy. I mean, Type 1 diabetics need insulin to live. Under what theory would you put a copay on insulin? 

[00:20:51] Stacey Richter: That is probably the most perfect example, or even Type 2. Like, you know, like, you have a patient who is prescribed insulin. Like, how could, how can you abuse insulin?

The same thing with, like, asthma. 

[00:21:04] Dan Mendelson: Yeah, it takes you back to the theory of why do you have cost sharing? You have cost sharing to deter utilization. If you put cost share on insulin for a type 1 diabetic, they could die. And so it doesn't make a lot of sense to have that coping. If what you're trying to do is finance the benefit, do it in a way that does not incent poor medical behavior. 

[00:21:25] Stacey Richter: Well, you bring up an amazing point there that it's to deter inappropriate utilization. This is where initial intent meets the real world. And what started to happen is plan sponsors have started to try to save money. In the shortest term way possible, and if you fundamentally don't understand that, then just cost containing, across the board, and just preventing anybody from getting anything, that seems like an amazing way to save money.

The Importance of Value-Based Contracting for Pharma

[00:21:50] Stacey Richter: But yeah, it goes back to what you were talking about before, that if pharmaceutical purchasing occurs in a value-based way, it should improve outcomes and optimize or reduce total cost of care. 

[00:22:00] Dan Mendelson: Right, and the purpose of copays is to incent patient behavior. So back to this question of how do you engage the patient, a lot of it is through financial incentives.

My issue is that a lot of the financial incentives that are layered into formularies today are the wrong incentives. They are not incenting good behavior on the part of the patient and we have to look really carefully at that. 

[00:22:23] Stacey Richter: As they say, the most expensive drug is the drug sitting in a bottle that no one's actually taking.

If a drug is paid for, they have an obligation in a way to take the drug well. So there is certainly a level of patient education and patient engagement and trust. 

[00:22:38] Dan Mendelson: With the evolution of health information technology, we will have better ways for patients and physicians to communicate about what's in the formulary and what is the best way to navigate.

And so, you know, in a world where you didn't have a smartphone, you wouldn't be able to pull up your formulary. But now, you can, and that conversation is going to be had. 

[00:23:01] Stacey Richter: The second thing you said was making sure that we have patient engagement, and then the third thing was having this experimental tier.

It seems like you can't have one without the other, right? Because if you have this experimental tier, part of making sure that plan members are satisfied and know what's going on there and appreciate it, for the innovation that it kind of is, you have to have the communication. 

[00:23:20] Dan Mendelson: It's tiering that reflects the incentive that we want the patient to have around the drug.

We also want to give pharmaceutical companies strong incentive to bring information into the public domain that will enable both employers, clinicians, and patients to make good decisions. So, that's kind of the thinking here. Right now, if you think about what the FDA requires for registration, it's a limited subset.

And there's information that I want as an employer on how the drugs actually work in populations and subpopulations that is not required by the FDA. So, increasing the evidence requirements I think is really good for everybody. It's good for the pharmaceutical companies too because it helps to set a standard for what kind of information is necessary.

[00:24:09] Stacey Richter: Yeah, and you had mentioned that in Europe, they have cost effectiveness evaluations on different cohorts of subpopulations. And one of the things that has been suggested by you and others is to do that in the United States too. But this is going to be a culture clash within pharma companies who maybe in some cases are a little bit less concerned with ensuring that the patient is appropriate.

And I think the point that you're making is If we all want to work together on this, then making sure that the right drug is used in the right patient is going to be really important. And ultimately, it's to pharma's advantage to be a part of that moving forward. Because if the drug is prescribed to a patient and it doesn't work, somebody's going to be noticing that, oh, this drug doesn't work.

[00:24:53] Dan Mendelson: That's right. We are living in the information age. Employers see which drugs work and which ones don't. I would say also, increasing the flow of information to employers is in the pharmaceutical company's best interest. Because it's the way we want to contract. Ultimately, we want to contract on the basis of value.

When you think about the 25 percent of our spend that is on drugs, we want to contract for that the same way that we want to contract for medical care and we want to integrate it. And so that's kind of the, what will be facilitated. But look, I think that there's a reluctance to change the bringing more evidence to the market.

It doesn't change registration or the commercial launch in any way. It just gives the consumer more information about how the drug works in the real world. 

[00:25:39] Stacey Richter: So let me bring up the fourth thing that you said, which is using more than just ICER to tabulate value. And I think you're inching toward that point right now.

[00:25:47] Dan Mendelson: Yeah, ICER has been critically important for helping the American health system understand the importance of the evaluation of drugs and the importance of bringing that evaluation forward by a neutral third party. I think they've done an amazing job. Steve and Sarah and others have really pioneered this.

[00:26:07] Stacey Richter: And we're talking about Steve Pearson, who founded ICER, and Sarah Emond, who's the current president. 

[00:26:13] Dan Mendelson: One of the problems is that we only have ICER, and there should be two or three similar organizations nationally that are evaluating the drugs, because you don't want to just have one group that bears the brunt of that evaluation.

And by the way, it's a difficult thing to do, you know, because there are always going to be financial interests that are looking at it. How things are being done and there will always be criticism. And so I think we need more ICERs in the market and we need more information coming in to enable good decision making on the part of employers.

[00:26:43] Stacey Richter: Do you think that most employers, you know, because the one thing that you often hear if you talk to somebody in pharma or you talk to many people across the industry is, well, maybe there's a vanguard of employers, but if you're talking about the vast majority of employers, they're not paying attention to this kind of thing.

So we should just get while the getting's good and just wait for the clamp down to happen because I don't see it coming. 

[00:27:08] Dan Mendelson: Most employers will appropriately delegate this responsibility to their health plan or to a PBM because they don't have the expertise. With that said, I think what's going to happen over the next five years as more of these incredibly powerful, And expensive drugs come to market is that we are going to face an affordability crisis that will bring employers into those decisions much more directly.

[00:27:34] Stacey Richter: So it's going to go slow until it goes real fast? Is that kind of what you're saying? 

[00:27:38] Dan Mendelson: Yeah. I mean, look, cell and gene therapy. It's coming. It's here. 

[00:27:41] Stacey Richter: The last point that you had talked about is to consider how far we really need to micromanage time horizons. 

[00:27:49] Dan Mendelson: I don't think it makes too much sense to worry about whether an employee is with you for two years, five years, or ten years.

I think that you don't know how long you're going to have the employee, and I see a lot of discussion around what is the appropriate time horizon for judging cost effectiveness. So my hope is that we can be thinking about cost effectiveness over a longer time horizon so that we can make better decisions on behalf of the system as opposed to becoming captive to, you know, where we are right now, which is kind of worrying about our own narrow interests.

[00:28:25] Stacey Richter: I want to tie this last point that you made back to something that you mentioned at the very top of this conversation, this whole idea of sharing across employers, because I just have a sense that probably this, how are we going to micromanage time horizons and the whole, we got to share costs across employers are probably related.

[00:28:45] Dan Mendelson: Pooling of risk is going to be really important. In the age of cell and gene therapy, and we have to figure out a way to pool risk. The idea that you have relatively small employers taking financial risk for the cost of their employees is not going to be tenable in a world where you want to be covering cell and gene therapy.

So, thinking about how to do that better is one of the areas of focus for us. Chase Bank's about half of the small businesses in the United States and we hear from them. We hear their concerns about healthcare and the ones that are looking around the bend are very worried about this idea and thinking about ways so that they can protect themselves and still offer a meaningful benefit to their employees.

[00:29:27] Stacey Richter: Well, let me give another definition of pulling risk, insurance. 

[00:29:32] Dan Mendelson: Right. Yeah. 

[00:29:34] Stacey Richter: So are we back where we started? 

[00:29:36] Dan Mendelson: Yeah, well, you know, look, I think that many employers appropriately are trying to keep their costs down. They go to self insurance because they reduce administrative costs. That makes sense. I think the question is, how can you pull risk without paying massive risk premiums to an insurance company?

[00:29:56] Stacey Richter: Is that a rhetorical question or if I asked you that same question, how do you pull risk without going to an insurance company? Would you have thoughts? 

[00:30:03] Dan Mendelson: I do have thoughts. 

[00:30:04] Stacey Richter: I figured you might. 

[00:30:04] Dan Mendelson: I think that, look, there's a reasonable risk premium that can be applied to cell and gene therapy. It's not 200 or 300%. And so, making sure that there is a way to do this in a way that makes sense is really in everybody's best interests. 

[00:30:22] Stacey Richter: What you're saying is we've got payer organizations who have consolidated, there are very few of them. So therefore we have the whole anticompetitive, whatever you want to call it, situation in the market today.

You're basically saying that maybe there's a different way for employers to solve their own problem themselves or in a different way than might be in the market traditionally. 

[00:30:48] Dan Mendelson: Yeah, we need more innovation in the provision of benefits that make sense for employers. And it will make sense for some employers to pay a risk premium, go with a traditional product.

That's fine. However, increasingly, we're going to see employers want more value-based products. What that will mean is narrower networks, better care navigation, better integration of pharmacy. Yeah. All of the things that Stacey, you have on your show and are highlighting. That's the world we are trying to engineer. And I think that when you think about drugs have to fit into that in a way that makes sense for the employer. 

Lightning Round: Advice for Various Healthcare Stakeholders

[00:31:24] Stacey Richter: So let's do a lightning round, Dan. Are you ready? 

[00:31:26] Dan Mendelson: Yep.

[00:31:26] Stacey Richter: I'm going to name a stakeholder and, you know, a party in the healthcare industry. And based on this whole conversation that we've just had, if you had to just give one piece of advice or just kind of like a summary, like this is what you need to be thinking about right now. Pharma companies.

[00:31:39] Dan Mendelson: Yeah. Yeah. Yeah. I think pharma companies need to understand that employers are increasingly going to be contracting on the basis of value for drugs. What that means is they need to be developing drugs in a way that makes sense for value. They need to be bringing more information on value into the healthcare system and they need to be thinking about how the locus of prescribing is changing in a value-based world.

[00:32:03] Stacey Richter: Hospital systems. 

[00:32:04] Dan Mendelson: The advice to hospitals is value-based contracting is coming. Cost control is important, and when you look at the value that is being delivered in a hospital, it's not just about the cost of the drug, it's about whether the patient outcome is actually being achieved in a cost effective way.

So, I would say hospitals are going to need more information from pharmaceutical companies about how these products work perform in their environment and how to increasingly deliver cost effective care to patients. That would probably be the way that I would frame it. 

[00:32:37] Stacey Richter: Yeah, and you know, here's the one thing that I would take away just from what you just said.

Hospitals better get better at being able to calculate their own effectiveness. Because I hear over and over again from physicians, most notably and most recently Alex Sommers and Jodilyn Owen, just that they're trying to figure out that they can't even do a survey.

They just can't get any data relative to like, how effective are, is this CareFlow? How effective is this department? 

[00:33:05] Dan Mendelson: The other thing I'll say about that clinical environment, I'll probably regret saying this, but the other thing I'll say about that clinical environment is markups on the basis of the cost of the drug make absolutely no sense.

Why should a cancer center get paid more for prescribing drug A over drug B if they do the same thing? It just makes no sense. That's the system that we live in today. So You know, in a value-based world, buy and bill does not make sense. 

[00:33:35] Stacey Richter: We could probably do a whole show on that. What's your advice to primary care doctors?

[00:33:39] Dan Mendelson: Primary care doctors who are practicing in the context of a value-based system are going to need to think about prescribing on the basis of value. Primary care doctors need to be consultative with patients in prescribing. 

[00:33:54] Stacey Richter: Got it. How about entrepreneurs and innovators? 

[00:33:56] Dan Mendelson: A lot of what we're talking about requires health system change and requires better information systems.

There's a huge amount of opportunity to innovate in all of these different areas. It's what we look for at Morgan Health. I would say that it's a lot of what investors are looking for to drive better value in healthcare. I think it's understandable. That many investors have not found good levers into the pharmacy space at this point, just because of the way the system is structured and because, look, when we started Morgan Health, we decided very consciously to go after the 75 percent of our costs that were medical as opposed to the 25 percent of our costs that were at the pharmacy, but now we're broadening things out and thinking about that cost center and starting to find ways to get in.

Closing Thoughts and Invitation to Engage Further

[00:34:47] Stacey Richter: Dan Mendelson, thank you so much for being on Relentless Health Value today. 

[00:34:51] Dan Mendelson: My pleasure. I really enjoyed the conversation. I enjoyed it this time. I enjoyed it last time. 

[00:34:56] Stacey Richter: So let's talk about going over to our website and typing your email address in the box to get the weekly email about the show that has come out.

Sometimes people don't do that because they have subscribed on iTunes or Spotify and or we're friends on LinkedIn. What you get in that email is a full and unredacted, unedited version of the whole introduction of the show transcribed. There's also show notes with timestamps, 

Thanks so much for listening.