Introduction
[00:00:00] Stacey Richter: Encore episode. "The Minefield That Is a PBM Contract and Also Some Advice for EBCs Employee Benefit Consultants Who Are Taking Money Under The Table". Today I speak with Paul Holmes.
[00:00:31] Stacey Richter: Today is an encore because I am going on vacation next week. It always feels a little bit like a time warp because by the time this show will air, I will be back from vacation. This show with Paul Holmes, was one of the most popular episodes of 2023 and definitely is just as relevant now a lot of the things that Paul talks about are worth repeating or listening to again.
Before we kick in, though, I'm going to repeat something that Ge Bai says a lot. There's no angels and there's no devils in the healthcare industry, but we are talking about for profit entities. And if there's one thing that's generally true about a for profit entity, especially one that is publicly traded, it's going to do whatever it can get away with.
To listen to the episode or read the show notes with links, visit the episode page.
It becomes up to the customer to set expectations and using the purchasing discipline that they probably use everywhere else in the business because it basically is good business to have purchasing discipline. Before we kick into the episode, just a couple of things.
Thing one, if you haven't, do subscribe to the weekly email that goes out describing the show. Here's just one reason to do so. It's really efficient because what is transcribed in that email is the whole beginning half, usually, of the introduction. So if later on you are trying to remember which episode you heard something in, you can just search your email and find the show.
How you subscribe is go to relentlesshealthvalue.com. Hang out for probably 15 seconds and there will be a pop up. And while you're on the website, here's something else you could do. Go to the lower right hand corner of the website. You will notice a little button. It's an orange button. There's a microphone.
Click on that, say something like your name, your company name, maybe a word or two about Relentless Health Value, and then encourage others to subscribe to the weekly email that goes out, similarly to what I just did. Then what our team will do is take that recording and potentially use it at the end of some of the shows so we can hear somebody else talk besides myself.
So please do go over to the website, click on that little microphone and record something that you might want to share with the other members of the Relentless Tribe.
And with that, here's your encore.
The Importance of PBM Contracts
[00:02:46] Stacey Richter: If this were a video show, I would stare into the camera with steely eyeballs right now and say that I have a special message for employer CFOs.
If you aren't a CFO, pretend that you are so that you get the full effect here. So, now that we're all CFOs, let's pull up the company P&L, profit and loss statement. This is what keeps us all up at night, right, making sure that the net profit line at the bottom looks good. We could decide to lay off a few people, reorg something or other, beat up a vendor. We also could go over and have a strident conversation with sales leadership about what they can do to jack up their sales revenue. Top line begets bottom line and all that, or here's another idea. Today I am speaking with Paul Holmes, who is an ERISA attorney with a specialty in PBM contracts, especially the PBM contracts from the big PBMs that get jammed in employer plan sponsor faces by whomever, and which they are told look fine and that the employer plan sponsor should just go ahead and sign.
Now, if we, meaning all of us CFOs, sign that paper, or someone on our benefits team signs the paper, fun fact, our company just spent 30 to 40 percent over market for our pharmacy benefits. That contract we just signed contains all kinds of expensive little buried treasures, treasures accruing to the PBM and other parties to be clear, and coming at our expense.
There's 17ish very common treasures in your typical PBM contract and none of us will ever spot them unless we know what we are looking for. But let's dig into this for a sec, especially for all of us newly minted CFOs because the real ones already did this math. Say our company spends, whatever, we're a bigger company, and we spend $100 million a year on our drugs.
That's a minimum of $30 million that we got taken for, 30 large a year. Because of the huge dollars at stake, 30 to 40 percent of drug spend, it's certainly the advice of almost anybody that you talk to who's an expert in PBM contracts to have a third party, not your EBC, Employee Benefit Consultants, which we'll get into in a sec, but somebody else, a third party, review every PBM contract.
I mean, what's the worst that can happen for anybody considering having an independent third party review their PBM contract? It costs a couple grand in lawyer fees and they give it a stamp of approval, acknowledge its power, and now we know. But let's just say this third party review doesn't happen.
We all go with a devil may care about this whole PBM overcharging us by 30 to 40 percent possibility. And let's say the PBM contract is in fact a ride on the hot mess express, but we don't know it. Here's two pretty bad downsides, especially now, this year, since the passage of the CAA, the Consolidated Appropriations Act.
Number one bad thing, plan sponsors may get sued, as per the CAA, for ERISA violations. It's not just the company paying that extra 30 million or 30 to 40 percent, right? It's also employees. This is risk exposure. Bigly. Just like it was on the 401k side of the house, which Paul Holmes, my guest today, mentions later on in the interview.
He talks about just how much those lawsuits cost and yeah, exposure. As I mentioned three times already, today I am speaking with Paul Holmes about PBM contracts and all their stealthy glory. The one thing I came to appreciate is that these things are works of art. If you're into like those paintings of pretty flowers where if you look hard enough, you spot a skull tucked in the greenery.
Understanding PBM Contract Pitfalls
[00:06:25] Stacey Richter: Paul is a longtime ERISA attorney. He has dedicated his career to helping plan sponsors in their negotiations with PBMs and trying to help them reduce drug spend, especially drug spend that isn't actually paying for drugs. Link in the show notes to an article we discuss about how a school district in Florida is suing their longtime EBC for taking two million dollars a year in alleged secret payments.
We also mention and link in the show notes to the episode with AJ Loiacono. That's episode three, seven, nine. And along similar lines, Jeff Hogan mentioned on LinkedIn the other day, he wrote, "It's pretty amazing that just in the course of the past few weeks, I'm reading, seeing, and hearing about big new CAA breach of fiduciary duty cases".
So, Paul Holmes says this more eloquently, but if you're a plan sponsor, definitely get your PBM contract reviewed and maybe consider working with an EBC who's happy to sign the disclosure statement that your lawyer has provided without disclaimers.
My name is Stacey Richter. This podcast is sponsored by Aventria Health Group.
Paul Holmes, welcome to Relentless Health Value.
[00:07:28] Paul Holmes: Hi, Stacey. Glad to be here.
[00:07:29] Stacey Richter: Today, we are going to talk about PBM contracts between PBMs, the big ones, and self-insured employer plan sponsors. You are an ERISA attorney who has specialized in these contracts for many years. When one of these contracts crosses your desk, just a typical contract, what are your usual suspect observations?
[00:07:48] Paul Holmes: The standard PBM contract is probably 50 or 60 pages. They're very dense. It's something that took me a couple of years really to master. The terminology that's used is almost like a foreign language. With AWPs and WACs and discounts and rebates and minimum rebates, the average person, there's no way they're going to be able to follow what is happening in one of these standard contracts.
Even ERISA lawyers struggle with these contracts because they're so nuanced to the pharmacy industry, which is just unique. The large PBMs, they build into their model contracts all sorts of provisions which favor them. And which allow them to make a lot of money. If you just sign, if you take one of their model contracts, if they offer that to you and you agree to sign it, you're probably going to pay 30 to 40 percent above market on your drug spend, just because of the way these contracts are structured.
[00:08:49] Stacey Richter: Well, I can definitely spot the problems here, and it probably doesn't take a rocket scientist to do so. There's two factors at play. One is a legal factor, obviously this is a contract, so you know, you need a lawyer to go through and make sure that the terms of the contract are fair and sound. But then on the other side, you also have the pharmacy benefit management expertise and experience.
Because what you see written down might be sound legally, but there's a chain of consequences that may happen. You'd need to be able to understand both aspects here, the legal and then the PBM speak to comprehend what the consequences of the language might be to the plan sponsor.
The Role of Employee Benefit Consultants (EBCs)
[00:09:37] Paul Holmes: Yeah, that's really the challenge with these contracts because historically, the contracts have been reviewed by the consultants and have not really been reviewed by lawyers.
If they're reviewed by lawyers, it's a superficial review, maybe a review of the boilerplate provisions that all lawyers understand, but in terms of the detailed pricing provisions and rebate provisions and audit provisions, you really need to have PBM industry experience to, to be able to follow those.
So for a long time, even since I was a young baby ERISA lawyer, we didn't get PBM contracts to review. Plan sponsors didn't even send them to us. And then over time we would start getting them, but the plan sponsor would tell us, look, we just want you to eyeball this and whatever you do, don't review the pricing provisions. The consultant has already negotiated the deal. So just look at the boiler plate. So for many years, we, we were really not asked to do much with these contracts. And as a result, most ERISA lawyers have not seen them, have not seen many, and have never learned about pricing.
[00:10:44] Stacey Richter: First of all, you had mentioned that if you just take the PBM contract and put your John Hancock at the bottom of it, you're going to pay as a plan sponsor 30 to 40 percent above market, which could be millions of dollars.
[00:10:58] Paul Holmes: That's right. For a small employer with a million dollars of drug spend, it might be $300,000. But for a major plan with a hundred million dollars of drug spend, you're talking 20 or 30 million dollars.
That's an annual amount. That's repeated every year for as long as you have that.
[00:11:13] Stacey Richter: Yeah. So $30 million. What's that, 300 teachers that's now going to a PBM because of a bad agreement. And basically what I'm understanding you just saying is that it's the consultants that are looking at the pricing.
Lawyers are not looking at the pricing. Lawyers have not been asked to look at the pricing. So I'm kind of inferring that over the years, if you don't have a request to do something, then you stop having the skill to do it. So at this juncture, we may have a situation on our hands where many ERISA lawyers don't necessarily have the background or the expertise to even review that pricing, even if they are asked.
[00:11:51] Paul Holmes: Yeah, I think that's, I mean, for a long time, I think that was absolutely correct. I think over the last maybe three, four years, five years, as more and more negative attention has been given to drug prices and PBM shenanigans, I think some young ERISA lawyers have decided to try to get into the field. And so I think it'll change, but there's a long, there's a long way to go.
So a lot of those, what I call them is PBM lawyers, Stacey. They're ERISA lawyers with a PBM expertise and the PBM lawyers, most of them are working for the PBMs.
[00:12:22] Stacey Richter: You've got to find an ERISA lawyer who either used to work for a PBM or who bills themselves as an ERISA PBM attorney, like you need a specialist here.
[00:12:32] Paul Holmes: Correct.
[00:12:32] Stacey Richter: But let's go back to something that you had pointed out earlier, who was supposed to be looking at the pricing in the contract were the consultants. So clearly, if what we're considering an average contract that gets put in front of the plan sponsor, I'm assuming that you mean an average contract that's put in front of the plan sponsor that the employer benefit consultant has already reviewed.
[00:12:59] Paul Holmes: Correct. I mean, the consultants have always been, they, they're very careful about it. They don't, generally speaking, in their service agreements, they don't say, oh, one of the things that we're going to do for you to earn our consulting fee is to review all of your legal documents. That's something that they really don't want to say.
But in reality, they're the ones who, who handle the RFP process, which is the start of the contracting process. Because during RFPs, you ask the PBM bidders a bunch of questions about how are they going to handle this and how are they going to handle that? And will they agree to this? And will they agree to that?
And so that's sort of the start of the contracting process, because once you get PBM commitments, you then follow through, or at least you're supposed to follow through and make sure that those commitments are in the actual final PBM agreement.
[00:13:46] Stacey Richter: So you have the EBC that conducts the RFP process.
They pick a vendor, I guess. They review the contract that vendor PBM provides, they make sure that the agreed upon contract terms are in that contract, and then they're also responsible for holding the PBM to account and ensuring that the contract terms are met. That all tends to fall on the EBCs shoulders it sounds like.
[00:14:10] Paul Holmes: I think that's generally true. I think that's where the problems start happening. Some consultants are better at this than others. Many of the good consultants know these contracts pretty well and they will go in and they will ask the PBM to make certain changes. But there, there tends to be a limit on how far a consultant will push a PBM, and they will, I guess one way to say it is that on the low hanging fruit, on the issues where PBMs are making extra money, but everybody knows they're doing it. The consultants will make sure those provisions get taken out of the contract, but that still leaves a lot of profit centers in the contract that the consultants do not challenge.
And so if you don't have another set of eyes go through the contract, those provisions stay in the contract and that's where the problems start.
[00:14:59] Stacey Richter: It sounds like there's enough profit centers that a typical contract that you get your hands on after the EBCs have looked at it is 30 to 40 percent over market.
Right? So like, again, we're not talking about a prereviewed contract. We're talking about a contract that has gone through the gauntlet of consultant reviews and it's still has $30 million of above market profit centers left, obviously assuming that's 30 to 40 percent or 30 percent of the total drug spend.
[00:15:30] Paul Holmes: Correct. I mean, some are different than others, but pretty much every contract that once we get it and we review it, we find a long list of problematic contract provisions that if a sponsor's hired us, that we sit down with them and go through. The sad part is we then ask them, did your consultant raise any of these provisions with you?
Did you have conversations with them? Are these things that you talked about and that you agreed to, or are these, is this a surprise to you that this is the way your contract's worded?
Legal and Financial Implications
[00:16:03] Paul Holmes: So this gets us into the whole issue of CAA, Consolidated Appropriations Act, and specifically Section 202, which talks about consultants having financial conflicts of interest, if they accept indirect compensation from the PBMs, they have a tendency to, let's say, look the other way or let things slide because the PBMs are actually then financial partners. That's really a major problem.
[00:16:30] Stacey Richter: Running through our sequence of events, what we have are employers who traditionally have relied on their benefit consultants to review these PBM contracts to the extent that they've told their attorneys not to review the pricing provisions. However that happened, it has transpired.
The employer doesn't understand AWP and WAC prices and just kind of all the downstream consequences of some of this stuff, right? So the EBC then has a very powerful role in this whole thing. Meanwhile, the EBC is actually a business partner. I mean, I don't know how else to phrase it, of the PBM because if they're getting indirect compensation and listen to the show with A.J. Loiacono on just how much money is passing back and forth between the PBMs and the EBCs like they're really working together.
So now you have the business partner of the vendor who's evaluating the vendor's contract. And okay, so an employer wasted $30 million for the past however many years that could have gone to giving people raises or doing other potentially more productive things with that money. But now the stakes are higher because of the Consolidated Appropriations Act, the CAA, as you mentioned, and you talked about section 202, just quoting you, the lawyer. So the CAA section 202, it's not the EBC or the PBM that's on the hook for stuff like this.
It's the one who's got fiduciary responsibility to those employees. Because you could look at this as not just the employer that lost the $30 million, it's the employees themselves who are now overpaying. And the one with fiduciary responsibility is that employer. So the employer not having any idea what's going on in, in those PBM contracts, winding up typically paying 30 to 40 percent over market, as you just said, is a problem for the employer on a number of levels.
A common threat that I hear the EBC tells the employer that the EBC themselves is going to handle all of these disclosures, right? So that you have the employee benefit consultant coming up with their own forms and things in order to disclose their own indirect compensation. How does that typically work out?
[00:18:49] Paul Holmes: You're right, that's very common and that's a big problem. I mean, there are some disclosures that are now required by the government in terms of sending in information about your drug spend and so forth, and it's okay for the consultants to help with those disclosures. But when it comes to the disclosure of their own compensation, especially indirect compensation that they're getting from another vendor, that's something that you can't leave up to them.
You need to have your lawyer draft the disclosure that the lawyer wants to see and submit that to them and ask them to sign it. Usually we do this in the form of what I call a disclaimer, a full disclaimer, where we essentially just ask the consultant to sign on the dotted line that they don't receive any money from the PBMs.
And unfortunately, most of the consulting firms are either ignoring those requests or many are coming back with what I call tainted disclaimers. They say, we don't receive any money from the PBMs. If they'd stopped right there, you'd be in good shape, but they then add caveat language, like, we don't receive any money from the PBMs that is solely with respect to your plan.
That's not a full disclaimer because that leaves open the door that maybe they're getting money from the PBMs, but it's not calculated on a per plan basis.
[00:20:09] Stacey Richter: And what you mean by that is that it's like calculated on their total book of business.
[00:20:13] Paul Holmes: Correct. Section 202 of the CAA actually refers to book of business.
[00:20:19] Stacey Richter: Which is same difference, it's just a different way to do the calculation.
[00:20:22] Paul Holmes: The big PBMs figured this out in the early 2000s that the consultants were the ones that had the close relationships with the actual plan sponsors. And so they developed a way to compensate the consultants to, to not only steer those clients to the large PBMs, but I think with a wink and a nod, they probably didn't have to say it and it's probably not written down anywhere.
The idea is if you want to keep getting these payments, then you won't dig too deep.
[00:20:48] Stacey Richter: Certainly sounds like a first step here is to have a lawyer review or come up with the disclaimers or the disclosure forms an ERISA attorney that the employer is asking everybody to sign, including the EBC themselves.
Would your typical ERISA attorney be able to write that CAA disclosure form?
[00:21:11] Paul Holmes: I think a good ERISA lawyer could take a good shot at it, but the problem today is most ERISA lawyers don't know about this conflict of interest. Well, if you ask most ERISA lawyers, hey, do the consultants get paid by the PBMs? I think 95 percent of them would say no, there's no such thing.
[00:21:28] Stacey Richter: So it sounds like a litmus test for everybody's ERISA attorney is ask the ERISA attorney a couple of questions. Like, for example, typically, do EBCs take money from PBMs indirectly? Like, ask a couple of questions and assess the knowledge of the ERISA attorney.
Because clearly, if you're getting one who may be a fine attorney in many respects, but unless they have expertise in this particular area, It's, again, it's going to be the employer who's on the hook for this.
[00:21:57] Paul Holmes: The real problem there is that not that an ERISA lawyer can't draft a decent disclaimer letter, it's will they be able to decipher the consultant's response.
The consultant's council drafts a very well crafted disclaimer that sounds like a disclosure but contains caveats. Will the average ERISA lawyer sense that? I can't answer that question.
[00:22:19] Stacey Richter: The thing is, though, and this might be why a plan sponsor may want to be paying attention here. This is really wildly common, this whole EBC taking money from the big PBMs thing, from what I understand.
And two big issues. The first one is all the money just being lost. The second is the legal jeopardy that the plan fiduciary, the person who signs those plan documents, just put themselves in if somebody else figures out the COI before they do. The employer, CEO, and CFO do. There's more than one lawsuit cropping up because of this, and it's pretty stark just how deep the COI goes if what is alleged is accurate.
Link in the show notes to one of these where the EBC was allegedly sneaking $2 million, I think, under the table from at least one vendor while telling their client their RFPs were impartial. Nothing to see here. They were allegedly making like 10x under the table what they were making on the top of the table from what I recall here.
So this is a huge profit center for some of these employee benefit consultants, the not independent ones.
[00:23:25] Paul Holmes: All plan sponsors think they have a great contract, and until we look at it, and we give them a long memo telling them no, this is not so great. So once they realize that there's a, that consultants are conflicted, then they tend to believe us, and, you then, you don't necessarily fire everybody on the spot, but you bring in a second set of eyes.
So again, you can bring in a, either an independent consultant or an independent data analytics firm and get the claims data to them. You don't have to set the world on fire, but it's pretty easy for a data expert to go back then and look at different aspects of the drug pricing and rebates and come back and basically verify the plan is overspending and that it could be corrected.
You then start the process of correction, now whether they end up replacing the consultant with an independent consultant, they may or may not go out to bid with a new, for a new PBM. That might happen at some point. It doesn't all happen instantaneously, but yeah, that's the direction that it starts going.
[00:24:23] Stacey Richter: I think we have to get to the fact that on the plan sponsor, the employer side, there are different people with different jobs and if the benefits team, who has a lot of great skill sets, but maybe doing PBM contract negotiation and review isn't one of them, it's kind of not fair to put benefits managers in charge of what should, it sounds like, be a legal or finance department operation. I mean, for the review and the contracting part of this, at least.
[00:24:50] Paul Holmes: Yeah, I think there's a lot, there's probably a lot of different reasons. I'm starting to see the CFOs and the CEOs start to take some interest in this.
[00:24:58] Stacey Richter: If I'm a CFO, right, like, what's the average profit margin for a business? 20%? To get $30 million in profit, net income.
You need $150 million in gross revenue, right? So like if I'm a CFO or CEO, and here's my choice, do I take $30 million back from the PBM or do I go do a whole sales campaign or whatever you got to do to figure out how to get an additional $150 million in gross revenue? Like that's really the choice for the CFO.
It may not be something that the benefits team is getting a bonus on, right? Like they sort of have other what does good look like and job performance criteria. But I could really see from a CEO, CFO perspective, it definitely feels like the dollar value here is enough to get involved. And we are not talking about diminishing anybody's benefits.
We're talking about cutting out all of the conflicts of interest and overpayments and kind of like somebody weaponizing trust and then taking advantage.
[00:25:56] Paul Holmes: And I think it might take a couple lawsuits. I mean, if lawsuits are filed and this becomes public, the extent of the conflict of interest and the dollars involved, then I would guess that a lot of CFOs and CEOs will call a meeting and things will start going in a different direction.
[00:26:12] Stacey Richter: Okay, so who sues who then? All right. So now I'm an attorney. I see that this contract was rife with conflict of interest. What's the basis of this lawsuit?
[00:26:21] Paul Holmes: Plaintiff's firms could bring the same kind of cases that they brought against the fiduciaries of 401k plans on behalf of plan participants alleging that the health plan fiduciaries were not paying attention and they were spending way too much money on prescription drugs portion of that was paid by the employees themselves in the form of copays and deductibles. So that's a possibility. I don't know if that's going to happen or not, but I think the PBMs and the consultants could be sued because not only do the PBMs have contract terms that generate profits for them, but they also engage in some practices where they basically just ignore their contract.
So even if you have a provision that tells them not to do something, they still ignore it and they do it anyway. And now the consultants, I think, are going to be, have some exposure because I think that's a problem. If you go to a plan sponsor and you say, hey, we'd like to be your consultant and here's what our fee is.
And don't worry, we're going to help you run your prescription drug plan. And we're going to keep an eye on the PBM. We're going to help you control your drug spend and so forth and so on. When in reality, they're getting paid not to do that and they're accepting that money. Something tells me that's a legal issue.
Advice for Employers and EBCs
[00:27:34] Stacey Richter: If you're just going to sum up some advice here, you kind of alluded on a number of different occasions here to employers getting wise to what's going on here. If you were going to give advice to employee benefit consultants right now, and maybe not the gigantic firms who may have enough banked to offset any lawsuits.
I mean, it could be the plan there for the ones who are so inclined to just keep banking the cash until they get sued and then they'll stop, right? Like to milk the system for as long as they possibly can. I could see that being an excellent strategy for those who are, again, inclined to do so. But if you're an employee benefit consultant and maybe you're doing this and you don't have the millions in the bank to fund a lawsuit in the event that one of your clients decides to sue you, like what's your advice here?
[00:28:22] Paul Holmes: All of the benefits consultants who are out there who are independent and they're not taking PBM money, I think their phone is going to start ringing off the hook. I think they're going to have a lot of plan sponsors interested in talking to them, which is a good thing. I mean, I don't know what the larger consulting firms who have been taking the PBM money are going to do.
I could only speculate on what's going to happen there, but I don't know if it's possible that they'll spin off their pharmacy unit. Most of them acquired their pharmacy expertise. They didn't develop it, they acquired it. And so they may just spin that back off and say, okay, we don't need you anymore.
You're on your own. The same thing might happen is what happened with 401k plans. Once all those fee cases happen and the fiduciaries talk to their lawyers. They, most of the brokers and consultants who were, who were taking all the 12b-1 indirect revenues from mutual funds and taking all the money and not providing good advice to their plan sponsors, they got out of the business.
And what happened was only the high quality advisors. Who operate on a fee only basis survived, but they now dominate that space.
[00:29:28] Stacey Richter: So it sounds like from an employer standpoint, and a big reason I hear why employers aren't asking really digging in here and getting attorneys to review stuff, attorneys with PBM experience, for example, is that they're like, oh, these people are my friends.
We go way back. We play golf together. Like, they would never do that to me. But it sounds like despite a personal relationship, the stakes, as we just talked about, are getting higher and it might behoove everybody to prove that. It sounds like.
[00:29:57] Paul Holmes: Yeah, I think so. I think, I mean, especially the people who went through those fee cases, I mean, those, when your fiduciaries get sued, you're looking at five or $10 million of legal fees just to defend the case.
And if you lose, then you're looking at anywhere from $5 million to $50 million in settlement money. So it can cost, yeah, quite a bit of money.
[00:30:16] Stacey Richter: So it sounds like probably a prudent plan of action for large employers, midsize employers, anybody with a self insured plan, really, would be to carve out a couple of bucks, find a experienced ERISA, PBM, healthcare attorney to take a look at all of this stuff and brokers who aren't taking any money or EBCs who aren't taking any money.
This is becoming a competitive differentiator for them and those who are opposed or who put all these disclaimers and caveats and exceptions on the contracts that they give back, I mean, that's the first clue to the employer that this may be warranted, even from an informational standpoint, right?
Like the more you know, knowledge is power, and it would be a whole lot better to know that this is potentially going on in your plan than get taken by surprise by the lawsuit.
[00:31:06] Paul Holmes: Correct. The independent consultants, I think, will start touting their independence in their marketing. But yeah, I think you're right.
I think you don't have to spend a ton of money to start getting educated on this. And the pieces fall together pretty nicely and pretty quickly once you, you start putting the puzzle together.
[00:31:24] Stacey Richter: Yeah, and it sounds like this is something that it's a CFO, CEO.
[00:31:28] Paul Holmes: All companies are different. But yeah, I think the C-suite needs to, needs to get involved and needs to take some sort of a leadership role.
But yeah, I mean, to just sweep this under the rug, I think would be a mistake.
Conclusion and Contact Information
[00:31:40] Stacey Richter: Paul, is there anything I neglected to ask you, you think it's important to mention here?
[00:31:44] Paul Holmes: Just one other thing. I don't think we talked about this, but in a typical situation, and I'm just going to use very round numbers, a plan sponsor might be paying their consultant, let's say $100,000 a year for consulting advice.
And the consultant might be receiving $500,000 a year from the PBM, or even a million a year from the PBM. Now some plans are smaller, and the numbers are smaller, and some plans are larger, and the numbers are larger, but it gives you usually there's a very rough rule of thumb. It's like a five times or ten times multiple.
So it's not like the PBMs are paying the same amount as the plan sponsor. They're paying much more. Follow the money. That sort of explains why the healthcare industry has gotten to where they are. Secondly, the PBMs are not paying for that out of their own pocket. The PBM underwriters figure out how much they're going to have to pay the consultant, and then they just increase the drug prices to make up for that.
So the plan sponsor is paying both fees. In my example, the plan sponsor is paying $100,000 directly, and maybe another $500,000 to a million. They're actually paying this indirect compensation, they just don't know it. They're paying it in the form of higher drug prices.
[00:33:00] Stacey Richter: And that's exactly the same ratio as that lawsuit in Florida that I keep mentioning they were paying.
I think it was 10 times more.
[00:33:07] Paul Holmes: Well, I got lucky on that one.
[00:33:08] Stacey Richter: But I mean, it's like, where's your bread buttered? As a, it's not a surprise what's going on here when you hear those stats. Paul, where can people go for more information about what we just talked about today?
[00:33:20] Paul Holmes: Yes. My email address is pbh, Paul, B as in boy, H, at Williams, Barber, B A R B E R, Morell, M O R E L.com. I'd be glad to speak with any of your listeners.
[00:33:34] Stacey Richter: Thank you so much for being on Relentless Health Value today. Paul Holmes.
[00:33:37] Paul Holmes: Thanks for having me, Stacey.
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