Pharmacy benefit managers have drawn fire in recent years from many quarters, but A.J. Loiacono, co-founder and CEO of startup PBM Capital Rx—created to be a disrupter of the industry—argues that even legacy players perform a valuable service.
“PBMs are critical,” Loiacono told Fierce Healthcare. “If a PBM has this rotten drug pricing system, people immediately say that all PBMs are the problem, but PBM drug pricing is the problem.”
PBMs play an invaluable administrative role, Loiacono said. They're critical to claims administration, patient management, outreach and more, he said.
“There are hundreds of administrative tasks that you need to do to service and provide that benefit,” says Loiacono. “And if you’re a self-insured employer, or even a fully insured carrier with a pharmacy benefit, you can’t deliver that pharmacy benefit without having that claim processing ability in place.”
As Fierce Healthcare reported in 2021, Capital Rx wants to put a stop to what it described as the “roulette wheel of pricing” that the PBM industry foists on patients at the pharmacy counter. But as Loiacono made clear in discussing the PBM industry with Fierce Healthcare, he wants to rescue the PBM industry, not bury it.
As yet more evidence of what the company says sets it apart from the PBM industry, Capital Rx yesterday announced that it’s the first PBM that serves Medicare, Medicaid and employer-sponsored health plans to earn a B Corp Certification from the not-for-profit organization B Lab, whose stated mission includes mobilizing a global effort to tackle some of society’s most pressing problems.
The certification process takes about a year, and B Lab monitors the hiring process, board management and the diversity of the workforce, among other things.
“It’s also looking at how you report everything from your finances, to looking at how you prioritize your business, your mission,” said Loiacono. “It’s a scoring system. And you have to not just agree to do these things but prove that you have done these things or prove that you have these processes in place, which is why it takes a year. It demonstrates that you are a socially responsible company.”
Capital Rx’s achievement comes at a time when other healthcare stakeholders—health insurance plans, self-insured employers and even government officials—demand that PBMs become more transparent and accountable.
Last month, at a tense meeting of the Senate Commerce Committee looking into complaints that PBMs steer patients toward pharmacies that they own, Sen. Jon Tester, D-Montana, said that “I don’t know why the hell they even exist. There is no transparency in PBMs. When you combine that with anti-competitive tactics, this is a recipe where the only people who win in healthcare costs are PBMs.”
Loiacono said he understands the anger, noting that in the 1990s, PBMs charged only a flat administrative fee.
“It was a brilliant marketing ploy,” said Loiacono. “And the country ate it up. Employer groups said, ‘Wait. There’s just an administration fee? Oh, this is amazing.’ But we know nothing is truly free in life.”
PBMs, he said, began to take a little from the gap between the wholesale and retail price of the medications. “No one knew what a little bit in between was because a traditional PBM contract is 50 to 200 pages long and there are no drug prices. How would you ever know what the real prices are? How much they keep?”
Things got worse with the introduction of mail-order pharmacy, Loiacono said.
“Then they could say, ‘Hey, nobody has any way to understand how much I’m making, because I am the pharmacy now,’” said Loiacono. “And then it was with rebates and coupons, and it just never ended. They just continued to figure out ways that they could expand the spread pricing model. This is why people say PBMs are broken.”
Twenty-five years ago, the average cost for a prescription was $18, said Loiacono. “The total billables for the pharmaceutical industry in the domestic U.S. was probably around $120 billion in 2000. Today, it sits at around $600 billion. We didn’t increase our population by 500%. Now, it’s just been runaway costs.”
The boogeyman of the moment in healthcare changes, and pharmacy benefit managers are now the ones under the microscope. Loiacono said what steers that focus is where the dollars go.
“And the fastest growing segment of healthcare for the last decade or more has been prescriptions," he said.