Breaking Open the Black Box: How Transparent PBMs Are Reshaping Pharmacy Benefits with Jake Frenz, Founder & CEO of SmithRx

Speaker A: Healthcare costs are rising, benefits are confusing, and the system doesn't always work for the people who need it most. But it doesn't have to be that way. Smart employers and their consultants are flipping the script, cutting costs, making things simpler, and creating a health benefits experience their people love. Uh, welcome to the Benefits Playbook. I'm your host Dane Thorwaldsen. And in each episode we uncover the bold strategies that are rewriting the rules of self funded health benefits. Hello and welcome back to the Benefits Playbook podcast. I'm your host Dane Thor Waldson and I am so excited for our, uh, guests that we have here today with us. We have Jake friends with us and he is dedicated his life to service and healthcare and where those two things intersect. So we've got Jake friends here and this, this person has been a serial founder. He's, he is no stranger to the founder and CEO world. And before that he even served in the Marine Corps with two active military duty tours. And then he turned his sights to healthcare and how he can support and serve people in that way. So Jake, thank you so much for being here. Welcome to the podcast.

Speaker B: It's a pleasure to be here. I'm super excited.

Speaker A: Excellent, excellent. Well, Jake, we're going to focus a lot on what you're doing today as the founder and CEO of SmithRx. But I've had the pleasure of knowing Jake for a handful of years. Not nearly as long as how long he's been doing this in the business world. But funny enough, what's near and dear to me is Jake has also been integral in setting up the operations here at ah, Collective Health, which is where I work. And so thank you again again for your service there, Jake, in terms of setting up and, and the service to people in the healthcare space. So really appreciate what you're doing. And before we dive into Smithrx specifically and how you're addressing the pharmacy world, we've got all sorts of different listeners with this podcast. We have three decade veterans that have been in the benefits world, in the healthcare world and fighting the good fight for a long, long time. We have people that are just starting out in the benefits world and then we have listeners that are just trying to figure out their own personal benefits. So sometimes when we start talking about pharmacy, especially the word PBM M, what does it mean? The pharmacy benefit manager, what is that? So I wanted to kind of level set here for our audience because it's easy to tune out once you start hearing things that you might not fully understand. So Jake, if you're willing, maybe you can kind of walk us through the PBM world, the pharmacy benefit manager world and how we got here. Little bit of a very high level history lesson and then what the typical PBM model looks like today.

Speaker B: If you think back to pharmacy benefit managers decades ago when they first started this is when the drug benefit started out on US health care plans. Spend was actually in the single digits from a percentage standpoint. And the medical payer carriers didn't want to manage this drug spend. It wasn't big enough for them and it was just a thorn in their side. And so they started as kind of the representatives of clients or the middleman to negotiate good drug costs and be able to facilitate drug claims processing according to eligibility benefits. And that started simply, uh, enough. But then obviously the biotech drug ecosystem accelerated and started delivering amazing new therapies across the board. And that spend as a percentage of the healthcare spend went from the single digits to. When I started Smith 10 years ago it was 15% and now it's even 35 to 40% of the health care spend today. So we just see this acceleration of the importance of the drug as part of the health care benefit and it has spiraled from there like literally and created this big black box which I know is one of the mantras of collective health that you're trying to break.

Speaker A: Exactly. And you know, you mentioned climbing up to 35, 40%. I spent a lot of my career in the consulting world and I had clients where it was over half. I couldn't believe my eyes when it reached the 50% mark. But I believe that's going to start being less unusual in the future.

Speaker B: No, no, Dan, I think that's okay. I think you know, 30, 40, 50% of the healthcare spend going to the drug benefit is okay if the outcomes that those drugs are providing are truly exceptional. And right now they are. And I think that this really acceleration from the Hepatitis C cure to the HIV is a great, great case study or even the immunologics today, GLP1s. So if we're getting better health outcomes because of the drug benefit and these new amazing drugs to market, I think that's okay.

Speaker A: You hit the nail on the head. That's exactly right. So there is that threshold, right? And we have that conversation about GLP1s. That's the top, that's the top thing that everybody wants to talk about right now. We know they're expensive, but we know they're effective. And so there is that kind of threshold that you reach. And I Imagine every drug probably has its own threshold, but you nailed it there, Jake. And I think that that's really important. Now I want to understand a little bit about how the PBM world works. So if I go to the doctor and they say I need an mri, I'm going to go to a facility, get an mri. I understand how that works. The mri, it has a cost, but then it's, there's some different number where the provider's office submits, okay, this is what we think we should be reimbursed for this cost of the mri. Then they settle on somewhere in the middle for a discount and they submit that claim to be paid. Now that's not how it works on the pharmacy world. So can you explain a little bit about how the traditional PBM model works for a drug claim?

Speaker B: So this traditional model, you coined it correctly, is where you have the drug supply chain, retail pharmacies like cvs, Walgreens, independent pharmacies, mail order, and also specialty. And under this traditional model, there's a wholesale price, average wholesale price, high ticket number, and you get a discount off of that. And for generics today, that's 90% or even above in some cases. So take a step back. It's kind of funny to think about where else in life do you get 90% off of anything. So the retail pharmacy side has just continued to spiral here where you get higher average wholesale prices and the traditional model takes a percentage off of that. And then you have the rebate component, which is also this, this big black box. And a rebate is no longer a rebate. There's many different components there of manufacturer dollars or rebates that should be due to a self insured company or to even a patient, but they're not available. And so there's a big, there's a hiding of those within the model, but those are the two big pieces from a drug supply chain. And then a rebate perspective coming from drug manufacturers, that, that really encapsulates this traditional model where the most important things are guaranteed percentage off and then rebate numbers. And I think that's, it's just become a very flawed way to think about a total cost of ownership or the lowest net cost drug.

Speaker A: Now do those rebates vary drug by drug? How are rebates determined?

Speaker B: They do. I think when you look at different categories like immunologics, HIV or within these categories, there's different products and some of them are interchangeable or they have similar impacts. And so for a drug manufacturer to get market access they typically play within a formulary standpoint of what's on the formulary or off the formulary and will give a rebate, the drug manufacturer will give a rebate to get that formulary access position. And that's fine. That's fine to be able to provide drugs in a, in a reasonable way to patients. I think the conflict of interest here, where the PBM is making some of the revenue from some kind of rebate retention or even on the retail pharmacy side adding spread, I think that's where you get into this black box of how much are they making? Are they really acting in my best interest as a self insured plan sponsored company and employees and family members to get the right drug in the hands of the patient. So I think that's what we're trying to break apart here, to drive transparency to that entire traditional model and figure out just how can we do it more simply.

Speaker A: So you talked about the drug manufacturers, you talked about the PBMs and you talked about in our case, the self funded employers offering the health plans. Are there any other players at the table in the pharmacy world or are those the primary three?

Speaker B: I think those are the primary three. Especially we think about the context of a self insured client sponsor, a global benefit leader or somebody, a CFO procurement team who is in charge of making those pharmacy benefit decisions. Those are the main players that they should be recognizing and I think the PBM needs to be that linchpin. They are, they should be the trusted middleman that negotiates on behalf of them with free of conflicts of interest to find that lowest cost drug. And you should count on them every time and into the future to act in your best interests. Kind of like a pro fiduciary in a lot of ways.

Speaker A: Agreed. So I do think that opaque is the word that typically is associated with the traditional PBM model, that opacity. And I know that that's something that really got to you and led to the mission of Smith RX and I was able to see the mission of SmithRx, as you stated, is to reduce the cost and complexity of pharmacy benefits for America's employers and patients. I like it. The mission statement is simple and clear and transparent, which is exactly what you're hoping SmithRx will be. Before we dive in a little bit more deeply to SmithRx, I wonder if we can talk. We could fill 2 hours on your personal journey and how you got here. But maybe you can give me some headlines in terms of how did you end up starting a pbm? Of all things.

Speaker B: Gosh, you know, my journey started out a long time ago, like all of us. And I think the why of these stories are uh, super important to share. I've had many healthcare escalations in my family personally that led me to believe that, you know, we have great healthcare, the best healthcare in the world in the United States, but we don't have consistent outcomes. And I felt like we just deserved better. And so after I got out of the Marine Corps, I went to Anthem to help build new healthcare products in every market. I spent seven years there and then I went over to Collective Health. I had that entrepreneurial bug to try to figure out how to build a medical third party administrator from the ground up. And I was super formative. But when I looked at this drug benefit, it was the most complex area of healthcare plan delivery and it shouldn't be. It's like that big black box which just keep going back to that theme throughout this. And I feel like we deserve better. We deserve better in all of US healthcare in this drug benefit. And I feel like that's one of the monikers of collective health. That's why I was drawn to Ali and the collective health story very early on. I think I officially have the ninth employee at Collective Headcount.

Speaker A: Wow.

Speaker B: Yeah, it was sweet. But you're building from the ground up there. And we were just like Smithrx in collective, trying to um, create a better pathway forward to create more transparency, more control, better service, just a better model. And that has really fueled me in a long term approach here to think over the horizon. How do we change US healthcare? That's really the goal that I have. Not only the pharmacy benefit, that's what we're hyper focused today. But how can we find the right partners? How do we put together those holistic products that are incredible?

Speaker A: I love it. I'm so grateful that we have people like you in this industry that are trying to pry open that black box and are doing it so effectively. So thank you for joining in that fight. I think it's very important and that is the future. There's, there's a sea change happening and, and you are at the forefront of it. So thank you.

Speaker B: There's a huge sea change happening right now. I mean it's amazing how slow US healthcare moves for change. Like just in general. Like I've been at this for 10 years. 10 years ago I started Smith Rex. We're on our 10th year. We've got 1.5 million members today across 5,000 self insured companies. So we have a foothold, we have a foundation. And yet that change that we're talking about here, we are primed. There are more collisions happening in the overall health care ecosystem, in the pharmacy benefits space than ever before. And I think now is the time where we're at the fight at the right place at the right time. And you see it as well, these enterprise clients are super angry about their drug costs and they don't have control over it. They have the black box. They're just frustrated. They've always been frustrated. I think it's reached this precipice where now action is happening and that's what I'm super excited about. Collective Smith, all of our collective efforts here to break it apart.

Speaker A: So you're absolutely right. You talked earlier on about how those costs have been increasing at a hyperspeed, uh, and outpacing even the cost of healthcare increases, which we all are reading about in the news every day as well. So what? And the complexity is another piece that you talk about. So it's easy as an HR leader to be overwhelmed. Overwhelmed by the complexity, overwhelmed by looking at the uh, 14% drug spend increase they saw last year. So what, what are, uh, maybe some common misunderstandings from an employer or a plan sponsor. And what alternative do they have to just feeling overwhelmed by the complexity and the rising costs?

Speaker B: Yeah, I think they need to pull back. They need to break it down and make it as simple as possible. I don't think that you can hide from like a total cost of ownership, like a per member per month. And that's what I really try to educate and push benefit leaders or even CFO procurement people to do is take your cash out and divide it by the number of employees or members and get to a baseline number. And that's your trend. And you can do that on a quarterly yearly basis. But I think getting a better understanding of what that total cost of ownership is up front and then focusing on a few specific areas like immunologics around Humira Stellara Biosimilars or Rimvox Crizzi, those types of immunologics, GLP1s is obviously a hot button today with utilization increasing. But don't try to boil the ocean here, just pull back, focus on what's simple. And this whole traditional model that we keep talking about, try to pull back from that. You can't effectively manage how much something costs when you're taking an average wholesale price, a high ticket number, taking 90% off of that. Try to understand that you could keep going around in the circle all day long. So pull away from that and look for that true transparency. So all that together, I think that's a good place and I'm happy to jump in wherever you think would be helpful.

Speaker A: So as they're trying to pull back and understand what those true costs are on a per member per month basis, sometimes we can focus in certain areas that might not deserve our focus. So what are some of the hurdles? I talk with clients sometimes that say, yes, I think I understand the transparent model and I think at the end of the day that might be better for me. But I get a check for $350,000 every quarter from my PBM and I like that. I use that to pay for my wellness fair. I use that to pay for my pedometers that I send out to my employees. So are there any other hurdles for when, when you're talking about making that transition to the transparent model?

Speaker B: Well, we've talked about the cost trend here and how the percentage of the healthcare spend going to the drug benefit is, you know, 30, 40, you said even 50%. I totally agree with all that. And so what's happening here are CFOs procurement, they're getting engaged much earlier and they're a thought partner here. So when you think about that $350,000 rebate check coming back to pay for the programs, think about what's going out the door. Think about from a finance standpoint what the cash out is that you have to true up with that rebate. I mean, you're paying a bolus, you're paying an increased amount up front to get a rebate in arrears. Like there's a time value, money and overall concern there. I think that it's an easy argument to have or discussion really with the CFO around, move to a transparent model, try to pull back preference biosimilars or other low net cost options. And rebates at the end of the day today are real. Like should rebates exist in this ecosystem? Probably not. I don't think they should. But that is a matter of fact today. And you have to meet the market where it's at. And so those rebates will continue even under a transparent pass through model. It just may be less. And that's okay because you're going to look at that per member per month, true net cost, what your cash out is going to be. And that is a very easy, simple story to tell. Like all of this should be super simple to understand.

Speaker A: Super simple to understand. I would love that I know all of our listeners would love that.

Speaker B: You've got a patient picking up a script at the pharmacy. It's transactional, it should be that simple. And if it's not that simple then you got a problem and you start breaking it apart and looking at the data in a simple way. I think all of this, it may seem insurmountable but really with the right consultant, broker, partner and asking specific detailed questions, it becomes, you know, possible and you can get control and that control feels so good.

Speaker A: Yes, control is something we're all seeking in this world where sometimes overwhelm is the initial reaction. So you've mentioned transparency and I know that Smith RX is uh, a transparency transparent PBM and a uh, pass through pbm. We've used those phrases. Transparency is a hot button issue in healthcare, not just in pharmacy, but in the, in the medical spend world as well. It's one of the most talked about topics right now in, in our world. So you talked about rebates and time value of money and maybe paying a little extra to, to get something back later. What in your world, in the PBM world, what, what does transparency look like for, for Smith rx?

Speaker B: First, I think it's super cool that, that we're now on this movement to, to believe that transparency is a good thing that will lead to simplicity and, and more control. That's great. We're all there. And so I think when, when you look at Smith RX or the path to transparent model, it's breaking things down more simply and in. I think that part of that transparency is access to data. I think that is a like a table stake today. You know, obviously under erisa, self funded clients, they own that data. There should be no issues getting data in today's day and age. Even though that there are some that block that data exchange. It shouldn't be though. But I think more so where transparency is moving, there really should be access to all the contracts behind that pharmacy benefit. And if immunologics or rebates are uh, a concern, dig in, see what those retail contracts look like or the drug manufacturer rebate contracts and the big grids or all of the supporting contracts that fuel this. And again you don't have to boil the ocean on this. Look at your highest cost areas and dig in there and ask a few questions. Can I see the contracts? What's the rev share that the PBM is getting today? Can I see that? What's the conflict of interest? Are they utilizing their own specialty or mail order entity? And what Is that rev share. And that can be fine in many cases but you should know what everyone's getting paid on this and is that pushing up the cost of the drug and the overall spend or do you have control? So I think that control piece of this cost savings is a part of it. But I think overall control, awareness of those contracts and the position to build from I think is most important here. When you think about transparency, transparency to me means control.

Speaker A: Now I'm gonna, I'm gonna ask you to potentially repeat some of those questions that, that you just asked. But in this podcast a lot of folks tune in for, for Tang from the, from the podcast and for this world specific to PBMs, including maybe what, uh, some of what you just said. What questions should our employer plan sponsor listeners be asking a prospective PBM partner?

Speaker B: So first, what's your total cash out that ah, you always take your invoices and you can take your rebates out of that in arrears or just your total spend divided by your members employees, you get to that per member per month. Start looking at the categories like immunologics or GLP1s where your highest cost. I think even if you're fully insured or self insured, you're gonna have a top 25 drug list costing drug list. Look at that, where's that penetration there? And start peeling back the layers piece by piece to figure out where the dollars are going. I think that will give you a overall cost aperture or perspective that you can start to build from now. Figure out what is that revenue stream that the member or the PBM is taking. So where are they making all the revenue? Do they own assets? And that's fine too. But you have to put that into consideration when you start seeing high cost areas. Should they be that high cost or is there a conflict of interest that's driving utilization and a higher cost in those areas? Those are aspects that I think that are pretty simple takeaways. I think it's just figuring out all those little components, getting access to the data and then figuring out where you want to go deeper and then pulling onto that rabbit hole. I think that it's frustrating and overwhelming to just boil the ocean and to go deep and then display. You've got to be super targeted and focused. And once you build that path, then you can measure these same things quarter over quarter, year over year and it becomes a muscle memory. You can help educate those around you that this worked for me, can work for you too.

Speaker A: So what follow up question should they Ask if the answer is no, you can't actually have access to that, but enjoy your quarterly rebate refund.

Speaker B: They have to partner with their consultant and broker on this. The consultant broker is their representative in these negotiations. Keep pushing them and asking, why can't I get this information? Even the big three pharmacy benefit managers, you know, Express Scripts, CVIs, Caremark and Optum, are now moving to transparent, more open models. And so a lot of the data that I talked about, they'll even provide, ask for it and then figure out from that consultant you have a good one. If they can say, hey, we've been able to be successful over with another client to get down a path to get the data that we need. But I think that consultant broker becomes a very important piece to get the data. I'd also work with Collective Health or, or Smith Rx or others in the ecosystem that you know are good actors. Ask them. This is all about knowledge. It's about education. You know what we started with in this podcast and look for best practices across the board. Ask the same questions of a path to path to transparent vendor. Your peers are a great, maybe the best source of information. I think that the uh, the benefit community is very, very tight. It's really this effervescent space where people love to share information that's super important and best practices and even where people have been frustrated. So share your frustrations. If you can't get access to this data, you don't feel like you're getting a straight answer. Go out on the blogs or ask you ask your friend what, what they've done to encounter this or if they've, they've seen the same, same problems. I think with all that, that may seem like a lot, but it's just piece by piece you're just moving very smoothly, thoughtfully down this path to get more information. And once you build that, that understanding and that baseline becomes power, becomes, you know, control item that you can then continue to add to that and then you figure out if you have the right representation.

Speaker A: And there is some element of a smell test too. You know, if somebody's not willing to share data, why I think that that's a reasonable flag to look at. And I think that PBMs are not charities, TPAs are not charities. So if you're getting big checks, if you're getting that quarterly rebate check, if you're getting a $750,000 implementation credit from your TPA, you got to ask a follow up question. You got to say, okay, I know you're not giving me this money. Right, so, so what else is going out the door? That's, uh, that's my take.

Speaker B: I mean, in this, I think, again, total cost of ownership, what is the cash out, but what is that true cost? A lot of the games that are played here are optical games. They're complex spreadsheets. You hear about those spreadsheets all the time and how to attack them. But you can defeat that by looking at the cash out. And if Somebody is projecting 90% discounts on the retail side, or they're stating that they're only making a $2 or $3 per member per month administrative fee, like those, those, those things don't seem to add up to the total cost of ownership. There has to be other revenue streams in other places, and it doesn't really matter. It doesn't really matter where that is. They have their own business models, the PBMs in the market, and you just need to be able to pull that apart at a macro level of the total cost of ownership so that you can figure out these components better and figure out what is the best pathway forward.

Speaker A: At Collective health here we, we tend to say that hidden costs cost the most. So I think we're, we're aligned with that.

Speaker B: And you had, you had no black box moniker at Collective Health. I mean, black box is a, a term and a mantra that you use there.

Speaker A: Absolutely, absolutely. And there's, there's other eyes on this industry right now. Over the last few years, specifically, there's been increased regulatory pressure in the pharmacy world. Can you give us kind of an overview over some of the, the regulatory pressure, the legislation maybe that's been passed and what we can expect in the next couple of years.

Speaker B: So from a legislation and rulemaking standpoint in the pharmacy benefit and drug ecosystem, fantastic. I invite all the scrutiny possible, all the eyes and all the attention, and I think it's totally warranted as we see drug costs spiral much faster increases than on the medical side. You know, we need controls. And I'm just, I'm just excited that people know what a pharmacy benefit manager is. And so on the hill and the FTC, the O.J. state to, uh, state states are getting control of this in a way that they never did before. Before 10 years ago wasn't an area of focus. Today though, every state has controls and rules that they're making to try to get control of this. Are they all effective? Are they deployed thoughtfully? No, that's okay. But we're getting footholds here. We're going to keep Building from that. I haven't seen any legislation or action taken by government agencies right now to totally swing, swing the pendulum and create massive change. I think it's, it's empowering decision makers like global benefit leaders, CFOs and others to make decisions. They're seeing a huge area of focus here, even the media and these conversations that we're having, people are getting more data and information, proof points that uh, they got a bad deal and they need to move. And that, that to me is like the biggest like demonstration of change is that you've got to see change shift moving with the enterprise, enterprise companies out there that no longer believe that the big three PBMs are the IBM solution. So like all the legislation, all the rulemaking, it's having an impact. It's all together that we're going to change this kind of like US healthcare frame.

Speaker A: If nothing else, it's forcing it to the forefront and so you can't ignore it. I know that on the medical world when HMO and PPO models started to take shape, it lulled us to sleep in a way. When you go to the doctor and you pay a $15 copay, you think that that visit costs $15 when no, in reality somebody's charging $200 for that same visit on the back end. But you as the member are kind of lulled into sleep. And I think that the traditional model has maybe lulled us to sleep a bit and we're waking up, we've woken up.

Speaker B: Yes. I don't want to be lulled back to sleep though in the next few years. That's what I'm very concerned about longer term here. I think if we, Collective Health, Smithrx and other good actors here don't continue to push the envelope and make change, that this whole change, evolution or movement that we've created will get papered back over. They'll get papered back over by those that are the behemoths that just don't want the business models to change. They want to stay in control. And so we have to create such a difference, such a new category product where when you look at transparency pass through. Coming from Collective Health and Smith Rx, you see such a different product offering around control, the service models, all of it together, that you demand that pathway. And I think that's what's going to create a lot of momentum that we see today and into the future. So now is the time for action, I would say, and creating that change, uh, the movement is afoot and we just have to Keep the pressure on.

Speaker A: Jake, I have so much respect for you because you have mentioned not only have you built a transparent pass through pbm, but you have mentioned on this podcast that the big three are now offering that transparent model as well. And I know that you are genuine and earnest in your desire to change the entire industry. I get asked questions about collective health to say, well, what if your competition, what if the other TPAs start, start climbing the transparency mountain and shouting from that mountain as well. And I say, absolutely, that's what we want. We want the entire industry to change. And then they get to choose what's the best PBM, what's the best TPA. Now that I'm not worried about these

Speaker B: hidden costs 100 so I see the big three PBMs today putting out transparent pass through models as success. We are moving the market and it's not only us. Uh, I want to put all the credit on the global benefit leaders. Those, those people who are making the decisions for their plans. They are the ones that are moving this market. We're creating just kind of a product and a pathway forward. But they're the ones that, the decision makers at the forefront of this and they need to be kind of elevated into that position. But I think that where this is going to keep diverging, even with the transparent pass through model, we're going to have to measure the success, measure the outcomes. Are these transparent pass through models that are being put forward by the big 3 PBMs lower cost? Do they have a better drug mix? Are they preferencing biosimilars that truly cost the lowest amount or cash price GLP1s, whatever the next evolution is, or are they still misaligned from a business model standpoint where they make more money when the drug costs more, where they can retain more, Are they really disclosing all the sources of revenue or conflicts of interest? That's where they're not going to be able to get away from like unless you want to pull that apart. And you know, a good, a good acknowledgment or a proof point of that would be the Wall street analysts say that, you know, these big carriers that are publicly traded now, we have to adjust the revenue forecast or EBITDA profitability margins. If we start seeing that and if those stocks take a hit because, uh, we have to move because of transparency pass through, we're going to charge less. That is a mark of truth, I would say. And we don't have that right now. We in fact have the opposite.

Speaker A: I think you're right, I see that on the TPA side as well. I'm starting to see an increase in network access fees from the networks where it used to be cheap to access that network. And those costs are starting to climb. And I do believe that that is a result of seeing, okay, some of these revenue streams are going to start drying up or we're going to have to start disclosing them. Jake, I could probably sit here for another three hours and geek out with you on kind of general broad trends. But I know that we should get a little bit more tactical again. So I'll bring us back down to earth a little bit.

Speaker B: Thank you.

Speaker A: With, with our next question. But oh, I love this stuff. You know? You know I love this stuff.

Speaker B: So.

Speaker A: But tactically speaking, for some of our listeners out here, a lot of times it seems like uh, a win lose scenario because employers, they, yes, they want to reduce their pharmacy spe, but what they don't want to do is create barriers to care. They want their members to get the access to the prescriptions that they need. So, so how can employers balance both of those?

Speaker B: So I think that service component here of patients getting exceptional service and feeling supported by their PBM is going to take the forefront. I actually think that would be more important than even cost in the future because I think we're going to control cost. Cost is going to be like a function. The PBM is a box and you're gonna be able to very clearly control that. So that what you exactly talked about here, that service component for patients being able to get down the right drug cost paths, get the right drug at the right time, that becomes most important. And I think now with the biosimilars, with Cash Fresh GLP1s, a few of these categories where there are much better low cost options. Through our Cuban Cost plus, through Amazon, just the right drug mix, that drug mix is going to become the most important piece in the future. And the success of moving patients down that path. There shouldn't be friction here. There should be really a smooth path where uh, somebody who's on high cost brand or special medications, they need those drugs to live. There's a reason and those drugs are exceptional, better today than ever before. But they've always had a challenge, I think, getting those drugs from the traditional supply chain. And so I think there's that, that better, more effervescent plan guiding a patient down to our Cuban Cost plus or to the right drug at the right time that is intact today and become more effervescent in the Future.

Speaker A: So service, so drug mix the service. I think that's, that's hugely important and I, I know that from where you sit you uh, get to work with some really good consultants and some really innovative employers and plan sponsors. So have, have you seen anything else in terms of cost management strategies where, where you're not trading off that, that member experience all of the strategies from

Speaker B: the best consultants and the most innovative global benefit leaders don't trade off. I mean there's like, there's pathways forward that are effective here. That, that should not be a trade off. If you move from one big three PBM to another, there's still a specialty pharmacy move from one specialty pharmacy to the other. I think that transition from one source of supply to another is pretty well ingrained in how we all operate with the pharmacy benefit or people's drugs getting the right drug at the right time. So I think where this will move in the future, like these really innovative consultants and the innovative benefit leaders, they break it down to be simple. They focus on the areas of their highest spend or the biggest frustration points and then they look for what is the small solution here that will move the needle and then they're just additive piece by piece by piece. And that's where I think the consultants, they have good roadmaps, they have a good idea of what best looks like and then as a global benefit leader they're behind trying to figure that out. You can't move everything at once, you can't make all the adjustments at once. Uh, moving anything from a benefit perspective, healthcare benefit is going to be challenging. I mean there's going to be challenges associated with it no matter how smooth it is. And so piece by piece, getting that strategy put together and starting to execute it I think is super important. Uh, uh, making a plug for finding that true PBM partner, something that's transparent pass through that you trust here through the process. That is the most important, I think one of the most important aspects, I'd say the consultants may be more important there because they'll guide you through all the health benefit decisions. But beyond that you need to have control and I think you can only really get that with data and a transparent vendor.

Speaker A: All right, so here's a scenario that I've found myself in actually as a benefits leader in the past and I'm sure some of our listeners will as well. I made the plunge. I switched from the traditional PBM model to a transparent pass through PBM model. I just finished my first year of the contract so I've been able to see that spend throughout the year. But the spreadsheet was 18 months ago where I was being compared to the trans, to the traditional model and, and how much money I think it was going to save us. And the consultant did a great job, but that's ancient history. That was 18 months ago and now I'm a year into a transparent model. How can I measure or show, show the value that that pbm um is bringing.

Speaker B: Dan, you've brought up a great challenge that I think we all need to focus on. Because when you're going through an evaluation process for pharmacy benefit, you're looking at past claims data. So maybe looking at the past 12 months from a period of if you're going to go live in six months, 12 months ago. So you're right, 18 months kind of is that, that lag of data from a cost standpoint, you have to tie that all the way through. I think getting the most recent claim set from your incumbent before you move over. What is that last year ownership. So if you move in January 2026, let's look at 2025 in totality, month over month, quarter over quarter for the whole year. What's that per member per month spend? And then what does it drop to when you go in January 2026 to a pass through transparent PBM? Look at inflation utilization. I think those are two pieces there. Inflation, usually drug cost inflation, 9%, 9 to 11%. And then what is the increase in utilization around like GLP1s or other high cost areas for your population, your employees and family members? That's kind of it. Just look at those, those pieces, look at where the trend goes. You've measured that effectively, simply. And then where you start again because there should be a very good drop there and then it'll start increasing but going forward then those lines are going to diverge. Where if you stayed where you were, you can draw that line into the future with 14% cost increases and then where you end up. And that's going to be a very clear picture of value that you've been able to provide back to the company.

Speaker A: I was with a consultant last week and she said there's going to be uh, another wake up call as we're doing renewal meetings and renewal projections for 2027 and beyond. And she crystallized it by saying flat is 10% and that's medical and pharmacy together. And I think that that is a wake up call because coming from the consulting world, that was the mission. The CFO said, Great, I see your 8% increase I want it down to zero. And that is a Herculean effort. But. But the way that she said it, flat is 10%. That made my eyes bulge a little bit. So I think that there's going to be some folks looking for some new solutions in 2027. Beyond.

Speaker B: Well, uh, no one is saying it's going down or it's truly flat. They're Saying flat is 10% like you said. That is outstanding to me. It's crazy that we don't see an end to these cost increases. And so at SmithRx and I think with other transparent PBMs, our goal is to keep that trend flat with drug cost inflation. And so I think it's the control piece of all of this that becomes so important. Important for you to move off of. Uh, without transparency, access to contracts and being able to see what's behind the curtain, I think it's hard to get any kind of, you know, agency around making change. Otherwise you're just at that, that whim of, well, flat is 10 or flat is 15%. Somebody just tells you that you have to take it to face value. I don't think we're not willing to accept that anymore at all. And that's awesome. We're putting our foot down.

Speaker A: Agreed. Now, yet again, this could be an entire podcast on its own, but we would be remiss if we did not talk at least a little bit about AI. So you, from where you sit as the leader and founder of pbm, what do you see happening today and what do you see as AI's role in the future of shaping those decisions and then also the administration of pharmacy claims?

Speaker B: Yeah, AI impacts everyone. Every day, every person listening to this podcast and me individually, we wake up, we read the news and say the new articles. What does this mean for me? What's AI going to do? And that keeps changing. What we know today was very different than three months ago, 6 and 12. It's accelerating. I find it very scary. I'm personally very stressed with the pathway forward and probably more stress now than I've ever been at Smith, because I think that we have to figure out how to do this thoughtfully within the ecosystem to maintain control, security, but also figure out how to deliver just better benefits for patients and better control. And so if I look back at our journey at, uh, Smith, about two and a half years ago, we started to think about how do you create a single pane or one amazing customer service interface for our members? And we take about 150,000 calls per month. These are patients calling in, but they ask very similar questions. Is my drug covered? What's my prior authorization status? Where can I go get this drug? We have about 10 questions getting asked 90% of the time. And if you think about a plan under a company, there's a lot of complexity there. And even with the family structure, you have the subscriber employee, all the family members, everyone is on a different member cost share journey. And so you can't just say here's your member coinsurance because it could be wrong. And so I think that what I'm trying to paint here is that AI can be useful but really effective data usage and deterministically pulling that data for that specific patient for that specific question is most important because your accuracy has to be 100%. And that's what we've done over the last uh, two and a half years. And since the beginning of Smith is focused a lot on our data quality so that we can pull that data out of our databases, deterministically surface it in a way that's thoughtful. Uh m. We wrap it with an LLM with AI but then we will surface also why we think that that patient is calling. Have they had a denied claim in the last week, do they have an open case of prior authorization or any other aspects of the plan that get flagged? And those all get put in cards for our service agent to then be able to respond more effectively with patients. I think that's like a really good way to think about AI and creating uh, a better experience for patients. We're exposing all that to our members so that when they self service through our portals, they'll be able to have access to the same data and the same kind of support that they would have when they call in. That is a good use of technology and AI. We really want to keep this as intact as possible and move very thoughtfully down this path.

Speaker A: One thing that you said is that it has to be 100% correct. And that sounds simple, doesn't it Jake? It sounds simple but I was actually speaking with Ali, our CEO and founder of Collective Health recently and he was saying with uh, a lot of the new legislation, I'm sure you're familiar with MRFs, the machine readable files and another kind of effort on the medical side for, for, for more transparency. And, and what we're seeing though is that the claims submitted in addition to those MRFs, we're looking at the correctness percentage somewhere in the 70s. In the 70s. And that's not 100%. And uh, and what Ali likes to say is what if, what if our credit card statement every month was only 75% correct? We wouldn't.

Speaker B: It would be unacceptable. It'd be totally unacceptable. Right. So why is it acceptable here? And that is not the benchmark that Ellie and Collective Health nor Smithrx we hold ourselves to. We have a different benchmark of quality and it's got to be 100% especially for these. You can't get it wrong with a patient.

Speaker A: So you talk about quality, you talk about transparency, you talk about contracts. You are now an advisor. So let's say you're an advisor, Jake. You're talking with a chro, you're talking with a chance fo who's, who's entering into their benefits planning cycle. What are uh, kind of the, the top two or three pharmacy related priorities you would say they should focus on,

Speaker B: I think creating the strategy from a first principle standpoint. Where do we start? You can figure out where they are today. Everyone's going to be at a different point in that journey. Figure out what parts they command, they feel comfortable with. What are the risks? I think that's, that's a very interactive or question focused start. And then you start building from there and start focusing on high cost areas, total uh, cost of ownership on a per member month basis and start filling in the blanks. And so you have the frame complete end to end. You have their strategy, where they're at today, where they want to go in the future, where we think the ecosystem is going to go Even with like GLP1s and more competition coming into the space. Even, even the Wall street analysts are some of my favorite people to listen to on, on a lot of these things. They're great with the trend, but they're saying for the, the uh, GLP1 drug manufacturers that even though utilization's increasing significantly, that cost suppression from more competition and larger rebates or lowering the average wholesale price, that's going to keep their revenue streams flat. And so I think you pull this back and you focus on a few of these key pieces of what you should be concerned about with a specific plan and keep asking the simple questions and encouraging that. I think especially that buy in from the chro, the benefit leader, you have to get engagement and you have to make sure that they're along on the path, that they're a partner in this. Because I think a lot of consultants will snowball. They'll put into their blender of a spreadsheet or try to overcomplicate things when it needs to Be super simple, easy, executable, just that's what I would do. I'd make it make that path as simple as possible. Just breadcrumb it.

Speaker A: Now Jake, I have to play devil's advocate at least once on this call and uh, you might be a little biased, but I also know that you will answer this question honestly. Is there any scenario for an employer where the traditional model still makes sense?

Speaker B: I think it goes back to where that employer is at and on their journey. I think that if you're very early and you're getting command of all these data inputs and total cost of ownership and per member per month, that easy button still can be that traditional model. And I would not fault somebody for taking that path. I think that they should in that evolution, uh, extend and aspire to get to a better place in the future where they can make a better decision in three more years. But I think a failure point would be you take that easy button. Whatever they can handle, maybe their HR team is handling an hris, system integration and a lot of other big work this year and they just can't deal with, with this. That's fine, that's totally reasonable and real. But in three years make sure that you have the time and bandwidth and you put enough time and effort in across the way to understand this from a first principles or just simple way that you can make a better decision next time. I think that will be the failure point is in three years you're still making that easy button solution because they haven't been able to focus enough time on understanding it.

Speaker A: I think that's a very thoughtful way to answer that Jake. And we, we find that as well with our client base and prospective clients. It's a spectrum, it's a continuum on where they are in their benefits journey. And you know, some, somewhere on this side it's. Well, we're just trying to pick the right network that has the best medical discounts for our population and then. Oh, and then maybe we can start playing with the CO pays and, and the plan designs and the CO insurance and so it's a continuum. And then you know, over here you've got folks that are doing best in class carve outs, they're doing direct contracts, they're doing advanced primary care, they're doing a transparent pbm. They're focused on fraud, waste and abuse. So but it is, it's a continuum. And so I'm glad to know that you are there to meet those employers wherever they are in that journey. Last question here, Jake. Looking toward the Future. What is, what's one assumption that plan sponsors and employers make about pharmacy benefits that, that you would like every plan sponsor to challenge?

Speaker B: I think the challenge going forward, the drug mix piece of this, I think the biosimilars gave us a great, like baseline proof point around lower cost specialty products for Humira and Solara that's been hugely successful. Even the big three PBMs have their biosimilar, uh, strategy intact today. But I think that those pathways, the drug mix are going to continue into the future. And I think that that's where I want everyone to keep pushing to ask what's coming next, like how will my position continue to evolve here? The pathways open up where I can find lower cost drugs and my patients can get the drugs they need at the right time. I think that's something that, I think the collisions here and the pace of change in the drug ecosystem, there's going to be more and more opportunities to, to create the biosimilar type of a pathway or market cost plus threat contracts, whatever it may be. And let's be open to that because I think that that is true innovation.

Speaker A: Agreed. So it sounds like there's solutions out there and I think an easy assumption is, well, costs are going up, there's nothing I can do about it. And I, I think that we are both challenging that assumption that you're not helpless out there. There are solutions, there are strategies. You can work with your consultant, you can work with your pbm, you can work with your tpa. So hopefully there's a glimmer of hope here at the, at the end of our podcast. And it's not a glimmer.

Speaker B: Rising cost, it's not a glimmer, Dane. This is real. It's happening now. The movement has been created and we are making massive change. We should all be optimistic about changing US health care and creating just better benefits for our employees and their family members. That's why we're doing all this, to help people. And I think that's happening.

Speaker A: Let's be blinded by hope. Yeah, this is fantastic. This has been so great. Jake. I said that was the last question, but this is really the last question. How can people reach you if they want to connect with you? If they want to learn more about

Speaker B: Smithrx, talk, uh, with your consultant or broker. Tell them that you want smithrx on your RFPs. We're happy to participate. Also just, just reach out directly. We have a, uh, just a salesmithrx.com sales smithrex.com email address. You're welcome to email me. My email is Jake, Friends F R e n z smithrex.com and we'd love to have the conversation. We'd love to open that campaign of conversations to help give you the foundation even if you don't choose Smith or X. But it'll help give you that wherewithal and a better pathway forward. So we're pumped about it.

Speaker A: Well Jake, I knew this would be great and you did not disappoint. We can talk about high level trends, we can talk about what's exciting, at least to us benefits nerds. And then we can talk about what's tactical and what people can actually be doing to address these things. So thank you so much for joining us today, Jake. And thank you for the fight that you are fighting in this world and the hope that you're bringing all of us.

Speaker C: Awesome.

Speaker B: Uh, thank you Dane. Collective Health. You're on the right side of the fight too. Appreciate it. Thank you so much.

Speaker A: If you're enjoying the benefits playbook, we would love your support. Please take a moment to rate and review the show. Wherever you listen, it really helps others discover us and join the conversation. And while you're there, don't forget to hit subscribe so you never miss an episode. If you know a colleague or a friend who'd enjoy the conversation, share with them too. Thanks so much for listening and we'll see you next time.

Speaker C: This podcast is brought to you by Collective Health. In health Benefits, conventional wisdom says you have to choose better care or lower costs. We give you both as the leading independent tpa with over 800,000 members and counting. We unify plan administration, cost management, and a member experience your employees will actually love all in one place. If you're an HR leader or consultant ready for a more transparent benefit strategy, get in touch@giveivehealth.com playbook.