Ep. 103 - Follow the Money: Inside America's Drug Pricing Black Box (ft. Tesh Khullar)

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And this is working healthcare. Americans pay more for prescription drugs than anywhere else in the world. Even with insurance, the average person is still spending $1,100 a year out of pocket on medications. We spent about $467 billion on prescription drugs last year.

And yet, patients are still standing at the pharmacy counter being told no. So here's the question if we're insured, if we're spending that much, where is the money going? That's what we're unpacking today. I just interviewed a friend of mine and somebody I do a little business with, Tesh Coolar.

He spent more than nine years at McCassin, one of the largest drug distributors in the country, leading oncology sales and account management. He then spent six years at Flatiron Health. He co-founded House RX, and he's now the founder and CEO of Prism TPO. He's working there to bring transparency to drug purchasing for independent practices.

So he understands how drugs move, how they're priced, and where the friction happens. Tesh Kular, welcome to Working Healthcare. Thank you for having me all the way from California and live in the studio. This is fantastic.

I know. I'm very excited about that because you and I have known each other for a few years now. You had a conference in Orlando and you're like, let's just do this live. I'll fly down.

And then you're leaving out and scooting out back to California. That's right. But this worked out perfectly. This did.

So, Tesh, how did you even get into healthcare? By complete accident. So out of college, I worked for a consulting company, Anderson Consulting, and they put me on a project, and it was the first distribution company in the community oncology space called Oncology Therapeutics Network. Then Enron hit, and I basically had to find a job, and the that company kept me.

So I started off on the technology side, got fascinated by the business side, and through various different roles at Oncology Therapeutics Network that got acquired by McKesson, I learned a lot about how the sausage is made and how pricing works in the marketplace. And then I have a personal story I can get into later on about what kept me in healthcare. Well, I'd love to hear what kept you in healthcare because you were an executive at McKesson. You were there for about nine years.

You migrated a few other places, and you and I actually met because you are the co-founder of House RX, which is a medically integrated dispensing pharmacy in the oncology space, in the rheumatology space, which is where I fit in, and in the GI space. So tell me why House RX and what kept you in healthcare? Yeah. So I was at McKesson, my mom was diagnosed with breast cancer.

And so I thought, okay, well, this should be very, very easy. We live in Southern California, plenty of access to providers. But between the navigation between her oncologist, her specialist, uh, health care, her insurance plans, uh the surgeon, the radonc, it was extremely difficult. Forget about the cost side of it.

It was difficult for her to navigate care, even having me someone that was in the healthcare setting. So I said, we had to find a better way. And back then, this was late in 2013, Flatiron Health was a new startup that was in the market, talking about bringing data to oncologists at point of care so they can make better decisions. In other words, you could get treated the same way at a community practice as you would at MD Anderson or at Cedar Sinai.

So that really I gravitated towards that. So I left in 2014, uh, led the providers out half the company at Flatiron Health. That got sold to Roche. And so I said, that was a fantastic mission of to get data at point of care.

But then I realized it wasn't enough because so many drugs were now going to the pharmacy benefit side. So after a brief SNP Foundation Medicine, where I learned about the genomics space, I then knew Ogi, my co-founder from Flatiron, and said, you know what? Oncologists are dispensing right now, but they're doing it in a very poor way. Why don't we create our technology that'll help them do it and expand it to other specialties?

Because I knew from my mom's experience the best place for her to get treated uh was absolutely at the community oncology practice. So why can't we have that same experience in other specialties, which is why we formed House RX? And doctors know the drug that they want to put a patient on. Absolutely.

But it's often not the drug the patient gets to go on. That's because of a formulary. Yes. Describe who gets to choose the formulary for an insurance plan.

Yeah, it is well, the the PBMs run and control the formularies. And it's really interesting because this is only on the pharmacy benefit side. On the medical benefit side, as you know, Meredith, you can essentially use the drugs that your doctors think is best for the patient. You control that, your physicians control that, but not on the pharmacy side.

But manufacturers essentially pay PBMs to make sure that their drug gets a priority on formula. And it is a it is a money-making machine for PBMs to control those formularies and make sure that they understand which drugs they're gonna approve and which drugs they're gonna make extremely difficult to approve with something called a pre-auth. And pre-oth, you know this very, very well, are really there to control costs. And so the more pre-oths that you have, the more likely it is that you're gonna just use a drug that they want, the one the PBMs make the most money on.

Let's talk about PBMs. It is becoming part of our nomenclature now. Even in Congress, everybody knows what a pharmacy benefit manager is. Can you talk to me a little bit about the history?

Like, when is the last time you heard what a PBM is? Because I know that I must have heard this term. I feel like it was even post-COVID. It seems like that's what my life is, right?

Before COVID and post-COVID. I want to say maybe five, six years ago. And it took me a while to even figure out what it is. In fact, Dr.

Maddie Feldman, who was one of my first guests ever on working healthcare, is a huge advocate for pricing transparency and PBMs, anti-PBMs. And she shared this information with me. But how do you put it into terms? Why did they even start?

You know, so they were they were in an intermediate area that formed. Actually, when they first formed, it wasn't a bad thing. You know, the government couldn't control the new kind of uh the the huge kind of increase in oral therapies that was happening across all therapeutic areas, but in but in particular in the specialty setting. So they needed some entity to decide which drugs are therapeutically equivalent, which ones should they approve, and they didn't have the manpower, and nor do I trust the CMS to kind of do that themselves.

So they outsourced it. They said, let's have these new kind of companies that became pharmacy management managers control uh essentially which drugs that they're gonna be able to prove or not on the Medicare side. Now, then Medicare advantage or disadvantage comes along, and then you have them controlling it essentially for the entire market. So they're the ones that when they were independent, it was actually okay.

The problem was PBMs then got gobbled up by insurance plans. And when that happens, now you have the person that's paying and really getting incentives to have the drug that they make the most money on getting approved for formularies. And that became an inherent conflict of interest, which is why we see the PBM as it's evolved to now, which is just a money-making machine for the insurance companies. And there are three companies that are PBMs and handle the transactional care, right, for prescriptions throughout this entire country.

80%. And the three are CVS CareMark, Express Scripts, who is owned by Cigna, and we know CVS CareMark is Aetna, and then we have Optim RX, which is United Health Group. United Health Group. I bash them a lot, but I guess I bash it because I personally struggle with the understanding of healthcare, which should be a humanistic process or a humanistic profession or company, and now going into the area of mass conglomeration and extracting as much profit as possible.

And they are the third highest revenue-producing company in our entire country. How did it get how did these three PBMs acquire 80% of the marketplace? Yeah, it's a really, really good question. So what when when the Medicare Modernization Act happened, this is back in 04, 05, that and then you saw the kind of the drastic increase in the cost of drugs.

What these uh insurance companies realized is they needed to control the both the horizontal flow of the patient and the vertical flow of the drug, because as these drugs were increasing in cost, the more they could control, the more money that was to be made. And as drugs skyrocketed, and I'll use oncology as a perfect example, because that is the highest cost of therapy in all specialties, you see that these these insurance companies were just ahead of their time. They said, I I am going to, if I have the the the primary care physician all the way down to now the specialist that I essentially employ, then I will control which drugs are actually going to be administered.

And by the way, if the physician decides to use a prescription drug, I have my PBM to make sure I can still make money there. Which, you know, once again, it was them understanding where the puck was going and essentially creating and owning the whole, um, the whole ecosystem in which they were going to optimize and make the most money for. So look, I this is America. I think companies exist to make money, and that's okay.

But I think when you do it in a way where you don't put the patient at the center of the experience, that presents a problem. And now what we have is a patient experience. Forget about the financial cost for the patient. Their experience is one that is so disjointed.

Going back to my mom, uh, when she had um breast cancer, she needed oral and IV therapy. Now, we were not able to get that oral therapy at the community oncology practice. We had to go through a uh a PBM. So now she had her IV treatment right at her community practice, and she had to wait two weeks for her I for her oral therapy to arrive at our at our door.

And by the way, they say it's coming sometime in this in this day. It didn't arrive as day the day it was supposed to. So we were literally waiting, delay in care. It leads to way worse outcomes for the patient, let alone the experience of somebody that is older having to wait for therapy that they know is life-saving for them.

And it was really, really difficult for me to see that. But that's what happens to every a lot of patients across America that are forced to use these insurance-owned kind of ecosystems that you know really well. How do PBMs make money? Who pays them?

Manufacturers. They primarily make, well, they make it too in in a couple of ways. The primary one is for manufacturers because they control formularies. So I'll use um an example of when um one of the one of the engine drugs, New Lasta, you know, we was going to uh biosimilar.

Uh we they went to these PBMs and said, in particular, one of them, and you guys can figure out which one this is, and they said, if I want to keep this drug on formulary, even post biosimilar is coming out, essentially, what's it gonna cost me? So they paid a lot of money to keep their drug on formulary. So as a biosimilar came out, which as we know, biosimilars, uh, it's lower cost for the patient. The provider actually makes more money on it, which providers in the community need to make money in order to keep their doors open because you don't turn a patient away.

So the fact that they needed to that they did that was was disjointed from how the patient experienced and what they had to pay, and also what the provider had to was actually making on it because they were forced to use a branded drug, higher cost, just because the PBM made more money because it got paid by the manufacturer. The second way they make money is essentially handling Medicare disadvantage, and they get paid a fee, as we all know, from the uh Medicare to be able to kind of handle that on behalf of all of the Medicare plans.

When I do my advocacy work and go up to Tallahassee or go up to DC and we talk about PBMs, I ask our legislators, I ask our Congress, what do PBMs tell you? What is their side of the story that shows that they are essential and necessary and they should be making this kind of money? And what PBMs say is we're costing the insurance world less money. We are costing Americans or we are Americans are getting to spend less money because of us.

Do you buy it? No, and for the simple reason that if that was accurate, then insurance premiums for patients should be going down over time when insurance companies acquire PBMs. But have you seen your premiums go down? No.

And deductibles go down? Absolutely not. So that so if that happened, I would actually give them credit for it, saying, yes, you're lowering the cost of care and the patient experience is actually getting better, but that's not happening. So therefore, I don't the the two doesn't don't don't make sense.

They don't, they don't, they don't jive with me. So if I go to the pharmacy and a medication is not covered, is that the PBM stating that it's not covered under the formulary? It is, it is, um, that it's no, it's not a preferred on the formulary. They really can't say if it's a medical necessity, they can make it harder for you to actually get it administered by putting a pre-auth in there, but they can't, and if they deny it, then there's an appeals process, as you know.

But yes, it's the PBM that controls the formulary that is saying uh you can't use this drug. It is not either medically necessary or we have another preferred drug you should be using. So they're the ones that that decide which drug actually is the one that they're that is in network, that it will be approved at in network and at the cost for the patient that is supposedly the least cost for them. What are the chances of a patient getting a denial overturned if it is not the preferred drug on the formulary?

I mean, so I I don't know, the percentage is off the top of my head, but the reason why I know it is it is a a long, drawn-out process is because the physicians that are a part of the insurance companies that are looking at those appeals are not the specialists. So, like for example, they're not a rheumatologist looking at your um, you know, your your appeals. It's a it's a pediatrician, it's it's a physician, but it's not the same uh specialist. And so therefore, they're not experts in the field and they don't know whether or not, you know, it was okay for you to prescribe actemora or not.

So therefore, because they're not educated to make that decision, they're likely just going to delay, delay, delay until you decide as a provider, I'm just gonna do something else because I can't wait any longer. The patient needs therapy. I interviewed Worce Bacari, who you and I both know of claimable, and he shares a story that during the California fires, his asthma flared up, and he's been on the same medication for 20 years, I wanna say. This asthma medication.

He goes to get a refill and they deny it and they state it's no longer on his formulary. He said, Thank God I had enough money to pay for it out of pocket and then appeal, but it took three months to actually get that denial overturned for him. And I, if I recall correctly, it took about three months, and the drug was only about $250. When does a drug become preferred on the formulary or not preferred?

Is there an amount or a benchmark of how much that drug sells for? Like what about $5 drugs that are super cheap? Is it like $100, $200? Because $250 is not uh not one of the drugs that we use in the world of rheumatology.

So what is the benchmark as to when you have to actually create a formulary for an insurance company? So, I mean, uh roughly speaking, I'm not sure if it's still the same benchmark, but they for a while they use $1,000, um, which I'm not sure if it's increased or not. But in general, it's not about the cost of the drug, it's the profit that the PBM can make. What was interesting and fascinating is a couple of years ago, Meredith, um you have, and this is all publicly available information, Optim made more money than United Healthcare.

So think about that. The PBM, which is owned by United Healthcare, made more money than the insurance side of the company. And why is it? Because they're optimizing profit, right?

And um, and once again, I would I'm not opposed to that as long as it leads to lower costs for the patient, which we're still not seeing. But that was really fascinating. That now a company they bought to control essentially what gets prescribed is making more money than the insurance company itself, which is the child making more money than the parent, which is fascinating. Well, let's talk about that vertical integration because United Health Group is one of those, it is the mammoth company.

So United Health Group is the umbrella. And you mentioned Optum, Optum RX as their PBM. Optum actually is the employer of 10% of physicians in this country. And then they have Change Healthcare, right?

Which is their, what is that called? The uh technology of switch. Thank you, their whole technology program that literally pays providers, right? Yeah.

And there isn't one area within the healthcare system that United Health Group doesn't have a stake in. How does this negatively or positively impact our cost as patients? I I think it's actually irrelevant about the cost that we pay. It is only the profits that they're gonna make.

Um, because so that this is what my mom with that time, what we were under United Healthcare. And because her primary care physician uh was working with their the oncologist who was in network, essentially they were controlling it, you know, where what what drugs she was gonna be able to get and how and and how the mechanism of how she was gonna be able to get it. So it did not lead to, if it was leading to better access, fantastic, it did not. Was it leading to lower costs?

It did not. Was it leading to you know better overall patient experience? It was not. So, you know, whenever I think about um, you know, why I want to do what I want to do and why I want to be kind of vocal about you know when we started Prism and why we wanted to do that is because this lack of transparency really leads to companies making more money, but not the patient experience getting better, which is very, very frustrating.

And only the only way we can solve this is if insiders that understand, you know, how and who's making money in this chain expose it and do it in a way that is patient-centric. How does this make it so difficult for independent practices to succeed? It makes it extremely challenging. And let's put 340B aside for a second because we can spend time talking about why that by itself is putting practices out of business across many, many specialties.

But, you know, when in one of my former companies I used to work for, obviously on the distribution side, I remember a senior executive, Meredith in a in a in a leadership forum, had a comment that really that I kind of took to heart and realized I can no longer work for that company. And the statement was there is money to be made in confusion. And so when I thought about that and I said, oh my gosh, the model is opaque by design. And if it's opaque by design, how does an independent practice, who's once again already competing with the hospital PBMs, uh, they're competing with their the 340B institution, they're competing with so many different ways that they're not gonna be put out of business.

How are they gonna be able to be successful? Because it shouldn't matter the size of the practice, whether or not you're getting the best pricing or not, everything in a transparent way should be made available. That data, that information should be made available to everybody. Otherwise, it'll be extremely difficult for private practice across specialties to be viable.

And let's talk about price because I'm even confused by price. And I live in this world, right? I'm looking at the cost of drug every single day. And this is where I get really frustrated.

And I'd like for you to explain to those who are listening. You have a list price. Yep. There's a discounted price, and then there are rebates happening behind the scenes.

How does that impact practices and what the hell are they all? Yeah, that's it's a really good question, which is this is fundamentally why we wanted to show kind of who's making what in the channel. So list price is set by pharma, right? It's WAC or wholesale acquisition costs or AWP on the pharmacy side, average wholesale price is a list price essentially.

But how do they figure that out? Oh, um, like how does pharma come up with it? Yeah. Look, there I don't think there's a science behind it, but I'll tell you when I was part of a process of one of the drugs early on in the biologic setting getting approved, they used the highest cost drug in the setting and increased it by 10%.

So pharma determines it. I'm not saying like that's what RP Pharma does, but it is a what is the cost right now? And how, and because of the like RD factors of creating these new drugs, it's more expensive. Therefore, there should be a higher cost of new drugs coming coming out.

And you know, immunotherapies in oncology are fantastic. They treat patients in a different way. So, yeah, there should be a higher cost, but we live in a world where reimbursement is pegged to the cost of the drug. Therefore, the incentive is to have newly new drugs to market be higher priced, and that's a Essentially what they do when you create it.

And I want to jump on that because you talking about the list price, and I'm sitting back here thinking, I have to review the list price every quarter, and I have to make buying decisions every quarter because reimbursement changes every quarter. And we're not just talking chump change. Our company collected $26 million in revenue last year. $15 million was drug.

Yeah. I mean, that's and that's going to increase as you know. Yeah. And that is the world in which I live because I'm in rheumatology.

And oftentimes the list price is not given out by the pharmaceutical company until after the beginning of the new quarter. And so we're trying to figure out can we afford it? Are we going to be upside down? Where should I purchase the drug from?

Should I buy early? I like to say buy low and sell high, like buy before the end of the quarter. Why are these pharmaceutical companies giving out the list price after we've all bought the drug in the new quarter? Yeah, it's it's really funny that.

So whack, if you if you call your distributor and say, what is the whack of this drug? What is the whack of uh of Ectemra? What is the whack of Remeke? Like just ask them.

That should be something that should be pretty well easily made available, right? It's not. And and but and and most of your contracts, so going back to how like all the pricing works, there's the list price set by pharma, there's there's discounts, and there's rebates the distributors give to win your business. And then there's manufacturer contracts that they give uh that essentially provides additional value to more than likely private practice settings, because as you know, pharma is anti-340B as well.

It drastically cuts their profits too. So you look at the those different those various channels, contract price that Pharma sets, which once again is a discount from WAC or list price, is all based on list price, all based on WAC or AWP. So unless you know what AWP or WAC is, you won't know if you're getting a good contract discount or not. And so that is a fundamental, like just one of the one of the major things that we we decided had to be made completely transparent, because if you don't know what you're basing your manufacturer price increase or your contract price on, how do you know if it's if it's gonna be enough for you to make a profit or not?

You won't. So I've been doing this for almost 19 years, and only until about 18 months ago, and I'm not kidding you, and maybe other people were way ahead of the game, but I literally created a spreadsheet, like a graph that shows me each drug. I have the list price is X, I have the percentage of the discount, I have the cash pay or early payment discount, and then I have the rebate, and I include all of that, and it's the only way that I know how to purchase from a different specialty pharmacy.

I have no idea what I'm paying, right? But I'm looking at the discount, the rebate, the early payment discount, there are all of these other factors. How do specialty pharmacies come up with the discounted price or the discounted percentage? Yeah, so it's um it's it's a it's a good question.

So if you think about pharma wanting you to thrive, I mean, because it's it's uh they make more money in the private product setting versus almost all the hospitals, as you know, are 340B. So they're making less money there. So if you use that as a as like a signaling truth, then they just determine the the price and and they try to they try to good pharma try to forecast what ASP will be. So if you can forecast what it what you think it's going to be, or the kind of around the area, how much of a discount should they be giving to make sure that you're making money?

That that's essentially what they do. And they have lots of smart people, lots of smart analytics. But the problem is, is that for you to even know what your net price is, just your net price on a drug, you have to be an expert understanding all of these different factors. And once again, the biggest thing that Prism wanted to solve for and why we formed this company is I when any company I was at Flatiron, when I was at House Rec Foundation Medicine, going back to my distribution days, when I get calls from physicians and physician offices, they were always asking me two things.

How do I know I have a good distribution deal? And how do I know if my GPO contract is good or not? And you don't unless you can benchmark it against someone against another, another kind of practice or what else is out there, which is why we wanted to create a model that had everything on the distribution side up front, no longer waiting on generics rebates, biosimilar rebates, volume rebates, uh-uh. Because that is that, and they all pay them on different times.

So confusing. In our model, everything is up front. So when you buy your drug, all the distribution value is up front. You get it right away when you buy your drug.

So, yes, there's a manufacturer side you got to worry about, which we can help with, but but that that is it, that is the next problem we're trying to solve for the manufacturer side. But at least you know, okay, consistently across all my practices, if you're a one-dock practice or have a 35 doc practice, you are paying the same price. Why? Because we also cap the profit that a distribution company can make.

So now, now everybody can understand that, okay, I'm getting this price, but I'm also knowing exactly how much money the channel is making on my volume because contractually, if they don't, if they make more than that, they got a rebate back by practices. Companies who work and purchase under GPOs, group purchasing organizations, I can see where they have that ability too, whether it's a one-doctor practice or a 200-doctor practice, they're buying under the same GPO. Yep. Why are rebates aligned to GPOs?

Uh, because of a safe harbor. So uh what you can when you when a rebate because of it's uh GPOs perform a bona fide fee for service and actually administer that rebate. The admin fees that pharma pays to administer uh these rebates actually do not go against ASP. That's how it was formed when GPOs were first formed, which by the way, I'm not against that.

You know, but that's how that's how we transparently make money is GPO admin fees that once they and I cannot pass back on to a provider. So we perform the service of actually taking, and by the way, Prism is a TPO, which which, yes, technically we're a GPO, but we're the first transparent GPO that never exists in the specialty space. But our service that we provide is taking money from pharma that you earn and passing 100% of it back to our practices. Uh, there's a problem with that too.

Without, without groups like us existing, there's so much time it takes from a manufacturer paying the rebate to your GPO, then getting it back to you. You're talking about 120 to 150 days of waiting, waiting, and then and you still have your bills, you still have you still have paid for that drug, you may or may not have gotten reimbursed a full amount, but you're waiting on that value coming from pharma because it takes so long to go through the channel to once again get back to you.

That makes no sense. Why do pharmaceutical companies offer these rebates? Why not just lower the cost? Or I know we can't have kickbacks, right?

And we have Stark laws, but why can't the price of the drug just be lower and we have to play this game with rebates? I mean, I know hard math to a degree, right? But you almost have to know math really well to be able to figure out all of the formulas. You do.

They do it to manage ASP. So remember, uh rebates are counted against ASP. So they give you all the value up front. It'll artificially lower ASP, which will then affect you the next quarter.

So that the rationale for doing it that way, I think actually makes sense. But once again, they're just playing the game that was set up about how we're reimbursing uh our medical practices in the US. I think that's a fundamental change we have to make is changing the way the reimbursement actually works instead of and then allowing many manufacturers to say, okay, whether I do it OID or off invoice discount at point of purchase or I do it in a rebate, it has the same effect at the same time on the reimbursement.

Because you're right, then then manufacturers would want to do it, and they do do it in the biosimilar space. They just don't do it in the branded space, which is, you know, yes, it's helpful, but it's not as helpful for you because generics and biosimilars versus your brands, Meredith. I mean, 80, 80% of what you what you buy are still brands, right? So more than that, I can't even buy biosimilars because we're upside down.

Yeah. We cannot purchase the drug for less than it is getting reimbursed to us. And if we do for maybe a year, but we know in the pipeline, because of everything going on behind the scenes and the list prices, we're gonna be upside down. And I don't want to start by putting a patient on a specific drug that I know in a year I can't even deliver for them.

Yeah, that that is and that is once again not patient-centric that you're having to do because of the system that's created, which is which is extremely unfortunate, which I which I think go back to. We have to begin by changing the way that reimbursement works so that essentially as much value as possible. Now, we're PRISM is only solving for the distribution uh and GPO optimization side. We're not solving for the manufacturer side.

So I'd like to solve for both to then get the entire value up front. So then you have the you have the cash flow advantage rather than the GPO or the distributors that currently have the cash flow advantage. You said that the price of drug is going to continue to go up for me. I feel like the price of drug for me has gone up because of the number of patients coming into our practice, and that has gone up.

I will tell you, very recently, I think it's probably only been in the last, I don't know, four or six quarters. The list price has actually dropped for a lot of my drugs. So I would get a certain spread on the drug, and my spread has decreased because my acquisition cost hasn't dropped for as much as uh, or I guess the reimbursement of it hasn't dropped. There's a there's a misalignment, right?

I can think of one drug in particular that I don't want to name on this podcast, but specifically, we used to get a pretty decent spread on that drug. And I went through the process of speaking to multiple people in that this pharmaceutical company to have a better understanding. My spread like dropped in half, and it is a very highly utilized drug in our practice. And I can see that the list price has continued to drop and drop and drop.

And the answer I got was pretty much about average selling price and ASP, and they have to realign. What does that mean? Yeah, so that's really interesting because we and maybe that's an anomaly in the rheumatology setting, but normally what practice what what uh manufacturers want to do is take manufacturer price increases to increase ASP over time, right? Because then your reimbursement goes up.

If they're decreasing price, then then they're decreasing ASP. So what that tells me is once again, I know what the pharma company was, it's a it's a mismanagement of ASP because they should be managing a lot better where they don't have to do that because that that affects your bottom line, uh, which is a terrible thing. Like, I mean, they're the last thing that they want is for you to be able to go, you go out of business or you to have a financial hardship because of the fact that they mismanaged your ASP.

Now let's talk about specialty drugs, which is really the most expensive part of the system. So specialty drugs make up about $265 billion in spending, and it is continuing to grow. You and I actually met a pharmaceutical rep from Oregon today, and she shared with us that her company is getting acquired, and they provide a biosimilar for Humera. And I joked and said to you, I think there are like 11.

You're like, oh my gosh, so many more down the pipeline. But the spend is going up and up and up. What makes a drug specialty to begin with? Um, so it it it has to be well, one, the the from a if you're looking at it from an insurance company perspective, oftentimes it's the cost of the drug, but it's a setting it's being used in.

So is it used in a in a very kind of uh uh specialized uh therapy like um like oncology, like rheumatology, like urology, like neurology, where you essentially are not giving that care uh in the primary care setting. That's really kind of what it was originally formed to do, is not giving in the primary setting. You have to go to a specialist, and the drugs the specialists use are normally classified as specialty drugs, but I use this anonymously with very expensive drugs. And that's what it is.

It it reaches a certain threshold, and it's just a really expensive drug. What happens when a patient can't get that drug quickly? And I know that was your experience with your mom and your desire and Ogi's desire to create House RX to provide an option. And I share your story by the time by the way, a lot because I sit on the advisory board and people ask me why I chose House RX.

And I'm like, you have to like the people who founded the company. So there you go, Tesh. I like you. Uh but going back into getting access to these drugs, we talked about the formulary, we talked about the expense.

If it's not on a formulary, what can patients do to acquire these drugs besides paying out of pocket? Are there options for them? Yeah, I mean, look, um, if it's not on a formulary, the the option, their only option is to not go through the insurance company because but but most of the drugs, uh, especially if they're covered by Medicare, have to be on formulary. That is, that is a good thing the government forces.

It's got to be available. It doesn't have to be, they don't, they don't talk about the cost side of it. And so one of the main things that House Rex did, which I think was um revolutionary, uh, is essentially have this team of experts. A bunch, it is an army of pharmacists and pharma techs that can take on all of the administrative burdens or the vast majority of it for practices.

So literally all you have to be able to do is say, okay, I got the approval. Let me get the right patient to the right drug at the right time, which is complicated enough. Like they needed to be an army of people that can do that remotely, it's cheaper remotely, versus you hiring it and then and then an oncology practice down the road hiring it. So doing it across specialties and doing it in a way where technology could actually do a lot of the work for practices.

And so that's why I think we formed House Direct to be kind of the scaled-out version to be able to learn from other specialties and then apply it across different specialties to make you guys essentially more efficient. Is there funding for this drug, though, that is outside of the insurance company or the patient's pocket? Does the pharmaceutical company ever supplement and provide the drug for free? Are there certain requirements to be able to acquire free drug?

Are there foundations that can provide money for this drug? Like what are options for patients? Yeah, so there's foundations and there's patient assistance programs, but once again, those are only available to non-Medicare patients. So if you're not Medicare, uh then yes, there is foundations and there are patient assistance that you can programs you can get onto, but foundation monies go up quickly.

As soon as you have money in a foundation, literally it's gone, uh, oftentimes that same day. So once again, using technology to be able to help. And so I know the House Rex technology scours foundations when they find that there's money available, it immediately has patient backlogs and see if they can fill the patient with the foundation, because then that automatically lowers the cost for you. But once again, but if you're having someone doing that every single day for across all your patients, very inefficient.

But if you don't, if you don't have foundation dollars and you're not eligible for patient assistance, then what else can you can you do except for try to get your patient on a different therapy, which once again is what the insurance company, the system set up to do is not get them on the therapy that they don't make the most money on, unfortunately. Why for Medicare patients and Medicare disadvantaged patients, why are they ineligible for this money from pharmaceutical companies?

That's a really good question. I I think they should be available, they should be made available. It's just a Medicare law because of how their reimbursement works, that they're just not eligible for it. And so whenever you, I'm I'm sure you've seen this, but whenever you you try to get any type of you know money even for patient assistance for yourself or anyone else, it asks you, are you are you uh are you uh are you on a commercial plan?

And the often, oftentimes the insurance companies make more money on commercial plans. That's why. And there's more money kind of to kind of kind of go around there. But it makes no sense why Medicare patients or advantaged patients don't have access to the same available funds for care that a commercial patient does.

It doesn't make any sense. Let's talk about yet another layer that challenges 340B pricing. And this is a really hot topic because this does impact the price of drug for non-340B programs for the Hirsch Center, right? That I run for most of the practices that you work with.

340B is primarily for hospitals. Describe what it is and why it was even implemented. Once again, great program with great intent, implemented extremely poorly. Uh that that's really what so the idea is that if you have a certain percentage of indignant population that cannot afford therapy, then the cost of that therapy should be lower.

It's a great idea, right? I think that's a great idea. Uh but the problem is that uh it was made available only, the reason why hospitals are only able to get it is because there was a last-minute writer put on the bill that in order to get it to get to get it actually approved that said you had to have an emergency room or access to 24-hour care. Do you have access to 24-hour care?

Most practices in the in the private practice setting do not. Therefore, that's why hospitals have get have gotten it. And then you see what I call the Stanford effect. So I live in the Bay Area.

Stanford has is a 340B hospital. Do you know Palo Alto is actually a quite nice area? I think you've been there. The reason why they are is because what's happened in the last uh uh 12 to 15 years, and especially in oncology because the cost of drugs are high, they acquired clinics in Oakland.

So now you have areas that actually do have a high engine population within a 25-mile radius. Once again, that's what the law says, owned by a entity that then now everybody is now getting access to this low cost uh of therapy. But once again, hospitals and and treating uh specialty in the hospital is higher for patients. So who's making money on this?

Hospitals are making a ton of money on this arbitrage. Pharma is losing money, and it's costing more for patients. So once again, the idea was great. The implementation of it was was uh was completely fumbled up by the by the government and or the regulations that they put in order to pass the bill.

Let's talk about the effect that it has on other medical entities. 340B pricing certainly has an impact on the Hirsch Center. How does it ripple down and have that effect on independent clinics? Yeah, I mean, think about it if you're from a pharma perspective, you have 340B that passed.

So now you essentially are losing 40% of your profits for for at least half of your business. You got to make it up somewhere, right? So what pharma did did over over the last 10 years is essentially two things cut cost. So they they you know de decrease in their workforce.

Have you seen a lot of pharma companies do it two ways? One, just with layoffs, but two, like what you just said, Sun Pharma acquiring Oregon. Like, okay, I have two companies coming together. I don't need two of everything.

I can then cut costs that way as well. That's one way they're doing it. They're trying to try to recoup their and lower their costs. But you know, the solution to 340B, I've always said, is extremely simple.

Extremely simple. 340B should just follow the patient. If I am a 340B patient and I am an agent patient that can't afford therapy, why does it matter if I go to the hospital or I go to the hearse center? Shouldn't just follow me and become I should be, you should be able to bill against me and uh being a 340B patient at the Hearst Center.

If it did that, then there would be this egalitarian system where you would also benefit from it because I chose to go to you, lower cost of care because my patient experience was better and my out of pocket was going to be uh a lot less. Like, why don't you empower the patient? When I first started looking into 340B pricing, I did so because it was brought to my attention that you didn't just have to be a hospital. There are other ways in which you can incorporate 340B pricing.

Can you share some of those ways that people might not expect? It's a really good question. I've only seen it in the hospital setting because you have to be a part of this dish uh approval process. Um, and so like there's been some laws that have been that have been saying, you know, is it is it is it a site neutral neutral um law?

It actually is not. And so a lot of different companies have kind of bubbled up to say, can you offer 340B in the private practice setting? I know of a couple of them, but I have found that because the 340B law is not black or white, it's kind of gray. A lot of practices like you don't want to take that risk of actually saying, okay, I'm gonna work in, I'm gonna work in the gray.

And then suddenly you realize that you're you're being kind of investigated by the government for improper, you know, drug acquisition. This is not something anyone wants to want to be able to do. So I've not seen companies be successful in it. But it, yeah, in theory, there should be other ways.

Like let's say you do want to have 24-hour access to care. Let's say you triage that out to external source. What if you meet all the qualifications? Why wouldn't you be able to have 340B pricing?

No one's really tested that. And I was looking at that originally because it was brought to my attention. We can be affiliated with uh Ryan White clinics, which is HIV AIDS, exactly, and serve an underserved population. I didn't know about the 24-hour access, which was really interesting for me.

But what I do know is it has to be an underserved, underrepresented population. And I thought about it for a while because the highest growing population for STDs, STIs, whatever you want to call them, is the aging population. Our average patient age is 76. Anybody can go up to the villages in Florida and hey, you'll get an STD if you just drive by.

It's like crazy. So being able to offer care to patients, but it is a separate clinic. There are a lot of these rules. But you and I know people that have implemented these 340B clinics within their clinic.

And we're trying to figure out how to survive. That's actually the reason behind it. Uh what are the options for independent practices to remain independent? That's the that's a million dollar question.

But just on your first question, real quick, um, 340B, once again, pricing should only be eligible for the patients that fall that that that fall into that engine population. So, in other words, just the patients in my Oakland example should get 340B pricing, not everybody, but it's instituted nationwide in hospitals where everyone gets it. That's why there's so much because what why why why is that okay? Why is the government looking the other way?

It's lower cost for them at the expense of pharma. So that's why I think what what why why they look the other way, which is not the right thing to do, which is why they don't they allow it to happen, which is not the intent of it, by the way. But, anyways, the other I think what what practices need to be able to do is you have to be able to understand all of the various factors that make up your revenue. And the number one source of your revenue, in my opinion, will continue and always be drugs.

So, how historically how negotiations work in Meredith, you're really good at this, you'll negotiate a pricing with your distributor, and that pricing is really, really good for that point moment in time. Tomorrow, when the new brand comes out, the new biosimilar comes out, it's stale. You don't know if that pricing is good anymore because once again, there's money to be made in confusion. We have to make sure all of the aspects of what makes up your price are transparent and in my opinion, pre-negotiated.

So you can do what? Actually worry about the clinical care you're giving your patients, not worrying about am I making the right margin versus my competition down the road? Because your competition is is, you can, in theory, could be making more money on their drugs than you. That makes no sense.

So that's honestly why um I loved working at House RX, but that's why we decided to spin off inform Prism to essentially create this egalitarian system. Everybody has the same price because the distributor's margin is capped and it's all upfront and transparent. What does that allow me to do? It allows me to take my practice volume, go to pharma and say, treat us as one.

So we are an aggregator. We sit on top of the existing GPOs and distributors that say, because we can move share, I want additional value for the Hirsch Center. And that's what we do across all of our practices. And we talk about net cost recovery.

You've heard of PT committees. We don't have a PT committee, we have a PTNE committee. It's the E's for economics because it matters. You need to talk about net cost recovery as it relates to why you're going to be using one drug over the other.

So unless you have all the information and be able to maximize the fact that you're going to be always getting the best overall price by staying independent. We do it without joining an MSO, without joining a hospital. All my practices guarantee that they have the absolute best price for the entire life of their contract so they can worry about treating patients. Insurance companies are saying that they're being transparent.

I mean, there's I know you laugh. There's a lot of talk about it. And I love that Wendell Potter just wrote an article this morning, actually, and people can look it up. And Wendell was a guest on the podcast a couple of times, actually.

And he said, Well, Cygna is saying that they're transparent in their drug pricing, but are they really? And my question to you is because you are the ultimate insider, why are they saying that they're transparent? And are they really being transparent? They're saying they're transparent.

Well, first of all, transparency is a huge buzzword, as you know. Everybody wants to be saying that they're transparent and they're publicly traded companies. So yeah, I can look on uh the financial statements and see what Cigna's margin is. But do you know how they made their margin?

Do you know if I look at um Yeah Healthcare, can I see exactly how much optimum health, optimum RX is of the overall profitability? It is extremely difficult. And you have analysts that look at this on a daily basis. So yeah, in theory, because they're making everything publicly available, they're saying they're transparent, but they how they're actually driving that that horizontal integration, controlling the physician flow, and then owning the drug flow, they're not telling you how much they're making along each way.

So you know whether or not you're getting a good deal. So they're just not. So let's go back to the beginning. Where does the money go?

Like who is actually getting the money in our $5.3 trillion a year healthcare system? It is the the middlemen and the services providers that sit between you and the patient that is essentially getting a lot, a lot of this value. And I'm look, I'm a capitalist.

I think that's fine. Once again, it should be okay for companies to make money as a shareholder. It should be okay. But if you if you I think you can do that in a way that's transparent.

It's okay for me to say that, and and I and I and all my practices know this, my distributor can't make more than 50 basis points or 0.5%. I think that's okay to say that. It's the the distributor saying, I need to make something, otherwise, I can't pick, pack, and ship drugs to you.

So I I I give them credit for being in being able to and wanting to do this. But then then you see situations where they only want to do it for certain areas. Like I'm trying to take this model across specialties. I want it to go, I want this to be the ubiquitous model across every single uh community practice across specialty.

And then you find challenges because when parts of a of these middlemen own other other services or other other physician groups, other services, and they work with other um kind of owned entities, there's a conflict of interest saying, oh, I want transparency here, but I don't want it to exist elsewhere. That in my opinion is not right. And you're in the oncology space right now and you're in the GI space right now. Why are you getting kicked back specifically in the rheumatology world?

Uh it's because of the the the the economics are different, which I fully understand. But but that in my opinion, you solved that very simply. And you should just basically say that the gross margin guarantee is different. So, like maybe the economics mean that in rheumatology it's 1%.

I'm making it up. Because the mix of drugs is different. That's fine. I that should still translate to something that I should be able to do an analysis for you that said, okay, this is worth it for you or not, because I will never tell you to join and and say you're gonna be buying the vast majority of your drugs anywhere unless I know that the economics are strong and will continue to be strong.

But they're doing it because oftentimes different distributors own different entities in different specialties. And so then you have a little bit of a conflict of interest where one might want to do it in rheumatology, but not wanting to do it in another specialty. But I'm I'm I'm bullish that that's going to change because what what because of when when we launched Prism 14 months ago, no one thought it would be growing this fast this quickly. And now the norm in oncology is upfront pricing.

The norm now has become you gotta tell your customers how much money you're making. And that happened in 14 months. So if the market is shifting that way, I'm bullish, Meredith, that I can come back to you in a few months and say, I got something to see whether or not it's gonna work for the Hearst Center. Well, I'm positive and I harass you every month.

Every month you're on my text. Tesh, where are we at now? And you're like, Meredith, I should know something in two or three weeks. And then I harass you in two or three weeks.

You're like, I need another two or three weeks. I'm like, well, let's wait till he comes down and we'll have this conversation. So now I'm hearing two months. If you could create one change within this American healthcare system to create support for physicians and patients, what would that one change be?

Anytime you change the economics for the system, you should you should be able, you should have to prove that it lowers the cost for patients. Simple. So if you take a manufacturer price increase, pharma, you have to show how that's gonna be better for the patient. If you can't show that, you can't do it.

Uh, I know that's kind of anti-capitalist in a way, and I'm not talking about a communist system, but what I am saying is that that's putting the patient first. And by proxy, if you put the patient first, who are you also putting first? The provider. And so if you do that and say that you've got to show why it's better why it's better for patients and you can show that, great, then you can implement that change.

If you can't, you can't do it. Tesh Kular, thank you for joining me on Working Healthcare. If this conversation hit home or made you think a little differently, don't keep it to yourself. Share the episode, tag a friend, or post about it on social media.

Connect with me on LinkedIn to keep the conversation going in between episodes. If you've got a question, an episode idea, or someone you think I should feature, send me a note at MeredithHirsch.com. Thank you all for the five-star reviews.

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