The Mystery World of American Drug Pricing

A.J. Loiacono Doesn’t Mince Words

Trying to understand the mystery world of American drug pricing will drive one to the nut house faster than you can spell P-H-A-M-A-C-E-U-T-I-C-A-L-S.

So isn’t it time to do something different? Like contracting directly with local mom & pop retail pharmacies.  Try this: Cost Plus $5 per script. You will be pleased with the results.

A.J. tells it like it is in the following article:

CEO of upstart PBM: What CVS, Cigna and other PBMs are doing in drug pricing is neither sustainable nor ethical – MedCity News

CEO of upstart PBM: What CVS, Cigna and other PBMs are doing in drug pricing is neither sustainable nor ethical

A.J. Loiacono was speaking at MedCity INVEST in late March in Chicago when an audience member requested him to address whether it is sustainable to have a system where after insurance a drug costs $150 for consumers whereas with GoodRx the same drug is $6. Loiacono took aim at PBMs but also didn’t spare the federal government.


Post a comment / Apr 12, 2022 at 3:07 PM

A.J. Loiacono speaks at MedCity INVEST in Chicago.

A.J. Loiacono, CEO of Capital Rx — a pharmacy benefit manager founded in December 2017 — is not one to shy away from strong opinions.

At a panel discussion at the recently-concluded INVEST conference that MedCity News organized in Chicago, Loiacono held forth on what’s on his policy wishlist as well as commenting on how no one can figure out how much the price of a drug is. He also took on large PBM operators like CVS Health (that owns CVS CareMark and Aetna’s pharmacy benefits program), Cigna (that owns Express Scripts) and  UnitedHealth Group, three of the largest PBMs in the country.

But first he trained is ire on the federal government.

So let’s just say to the point of the federal government, it’s our largest payer. It should be … by a resource standpoint, our most sophisticated, but very simply at the highest level, the federal government maintains five unique schedules of drug pricing for its own expenditures. So this includes Medicare, Medicaid, VA, DoD, and 340 B. And if you look at branded product on these schedules, these aren’t like, well, the difference is 5 or 6% net cost. The difference is 100% to 150% net cost. So imagine if this was defense spending and you’re in front of a Senate panel and someone saying, ‘Hey, the latest Lockheed fighter was $50 million last week, but this run, it’s 100 million’, and then it’s 75 next week and it’s 120 for the Navy, but it’s 150 for the Air Force. That makes no sense and no one would allow it.

If I had another wish in my genie bottle here, it would go to the United States government creating finally one unified standard for pricing. And I mean net pricing. ….the federal government can’t even give me a simple answer on price. And if I go straight down the list into large employer, small employer, ACA down to cash, it’s disgusting. And so I think the federal government needs to take control over a $600 billion dollar industry, standardize the price, not to fix price, but to set a benchmark that the rest of the [world] can rationalize to understand what is fair. That is my wish.

A co-panelist also shared what’s on his policy wishlist and soon enough it was time Q&A from the audience. Adam Boris with Humboldt Park Health got up and asked Loiacono if the entry of companies like GoodRx, SingleCare and Amazon can disrupt the drug pricing world. Specifically, he commented, “I can run something through insurance and it’s $150, With GoodRx, it’s $6. How could that be sustainable?

And Loiacono really let loose his frustration, essentially charging that large PBMs are the ones responsible for these wide variances and what they are doing is not sustainable. Not even ethical.

Here’s the reality. They’re [Discount card companies like GoodRx] not helping anything. And let me be perfectly frank. If a carrier and all the PBMs did their damn job, there’d be no such thing as a discount card. So why does this exist? Well, let’s look at the numbers. The cash market in the United States sits at 6%. What does that tell me? There’s a 94% chance I could put any price at the register and you’re going to take it. Those are good odds. And if you don’t take it, what lies behind a SingleCare or a GoodRx? It’s a network of networks which includes Express Scripts and CVS and UnitedHealthcare and MedImpact and twelve other vendors. So even if I don’t get you on the bad price, I could still make half the margin on what appears to be a decent price. But even that isn’t a decent price. And again, this goes to my earlier point. The federal government can’t make up its mind what a real price is for a drug. So my earlier statement was how could you ever as a consumer? And so I think what we’re starting to see is when buyers and sellers freely communicate on price price settles itself.

When I go to the store, I don’t have to figure out gosh, am I getting a good price of Popsicles? No. This price has settled itself long before I entered the store. And someone’s not magically changing the price of Popsicles for the next person that opens the freezer. But that’s how the U.S. supply chain works at the last hop. But oddly enough, it’s not how the rest of the supply chain behaves. And so when you come from the pharmaceutical industry and you produce a pallet of drugs, at the end of the day, it has a unit cost, and that unit cost is sold to what we call wholesalers like ABC [AmerisourceBergen] and McKesson. And they have unit prices and they sell to pharmacies and hospitals and they have unit prices. But you get to the last hop in the supply chain and something magical happens. All the prices in the United States disappear, not because the prices don’t exist, but because the entity that controls the last hop in the supply chain — carriers and PBMs — wish it to be so. And so I’m not blaming anyone. I think no one’s initials at this point are CVS, and no one’s last name is Cigna. I think those are just realities of being a publicly-traded company and your fiduciary responsibility is to your shareholder and you should maximize your value and your business model. But it’s not sustainable. And it’s certainly not what I would call ethical. And because drug prices don’t change every hour of every day in every pharmacy for every drug, that’s a complete lie. Drug pricing in the United States is completely stable. Brand drugs change like clockwork twice a year. Call it January and July, and generic drugs deflate based upon your purchasing schedule. If you look at gross to net, it has deflated since 2014. So technically net drug spending in the United States should be negative. But it isn’t. And so yes, you can tell by my tone. I get quite irritated by this topic, but no one’s willing to talk the way I do. For whatever reason. I think they’re going to think they’re going to get taken out back and shot. But the reality is it’s the truth .

Loiacono said that his where his company, Capital Rx and other new PBMs can be different.

So the buy side and the sell side of the United States cannot communicate at the point of sale contractually…And except for us, [though] I’m sure there’s other PBMs out there that are starting to do this. But the only way to create efficiency in any market is to let the buy and sell side freely communicate on price. So we use NADAC pricing from the federal government. I don’t have a Mac list. I don’t spread. All of my clients get the same price. And if any pharmacy wishes to provide a lower price, God bless them, please do. But I’m not going to get in the way of the patient and the plan or the pharmacy. And that’s the way it should be.

A co-panelist chimed in about drug pricing.

“Honestly, I used to work for a PBM in a former life and the pricing is all a disaster,” said James Lott, CEO of Script Health, which has the mission to provide easy and affordable access to lifesaving medications and works with pharamcists. “Anybody who has had the pleasure of doing drug pricing knows that it’s a big headache and it’s extremely [perplexing]. So I can’t speak more eloquently than AJ did. So I echo his thoughts and agree.”