The Business of Pharmacy Podcast™
Aug. 30, 2021

A New Kind of PBM | A. J. Loiacono, CEO at Capital Rx

A New Kind of PBM | A. J. Loiacono, CEO at Capital Rx

A.J. Loiacono is the CEO of Capital Rx.


Speech to text:

Mike Koelzer, Host: [00:00:25] A.J., for those who haven't come across you online, introduce yourself and tell the listeners what we're talking about. 

AJ Loiacono, Capital Rx: Sure. I'm A. J. Loiacono. I am the CEO of Capital RX. We are a pharmacy benefit manager, but also a software company since technology is at the core of us being able to deliver lower cost, as well as better patient outcomes and higher satisfaction for those members.

Mike Koelzer, Host: I'm going to give you permission here to talk about some competitors and we're not going to name them, but here's the question. Maybe these PBMs didn't grow technology-wise because they kind of thought it was maybe a pain in the ass and too much investment and all that kind of stuff. What things in particular, do they not want to go in the direction of better technology?

Because it's less profitable to do some of the things that you're doing? 

AJ Loiacono, Capital Rx: Well, I think the use of technology. Certain competitors would not want to explore right away would be things that change the financial model that they benefit from so much. There are some publicly. Healthcare companies that rely 50, 60% of their earnings on pharmacy.

You know, you just have to Google a large healthcare entity and it'll say things like beat earnings due to pharmacy benefits lifted by pharmacy benefits. You know, it's almost as if you're an underwriter on the medical side, you'd be like, I'm on a break, even a game plan here. You on the pharmacy side, you're the little engine that could keep, you know, pushing our earnings, even though you're disproportionately smaller than medical spend.

And so, you know, why do they not invest in these things? 

Mike Koelzer, Host: No, they're smart. We know there as Scott Conner said from a PHA, he said, Geniuses now they're evil geniuses, but they're geniuses. 

AJ Loiacono, Capital Rx: And to be fair, I don't use the phrase, evil genius, genius genius. In the sense that, to be fair to a publicly traded company, your primary fiduciary responsibility is to the shareholder.

It's the objective of the evil part. And I just want to make this clear if you're an executive, this is the hand you have to play. You know, like I don't get up in the morning and twirl a mustache and be like, Hey, how are we gonna do this? Just going to be like, Hey, this is how we make it. I need to maximize this for the next earnings, you know?

So what makes it very difficult is anything that disrupts control. So the supply chain, once upon a time in the late nineties, early 2000, was controlled by pharma. You know that they were so outsized in their influence, you, you need our medication. We sell through the supply chain and you know, you need us.

And then the PBM started getting bigger and they started to consolidate. And you started to see some entities that had real purchasing power, you know, 10% of the market, 15% of the market, 20% of the. For me when I personally look historically and say, at what point did pharma abdicate their rule over the supply chain?

It was 2003, 2004. We began to see the birth of pay to play economics. The first formulary, if you will like, Hey, I have five drugs in this therapeutic category. Maybe we have three that are our primary choice in U2, unfortunately are going to get kicked to the bad tier, which is going to be a higher copay and you're going to lose market share, and people will pay up for that and be like, oh, okay.

And then it really started to take off because of the PBMs. Let's be Frank, they're smart. They said, you know, this is a good thing. It's not just about access. What if I start excluding drugs? Like we're just not even gonna lie. To have access to these therapies. What would you pay for that? Not a tear, 

Mike Koelzer, Host: an exclusion.

You're out. You're out. You're 

AJ Loiacono, Capital Rx: done. You're out. Go pay cash for that or I don't go, go, go deal with that on your own. Then suddenly pharma was terrified and we went back to, you know, 2004, 2005. Every time pharma raises the price of a drug by a dollar, maybe a quarter or 30 cents rolled down the supply chain into the hands of a PBM.

Then that went. 50 cents on the dollar and 75 cents and a dollar. And then you see the curve inverted in 2014, which is fascinating if you're a pharmacy geek like me, when suddenly the economics completely shifted. And this was, you know, it was the beginning of the end in 2004, but this was the death knell of pharma at this point where they couldn't raise.

Their drug prices direct correlation to the ask from PBMs. So let's just say your drug prices act at pharma and your friends [00:05:25] on the other side of the phone at the PBM say, Hey, you'd like market access. We're going through these things. We'd like some rebates. We'd like some, you know, discount on acquisition costs and a bunch of other things we're going to layer into this contract, but you know, it's about 1500.

Ask now in the old days, what would you do? You'd be like, well, that's easy. We're going to raise our price 15%. Now let's go have a pizza. You know, problem solved 

Mike Koelzer, Host: 15% as slow that down. Just a second for me. I always blame it on the listeners, but it's really for me the 15% ask, give that scenario again.

What are you talking about there? 

AJ Loiacono, Capital Rx: So let's just say on drug X. Let's just say even numbers. I was getting a hundred dollars from you going into next year. I want 115. 

Mike Koelzer, Host: The PBM wants that rebate. 

AJ Loiacono, Capital Rx: Other incentives or 

Mike Koelzer, Host: discounts or something, whatever 

AJ Loiacono, Capital Rx: it may be. We don't have to go into the details, but let's just talk roast to net.

However they 

Mike Koelzer, Host: I want it. There's a bill, there's a bill, here's 

AJ Loiacono, Capital Rx: a bill at the end of the day. And so last year there were a hundred. Now we want 115. Now in the old days, they would be like, oh, I have a solution for this pharma or just going to raise our drug prices problems. 

Mike Koelzer, Host: In each transaction. If pharma could raise the price, another $15, the insurance itself is paying for the drug, but somehow the PBM has to take off a hundred.

Now they want 115 out of 

AJ Loiacono, Capital Rx: that deal. Exactly. Right. It's so, and this is what's fascinating is it's like, it makes sense to be like gross Jeanette. Like my list price will go up. My net will stay about the same in this scenario, but you start to see this drag. Where the ass starts to become a little bit higher.

And what happened was pharma lost the ability to have endless price increases. This is where you saw CEOs glow. Pharmaceutical manufacturing companies, you know, say things in 2015 and 16, like, we won't increase the price of our drug more than 10% each year. So they're creating this cap. If you will like, Hey, do not exceed, or you end up on the cover of the wall street journal, like, like, whoa, what happened?

That wasn't me like who would ever, you know, do a 20% increase in drugs? 

Mike Koelzer, Host: The PBM wasn't telling the manufacturer not to raise the money. 

AJ Loiacono, Capital Rx: It was outreach. It was public 

Mike Koelzer, Host: outreach, public outrage that prevented them from going up easily from adding another 15% to it. Yeah. 


AJ Loiacono, Capital Rx: started to say, what's the consumer price index, you know, one, 2% and branded drugs are 14 and a half.

Like, whoa, like that doesn't sound 

Mike Koelzer, Host: right. In the meantime, the PBM still wanted their 15. Additional, but now pharma because of press or whatever, there's 

AJ Loiacono, Capital Rx: legislative oversight, there was the media suddenly kind of sticking their nose into things. You know, people for the first time were downloading priceless items while looking at them.


Mike Koelzer, Host: PBM wouldn't be against the manufacturer, raising the prices. It's all the other stuff that prevented it from going up that 15%, 

AJ Loiacono, Capital Rx: they just want. Their money, you know, the PBMs at the end of the day, or like, you know, my appetite, isn't going to go down just because you're having a tough time pharma. So this is when you see gross on the net, you know, global statistics, you know, you'll see in 2014, this number goes from 55 to 53 to 50 to 48 to 46, you know?

So it's this slide of gross. Define that 

Mike Koelzer, Host: gross to net in our conversation gross to 

AJ Loiacono, Capital Rx: net is let's just say whatever list price you want to use. We can have an entire discussion on what list price is, but you have a price that you're broadcasting to the world, you know, in the U S market. Here's our price.

And no. Is less all other things coming off, you know, and these could be everything from rebates to discounts, to charge backs, to acquisition, cost, rights, to, you know, take your pick, you know, coupons to, you know, sometimes people even look at manufacturer assistance programs in the, you know, and so, but this is what's taken.

Price that's being broadcast to what's reality, you know, less all these other items. So at one point they were treading water, you know, which was pretty good. And what you've seen over the last, you know, call it seven years is we call the sliding effect. You know, suddenly they can't raise the price dollar for dollar with the ass.

Now someone would be saying, I'm oversimplifying things in the supply chain. I'd like to have that debate because. I think we would agree that the largest takeaway on gross dinner is at this point. 

Mike Koelzer, Host: So the PBM wants one 15, the manufacturer in the past could always get it up to one 15. Now they can't, for all these [00:10:25] reasons, 

AJ Loiacono, Capital Rx: people are looking, people are asking questions, 

Mike Koelzer, Host: you know, and then what in 2004, 

AJ Loiacono, Capital Rx: Well, in 2014, you started to see the inverse.

So they couldn't raise the price. So they could be like, the best I can do is I can raise it 10, but I'm giving away 15. And then it was like, all right, you know, they want maybe 17. And I'm like, I can only raise it like nine. Like this is becoming punishing. You know what I mean? And it becomes a runaway freight train.

Now, every brand. Is different. I always point this out where you are in your patent life cycle, how many drugs are in your category? What are the price points? What are the treatments? You know, there's so many things that go into this. So I don't want to make this sure. This is for every single brand, but what happens is it's fascinating to me when you speak to pharmaceutical brand managers, Half of them think they're winning at any one time.

You're like, oh, I love this system. Like I'm today's winner, I'm formulary. I have access. This makes sense. Then there are a bunch of people who are like, I hate this system. I'm the loser, you know? And, and this is what it creates. They have just enough winter. Offset, but just enough losers, 

Mike Koelzer, Host: half a pharma thinks are winning half a pharma things for losing 

AJ Loiacono, Capital Rx: just enough for like, I'm still all in on this.

And to be fair, where are you going to go? You know, and, and this is a very important part of innovation, which is how do you open up this avenue? I think pharma up to this point has really just been stuck in, I have to go to a set number of channels and a set number of people and do business, a set number of ways like this is the status quo.

Why would I change it? And to be fair, no one wants to be potentially punished. Like you don't want to be the person that's causing a ruckus because the main buyer. Are very powerful. And so, you know, you have to kind of be like, okay, business as usual, let's say, but I will say, you're starting to see pharma understand this is a situation that can't stay this way forever.

You know? And so I think you're starting to see innovation, you know, suddenly come through, you know, and I think you're starting to see conversations around this program around this and, you know, It needs to be reinforced down to the plan level. You know, where I think the actual employer groups need to start thinking about what is this pharmacy benefit?

And more importantly, who's consulting me on this. Are they part of the status quo that wants to keep churning out, you know, kind of a rebate chase and age-old unchallenged economics, or are they willing to look at us and be like, what are we solving for? You know, what are we trying to do with our benefit program and how do we manage it?

Is this the only option? And so, you know, I think you have to be in healthcare today. Innovative company, a lot of things to a lot of people. And so for every super innovative client, I have that literally crumples up the old rate card pricing of PBMs and rebates and discounts and says, let's focus on single ledger reconciliation where you and I are the same thing, the PBM and the employer.

We see the price. Now let's go about what am I trying to solve? Better outcomes, better satisfaction, lower price are these mutually exclusive. And so suddenly you can have a thoughtful engagement and help them create the program that's best for them. And then you have people that are just, I don't really have the time for this.

I'm not interested. My consultant tells me this is the best thing we gotta chase the rate cards in the press. And that's fine. We can do that, but here's where technology plays a role. So many times people will say to me, after we win an account, how the heck do you purchase drugs? Cheaper than a blank, big carrier.

And I'll be like, I don't, I just operate on a fractional margin of red. I don't need the number for wall street. You have to remember that the big entities have zero growth story left. This is lost on people, but it's important to remember. There are two types of stocks trading over simplification, but there are two types of stocks out there any day you can invest in, you know, there's the high-flying growth companies, you know, there's the usual apple, Google, Netflix, Tesla, and they're going to continue to grow year over year, and people are excited about that growth.

And then there are companies that are. Meet or exceed earnings. I'm a utility stock. I'm a banking stock. And so what people don't understand is in the healthcare industry [00:15:25] due to hyper consolidation, there are no more worlds left to conquer. You know, I often say there's 20% of the market that isn't owned by.

Mega entities in this 20% of the market, you can't buy, they would be FTC violations. You know, they would be other blues plans or non-profits or other carriers that aren't quite their size. And this is important to remember. So if you have no more growth left, if you read their 10 Ks, there's clearly no growth in their lives.

So, but it's. Earnings. So they extract more and more out of the payer, back to your fiduciary obligation to your shareholders, which is, Hey, look, I have to do this. If I show up next quarter with no growth in the same earnings, not a great story. So I've got to show up with the same growth flat, and I got to show up with more earnings.

And every time you hear a healthcare company, talk about more earnings. The employer and patients should be the ones who are upset because this is who's paying for it. 

Mike Koelzer, Host: We talked about pharma. Yeah. Half still like the system half don't. Are there any employers that are doing okay in this PBM system? Are there any of them that are taking rebate kickbacks and all this crap, or are they all suffering?

AJ Loiacono, Capital Rx: Well, I always say it's relative to what, you know, So, you know, if for the last 20 years, I don't care, you know, HR head passing it to the nature at next HR person and passing it to the next chief operating officer and CFO on the budgeting side, healthcare looks pretty similar, you know, and let's just take things that.

Below 20,000 lives, you know, that still, you know, have some needs around stop loss and other things, you know, which is the insurance to contain risks globally on pharmacy and medical and attachment points are 110 Harner, 15%. So by its very nature, the expectation is things could be bad. What does that 

Mike Koelzer, Host: attachment point?

What do you mean by attachment 

AJ Loiacono, Capital Rx: point is each state basically creates a set point in which the costs need to be contained in a policy if you will. So if you say your attachment point is 110%, if I have a million dollar a year medical pharmacy, the attachment point. Coverage where my stop loss will come in.

Some reinsurers and carriers will indemnify me as a self-insured entity. You know, that will be at 1,000,001 at, you know, 1,010 and some states are 112 and a half some, or one 15, whatever it may be, and you can buy different lines in between. But the whole point is the reason why I bring this up is your expectation is north of that is bad.

And then you'll hear what we talk about. Global trend Isla here. Companies will show up with things like our average trend this year across our book of business was 3% people would be like, oh, 3%. Like that's, that's great. That's awesome. Like, you know, this is my expectation, but if gross to net is negative.

Shouldn't it be negative and people are like, no, no, no, no, no, no. This, this is what we're selling. And let me tell you all too often, there are some consultants that jump in that wagon very quickly, because I can't tell the difference between them and the PBM, because let's be Frank. They've made some good money together, but what's interesting here is when you talk about this, I have clients that have three years of negative trend.

Our entire book of business at the start of this year was negative 27%. That is unheard of. And people will be like, oh my God, how do you have such good prices? We have, okay. Pricing. I'm just giving you everything. I'm giving you visibility to it. And we have fair clinical oversight, you know, which is, we're not just approving every drug.

We're not just pushing people into every therapy. We're asking questions. And, you know, I often say you can do this and still have extraordinarily high customer and client satisfaction, which we do. And so. Why do people think this is okay? Is because they've been trained by an entire industry that begins at 1 10, 1 12, 1 15.

And good is a plus. 

Mike Koelzer, Host: So it should be somewhere way below a hundred. And now it's not only a hundred, it's above a hundred, but everybody's sort of okay with that. The 

AJ Loiacono, Capital Rx: entire industry employers and heads of HR have been trained, which is a bad day, is 1 10, 1 12, 1 15 above my attachment point on liability.

That is where you don't want to be like 1 10, 1 12, 1 15. That's where bad things happen. We're like, whoa. What 

Mike Koelzer, Host: bad things are happening 

AJ Loiacono, Capital Rx: up there. Your [00:20:25] expense is much higher than probably what you told your CFO. You know, you probably told your CFO at the start of the year. Let's trend one, 107% to be safe.

But if things go sideways, our stop-loss kicks in at one 12 and a half. So 

Mike Koelzer, Host: on average, it might be a hundred, some years. We hope to be 90. We're willing to go up to 110 and all of a sudden everybody's happy at 1 0 

AJ Loiacono, Capital Rx: 5. They've been trained for decades, which is why your health care trend is positive. Only. A target of three to 4%, according to national averages, love to broadcast yet, you know, so 103, a hundred, 4%.

And that a bad thing is 1 10, 1 12, 1 15, your stop-loss kicks in and you know, you've got to deal with something, but the point of it is that's your perception. Your reality is, look at us. We're plus 4%. What's a great day, but should it be negative 12? According to my book of business. The answer is yes, 

we have our insurance guys every year and they're like, Alright sign this.

It only went up 12%, sign it. And you're like, there's no chance in hell it is going down. And they don't even blink. Right. I mean, they're just like, there it 

  1. No, they're trained. If your understand what. A decent outcome is positive for positive if you know, like, okay, good enough. You know, and, and this is what the expectation is.

So when people go out and they look at pharmacy benefits and they engage with consultants, you suddenly get into these really difficult, you know, uh, now the analysis around here are my discounts and rebates and schedule. But If we notice we're not talking about absolute cost, 

AJ Loiacono, Capital Rx: we're just talking about a model of simulation of things that show savings and no one's, you know, think about whose risk is the consultant.

No. Is the BB. No, the payer is at risk. And so the payers stuck with that bill, be it, you know, a hundred and four, a hundred and ten, a hundred and twelve, whatever it may be. And so what we're trying to point out to people is at the macroeconomic level. Drug pricing has gone down multiple years and that is a story here, especially if you have, you know, what we would say, sensible oversight on clinical, your, your new starts on high cost claimants.

You know, if you, if you're taking a rational, look at that and to be fair. A lot of PBMs and carriers don't want to slow down expensive drugs to be fair. How do you make improved earnings? I mean, genetics play a smaller and smaller role each year. Simple molecule really isn't pushing the ship at this point.

Biologics are expensive, high ticket items. You're saying 

Mike Koelzer, Host: that drug prices or pricing has gone down. Is that because of the good work you're doing or are you saying in general? 

AJ Loiacono, Capital Rx: Gross to net. 

Mike Koelzer, Host: The big PBMs at least are paying less. And so it is 

AJ Loiacono, Capital Rx: going down, it's going down, but the American public may not see that.

Gotcha. You know, because of a system that is what I call winners and losers at the register, you know? And you know, here's an important point: why is it a roulette wheel? When I show up at the. Why does the price change for a drug every hour of every day and every pharmacy for, I mean, it's insanity and people will be like, well, you know, drugs are just bouncing around in price.

Like the stock exchange every day. And I'm like, no, there's not like drug pricing is incredibly stable and everyone has a price in the supply chain. And my point is everyone should receive the same price and people are like, oh no, no, no, no, no, that can't, that can't happen. And I'm like, wow. You know, and so this is what's overlooked, is that the behavior on so many levels is in conflict with what benefits, the plan and the patient, and that's what needs to change and to do that, bringing it all back to technology, you need the platform that can deliver on these promises.

Mike Koelzer, Host: Is it fair to say not giving the PBS. Any benefit of the doubt, that one answer to the question of why they haven't used technology to make things more transparent is because smoke and mirrors can raise profits. 

AJ Loiacono, Capital Rx: Well, sure. I mean, think about it. If everyone has a different price, even people in the same plan.

It is very difficult to understand what a real price is or what a [00:25:25] fair price isn't, you know, and this is the argument that a lot of people in healthcare use this, like the little patient can't handle all these prices. And I'm just like, we just pause for a second. And let's just be real, which is the average plan might.

And I say this all the time, you might have anywhere from 10 to 20,000 unique NDC Eleven's drugs. You know, You go into the average supermarket, your stock keeping units are 50 or 60,000. I'm not overwhelmed when little old me walks into a supermarket to pick up my Cheerios or a steak, you know? And then if you look at a big box store, they have hundreds of thousands of items for sale.

And again, am I intimidated when I'm buying a pair of flip flops and popsicles? No, I think these are fair prices. Why do I know they're fair? One, we all have the same price. When we're walking in the store, buyers and sellers are freely communicating on price. It is just that store and me communicating a price there isn't somewhere.

I think about it. If the PBM industry existed in our lives, the way they are today, let's just follow me into a supermarket and I'd be like, oh, I'm about to reach for a box of Cheerios. There's no price. Well, wait a minute. Where is the price? And suddenly someone comes in and be like, hi, AIJ I'm. Shopping assistant.

And I can't show you the real price. I understand this is a super low discount off of what, and you look at the aisle, nothing has prices. It just says the average list price minus 18 and a half percent. And in aisle two, it's, you know, the average list price minus, you know, 85%. And then there's one for, you know, misfit island of single source.

Multi-source DDW handling and, and you just sit there and you're like, wait, I can't see the price. How am I ever supposed to know what a fair price is for Cheerios or gasoline, or take your pick on anything? We don't exist this way in the United States, in any other marketplace, and this will and shall come to them.

That leads 

Mike Koelzer, Host: me right into this question. Is there any other industry, or was there any other industry that was even close to this? I was talking about my big guest and they were saying that the closest, they remember this was back in wall street when the publishers of certain editorial pieces were actually owned by these companies and they were trying to manipulate the general public and so on.

Is there any industry that comes to mind that's like this, or was even close to this? Well, 

AJ Loiacono, Capital Rx: I think one, you could look at from the eighties, which was broken up, which was the telephone. You know, where you had a virtual monopoly and no one knew what a fair price was and the moment they broke it up, what happened?

Like the price of a landline went to zero. You know, if you look at, in the financial industry, you know, once upon a time, if you traded stock with someone, they could keep 10% of the value of the trade. So you trade $10,000. They could keep a thousand dollars on a trade. Okay. But then companies like ETrade and Ameritrade showed up and said, I'll do this for 59 95 and 1995.

And then companies like Robin Hood show up doing it for zero and even, you know, large institutions like JP Morgan Chase will trade now for $0. Because that's the fair price for a trade. So when buyers and sellers communicate, things become accessible and simplified through technology, you create a market efficiently.

Mike Koelzer, Host: The phone bills. I can see. Yes, it was a monopoly, but even there, you could pull your statement out that came in the mail and go to your neighbor across the fence. And maybe you all paid the same monthly phone bill, but you knew what it was. And then now with cable or your cell bill. It might get lost in the shuffle and all the taxes and all that BS.

But still, if you want to spend a few minutes and talk to your neighbor over the fence, you can still say, oh, you're paying 45, I'm paying 95, but at least you can tell, but the drug ones, you couldn't even tell what you were paying. 

AJ Loiacono, Capital Rx: I think that the interesting thing is, you know, what you're talking about is the list price for your phone.

Bill. At least it didn't change too much, but the list is kind of an exercise. Perception, 

Mike Koelzer, Host: but you knew you were paying your phone bill from your checkbook. Ultimately you. 

AJ Loiacono, Capital Rx: Yes. And I think this is part of a system that is broken. I say drug pricing is broken all the 

Mike Koelzer, Host: time. So drug pricing is the worst. There's nothing.

You can compare that to. That's been so terrible. I 

AJ Loiacono, Capital Rx: find it very difficult and, you know, and I think, and I think, and I think at this point in my life, when I think about how I want to spend my time is what gets me out of bed early and has me work late every day is I am discussing. [00:30:25] By the behavior that goes on in this industry.

I don't want to characterize everyone as, you know, being part of the problem instead of the solution. There are other people out there that view it from our lens and want to be helpful and get it. Back to my world of 50-50, it's a coin toss for every person that you find that wants to challenge the status quo and do what's right.

And rethink the model and, you know, be a force of good. There are people that like the old world. I make money on it, my channels and resellers make money on it and we're going to keep making money on it. Haven't I. 

Mike Koelzer, Host: With the 50 50, I can see the opaque PBMs may be a hundred zero. I can see maybe an insurance sales guy being 80 zero.

When you talk 50, 50, that's the manufacturers you're talking about because anybody underneath that, the employers and the pharmacies, they're like zero 100 who's 50 50, just the manufacturers. I think the entire supply chain. The supply chain wholesalers, and everybody 

AJ Loiacono, Capital Rx: wholesalers to hospitals, to pharmacies.

Because even though you may get one pharmacy that sees it the way you do got another pharmacies, like not so 

Mike Koelzer, Host: much. Yep. They've got certain drugs that they're pricing off, AWP paying a percentage of that or something 

AJ Loiacono, Capital Rx: like that. Okay. You know, is my point, which is, you know, I think what we're just trying to understand though.

Drives that behavior. And it's self-interest, I mean, you know, it's a very clear answer to how much am I making in this transaction? And so I think that's part of the challenge. And so as you create real financial transparency, so. Ledger reconciliation, prohibiting people from marking up prescriptions.

I think this is where we suddenly get to that efficiency moment. And you can have honest conversations. I mean, think about it. The entire PBM industry today operates its revenue model because people are confused or can't see. Not because of the value you bring to the table. You know, if that was the case, everyone went up the same price and you would have a flat admin administrative fee, you know?

And I often use this as an example. I go, imagine you go to an attorney and you'd like to hire the attorney and be like, oh, I hear wonderful things about you. And I think I use an attorney because obviously their higher their rate, you know, the more experience they have, you know, so for the attorney, that's charging.

$2,000 an hour. It must be the heck of an attorney, which is someone who's charging $200 an hour. I might be a junior associate who has a couple of years of experience under their belt. But imagine if someone goes to you and says, I'm your attorney and it's free you go, okay. That's pretty cool. Stuff in between when I touch certain transactions on your behalf.

And I'm like, well, wait a second. You know, but that's the PBM industry and you never know how much they're making, unless you go through their 10 K and look at their quarterly earnings. And you're like, wait a second. You had. 9% increase in script volume, but you made 18% more in hurtings like, how does that work?

That math is 

Mike Koelzer, Host: pretty cool. So it sounds to me like you're saying, Hey, I'm not here trying to say, look at what I'm doing because the other people are so terrible because 50% think they're terrible and 50% think they're not what you're saying is I'm going to clear it up. I'm going to make it transparent.

You come and take a look, see what you like. 

AJ Loiacono, Capital Rx: I think that's exactly right, is, you know, you want to focus on what you're doing better, the tangible results that you have, how you differentiate in the market, and you want, you want to tell that story? You know, I don't want to get into a mudslinging festival of this person versus that person who cares, you know, I'm focused on let's elevate the conversation.

Let's focus on what we're supposed to be looking at. What is. Reduction of costs year over year, actual costs not I have smoking hot rates and oh, if you actually were to see the rates, they would blind you. I can't tell you how many times I used to get a chuckle out of that. Be like, nobody can see the rates except for me in the burning Bush.

And I am like, what? Ridiculous. Th th like in the best part is they sell this nationally, this garbage, and I'm just like, nobody wants to question this in the least bit. So just so I understand your value proposition is there's really no risk on your behalf to sell this product. There's really no risk on behalf of the PBM and the rates are so good.

Nobody can see them except the very person who sold me and validates. I mean, it sounds like, you know, almost like a joke, but this is the vast majority of transactions in the United States and healthcare. And it's not just discrete pharmacy benefits. I'm sure if you could get a panel of guests and we could all say the same thing, but I think the point of it is the world is changing in the sense that technology has [00:35:25] caught up with people that are willing to leverage technology.

People that are willing to approach the market differently and you know, not be paid because of confusion or conflict, but be paid because you deliver real value and a higher level of service. 

Mike Koelzer, Host: So AGA let's say your video guy is walking around and I say, AIG, let's take a video of somebody and their response to this cool technology you have of seeing the transparency of things.

And you say, Mike, have your video guy come along to this meeting. I'm with this person because they're going to look at this online computer screen and they're going to see this. Who is that person going to be? Who's that person that I should follow with the video camera? Is it a CEO of some company?

Is it a consumer? Is it a pharmacist? Who's going to be the coolest revelation of this software that you have? 

AJ Loiacono, Capital Rx: I think it's multiple people because Judy is the name of our platform. So Judy Short for adjudication, which is a fancy word, as you know, for. Processing. Um, but Judy touches so many different aspects of what we call a benefit claim life.

And so it's not just one person. So, you know, the things that I point to is a quarterly meeting, you know, with a benefit, you know, HR manager, someone in charge of benefits. And, you know, it's not just the reporting suite and all the metrics that go into. But it's also how the system makes recommendations based upon the data that we're seeing.

And that people were like, wait a second. You're making recommendations to me. Like I've been using X carrier PBM for seven years and no one came to me with a fresh idea other than exclusive mail. It's specialty, you know, which is, you know, self-serving again. And they're like, this is amazing. And is every, every.

Perfect or did they accept it? No, but we're working for a living, you know? So I think that's great, like people, like, if you could follow that engagement at a client meeting, I think you would see so many really cool, uh, technology reports, et cetera. I think the other area is in our call center, you know, you know, we strive for same day resolution on everything, including prior authorization.

And this is a breath of fresh air. You know, we take a lot. Proactive approach of surrounding the problem. And I think we can do this from a technology standpoint because everybody operates on the same system, you know, from our call center, client management, underwriting, pharmacy, network management, our chatter across the company, we're all bound by Judy.

And so this creates lightning fast responses. So someone will have an issue and they'll do it. Oh, my gosh, like, I don't know what to do. How can you help me? And it's our job to not just aid that customer, educate them, help them and follow up. Not just you're on your own should be all set. Let's follow up with them as well.

So if you look at the technology they're engaged in. If we obviously blinded the member and their information in that engagement, you would hear how fast we're resolving issues. It's not 

Mike Koelzer, Host: just a technology, that's making it fast. Cause you're on the same system. It's because people are all familiar with the Judy nomenclature.

AJ Loiacono, Capital Rx: Yes. It's written in a natural language framework in, you know, and it's, uh, again, we want it to make it approachable. So even for a junior call center person who's very green, it makes sense. It's not what we call a code base system, or you need to be a subject matter expert to operate the platform. And this is where we've even seen, you know, not just our entire organization using.

People from employer groups going on to Judy and being able to do things they never envisioned they could do self-service on like, whoa, like I can make this change. Be like, yes, if you'd like to, or we can do it for you. And a lot of people want to do it, you know? Cause it's immediate satisfaction and resolution for what they may be seeing or hearing as well.

So, and I think the third instance, even at the farm. You know, one of my favorite stories is when I was at a benefits fair. And for one of our clients, what does that have benefits fair, uh, benefits fairs. You know, someone wants to have all of their healthcare vendors in a room from dental to medical deformity benefits, and to have them engage with the vendor and learn more.

And I like to go to these things because it's the only way you get to know your customers better in the questions. The members are asking as well as the administrators. And so I was at one of these and the head administrator goes, Hey, Jay, I would like to introduce you to one of our members. He wants to speak to you personally.

I [00:40:25] said, oh, sure. And he comes over and he goes, I just want to thank you and your team so much. We had a really tough year. My wife passed away from cancer and I'm like, oh my God, I'm so sorry. And he's just like, I know it was a horrible time. You were a bright spot in a very dark period. And I said, oh, like, how did we help?

And he goes, I was at this medical center on a Saturday afternoon and it was a prescription and there were quantity limits in place, but sometimes quantity limits go out the window with oncology and it needed authorization. And so you flipped over the card while it was online at the pharmacy and the pharmacist was.

I've been doing this for a while. Like you're going to come back in a few days if you're lucky, maybe a week. And so this person, you know, flipped over their card and called us. We called the pharmacy side, same time in our call centers, twenty four, seven, and called to resolve the issue and got back in line in seven minutes.

And the pharmacist is like, I've been doing this for 27 years. I've never seen anything like that before. And so this is where, when you have one platform that's communicating, you have no conflicts of interest within our organization or against our employer or member. And all we want to do is provide the best services.

This is one of hundreds of experiences that are happening every day, you know, and I, I point this out. It's so important to remember, which is, is this a unique, no, this is what every customer receives when they work with us. And I think it's putting together a lot of pieces, but from multiple lenses in this claim, life cycle, Everyone is benefiting from Judy and our philosophy.

Mike Koelzer, Host: AJ, I know that you don't like to pick on your competitors too much, but I do. I love nailing these sobs. Let me ask you this. These PBMs are these insurance companies on purpose. They make prior authorizations difficult because they're hoping that a percentage of these people go away or die or somehow not get that.

Product, because it's going to save the insurance or the PBM money. Is that just evil thinking on my part or is there a delay on purpose that helps these insurances hold onto their money? Somehow? I 

AJ Loiacono, Capital Rx: I think there are two parts to this to remember if they want to create a wall that is high. And a moat that is wide to create the perception of a barrier you cannot get around.

And, why is that back to my earlier point? Well, when you go to pharma and you're negotiating on your formulary and you people would be like, no, I could work around this. I can get in. You want them to be like, oh, There, there's no way around this thing. I've got a scale, the wall and leaped to get inside to patient access.

So the job isn't to say no. I remember, like I use this statistic, you know, and everyone has their own. Is that the industry on average approves 89% of all sections. So it's not that they're saying no, they just need to create the illusion of you. Can't get around the PBM. So don't even think about it.

This is a high wall and a big moat, and I have guards on every tower. So you have to go through me in my workflow process. 

Mike Koelzer, Host: Because we're the one set in the formulary and if we make it tough, well, we told you we're setting it. Yeah, that's it. 

AJ Loiacono, Capital Rx: Yeah, exactly. If there was a hole in the wall, people would be like, well, I don't really have to pay that.

Maybe, you know? And so, and to be fair, that's an entire segment that we could talk about, which is ways in which pharma tries to get around that moat and wall. But I think the point of it is they create turbulence, but they don't cancel them. You know, they want people to land because how do I make money?

Mike Koelzer, Host: They still want that flow 

AJ Loiacono, Capital Rx: going through. Yes. I want to create the turbulence, but approve the member. And we have the opposite approach, which is there's no turbulence. We want to resolve this in a day if we can. And the whole point of it is we want to educate the patient, you know, and this is lost on people.

I can't tell you how many times you made it. A tape recording of a patient and you'll hear, cause our call center, all calls are recorded. But when someone has like, you know, they're, they're giving, you know, accolades or we're using it for training purposes. I can't tell you how many times people will be like, wait, I'm going to be on this drug, the rest of my life.

And I'll be like, nobody bothered to tell you this. And that there was another therapy available. You just don't have to go straight to this, or there might be other ways. And you know, one of the things that we talk about is health as a therapy, not just prescriptions and a PBM [00:45:25] would never do this.

We talk about this all the time. Can I help educate you on other things that you may want to be doing? Going there, it's not to say you can't have access. That's not the point. But what we find is we have an access number that's oftentimes 30 to 40% lower than our competitors. And you know, the great part of it is our customer set scores are, you know, sky high from a net promoter score.

And you know, our call center sits at a, I think it's a 56 this week, which is great. The industry average is like a seven in call centers in healthcare. What's the unit I'm at 56 1 oh, it's a net promoter score. So it's a way in which you measure satisfaction out of how many out of a hundred out of a hundred, the industry for patient level is seven, seven, you know?

And so, you know, sitting at a 56 is. 

Mike Koelzer, Host: Seven. It's like a perfect number in the Bible, but not out of a hundred. No. 

AJ Loiacono, Capital Rx: And then on the customer service side in our industry, you know, 14 is the average net promoter score in healthcare. We sit in nine and 96 and this is again, is important, which is, I don't want to lose a car.

You know, so how do I work with you? How do I understand it? Should you have an issue or need, and I think this is important, but I think it goes back to your question of how does this industry work? It's these misaligned incentives and it just brings out the worst in health. You know, when we look at the future of healthcare, you know, back to the 50% we want to engage with and we have meaningful discussions and you continue to build this kind of wealth of case studies and references.

And I think this is where we're seeing, you know, that momentum for change. And you know, we're not alone. I point this out. There are so many other entities. Globally in healthcare, it's not just happening in pharmacy benefits that are here to basically challenge that status quo for better outcomes, better cost reduction and a better service model.

Mike Koelzer, Host: The 50% you're saying, because the other 50% don't want you in theory. Well, they don't want change. 

AJ Loiacono, Capital Rx: They don't want change, you know, which is like, you know, no offense. I like I'm on my third beach house with the current plan here, you know, like, you know, I'm this, this is okay. Like I don't, you know, and no one's into your.

No, one's really complaining because how would they know? They can't see the price. They've been trained for decades that this is a cost inflationary item and it's within a certain corridor of acceptance. And that's the norm. 

Mike Koelzer, Host: It seems to me a J when you go into your customer and I suppose your customers are employers, right?

Yep. When you go into your customer at least the first year, and you say, I'm going to sell you something and then. Okay. And you say this and they're like, all right, I see this, but how does that compare to what I have? And then you have to come up with a new language because. Someone might say, should come out of your mouth.

We'll be like, we're going to save X on this. It's a percent, or you're going to get a discount off of this. And they're like, well, yeah, but that's what my insurance guy tells me every year. And that doesn't seem to work out. So you have to create a new industry inside the industry almost right. 

AJ Loiacono, Capital Rx: We do.

And I think the other way that you benefit from it is, you know, the reference process and referring to, you know, people referring to you. So a great example is we. Have a client that was having lunch with another head of HR and they're having two very different discussions about PBM. One is saying they do nothing for me, my members aren't happy.

I'm not happy. And I'm getting the run-around from my consultant because I'm in some coalition. And then you have the opposite, which is that we are very similar. Employees like the same industry and we love our PBM and we're in our third year of negative trends. Our satisfaction scores are through the roof. We love them.

Could you speak with them? And they do. And you know, and I think this is the 55th. You know, which is you can either be part of the solution or the problem. And I think there, you know, when we were, you know, brought in, you know, immediately, they were just like, this is a breath of fresh air. You know, you're talking about the things we care about, the metrics that we've always wanted, you're willing to provide and work with us on.

And I think that's one of the areas you don't have to. Change the industry, but what you are is you're having these success stories that are helping, you know, obviously broadcast real material benefit change. And I think that's exciting for us. I do believe as well that you are correct that the way these PBM services are priced today are undergoing a kind of a transition.

And there are. Very educated, excellent people out there that do a fabulous job. And there are some people phoning it in. [00:50:25] 

Mike Koelzer, Host: Well, I think you're smart if you don't need me to tell you that, but I think you're smart in going after the half. I Want your stuff. I mean, there's no sense selling to somebody who's not ready to hear that discussion.

And so you can put that percentage at whatever, but coming in saying it's 50, 50, it's like, yeah, that's smart. It gets across the point that some people are ready for this message. And some people probably. We 

AJ Loiacono, Capital Rx: have to focus on the people that do understand and are willing to advance this. And I will stay at starting to accelerate now because I think we're seeing more communication, like our discussion today.

I think Mike is hugely important where people could say, you know, AJ. It makes a lot of sense. Maybe we should talk to him, you know, and I think this is part of that is telling the story of capital RX, letting the numbers and our actual clients speak highly of us. It's easy to say. Great things about your.

You know, but to have your entire book of business, be a reference to say, I've never lost a customer's ability to deliver on those economics and then have your actual clients talk about the savings and service they've received. That's, you know, incomparable. I think that's what gets me excited and how we.

Don't waste the time on the people. You're just your job. Isn't to convert everyone. The market is too big for that focus on the people that understand the value of what we represent and are genuinely interested in. Benefit of their client. 

Mike Koelzer, Host: Let's say I'm with a bigger insurance company and these brokers that come in and they're like, no, here's your choice of PBMs.

It's maybe one choice, which is not a choice, but maybe it's one, but then you have to then become. Of that conversation. That's number one. And how can pharmacists, if they can, or employers who are listening to this, how can they either help you or at least have a chance to work with. 


AJ Loiacono, Capital Rx: Excellent point.

And so we say that the first battle is being even inserted into the conversation as an option. And so people often ask me if you would go back in time, would you change anything in your company? I go, no, I never want to go back in time because there's nothing worse than selling when you have limited to no references and low membership, you know, it's so hard for people to be like, Wait wait, wait, wait, wait, you want me to trust you when?

And you know, and, and. I think every customer we have that started with us and is still with us today, I'd like to point out because they saw something in us, other people maybe couldn't right away and I'll never be able to thank them enough for that. But putting that aside the first battle is being, if the gatekeepers are like, fine.

We'll let this little firecracker in, you know, let capital RX go up against, you know, The big incumbents. And we often say, it's the fight for the fourth chair. The first three chairs are reserved. As you know, it's got the velvet rope and be like, hello, big, publicly traded carrier. Welcome to this. Week's RFP, you know, and they're automatically invited because they have to be there big, et cetera.

And then there's the fourth chair and there's literally. 30-40 people fighting it out to get to that chair. And so to get in there is just the first battle. The second battle is you may know, like, do I want to be part of this? Is it, you know, is it someone who has an open, fair mind and you're being fairly evaluated or is it just more of the same and, you know, Unfortunately that age old conflict.

Um, so that's super important, but for employer groups, as well as pharmacists, if you know, employer groups, you know, I think the point of it is, and to be fair, there are some pharmacies independence in particular, uh, that periodically maybe like, Hey, I opened a new store. How do I make sure I'm in your network?

So your PSA is already contracted with us, but you can come directly as well. Please. Contact us through our website. We'll be happy to accommodate that. But if you know someone from the employer side, you're a pharmacist and be like, Hey, I just happened to know this CEO or head of HR comes to my store all the time, let them know about us.

You know what I mean? You can give them my contact information. You know, I'm happy to speak to anyone. I think the other area is if it's an employee, You know, the first thing I do when an employer reaches out to me is be like, Hey, I'd love to walk you through our story and who we are. And in addition, I'd love to put you on the phone with two or three customers, because I always say, I can say the nicest things about anyone, but I can't force a self-insured.

Self-insured entity is its own thing, you know, and our average customer size, I think this year is 7,500 lives. They're big employers, you know, try telling a 7,500 life, you know, publicly traded company. What to say that obviously isn't gonna fly. And you know, [00:55:25] my, my point of it is to say, and I love all customers from 500 lives up to.

200,000 life health plans or, you know, hospital systems. Like I love every account. I always want to make that clear. There's no one type of customer, it's your self-insured great. You know, but I want to make this clear if they would like to, you know, engage with us or have a conversation. I would love to do it.

And more importantly, I'd like you to hear from someone who actually uses our service, you know, oftentimes people reserve this as the last line and an RFP, and I'm like, you should be leading with your reputation. As, uh, you know, fill in the section and an RFP that might be, you know, looked up and I think this is critical.

So that's how I would say, you know, Mike is, if any pharmacist out there knows a self-insured group, as well as any employer group, that's listening, please contact us directly info I N F O. And we'll get back to you within 15 minutes because I'm on that mailing list. And I go crazy when we do not respond to people in under 15 minutes 

Mike Koelzer, Host: Sometimes to these insurances, your brokers that come by, it's like, Hey, I want to get capital RX and picture now we've got these three.

It's like, oh, well, okay. Then I'm just going to stall before I do anything for a sec here, then their ears might perk up a little bit, but you sometimes have to make that second push. Yeah. AAJ pleasure talking to you, 

AJ Loiacono, Capital Rx: Mike, this was great. I really enjoyed our conversation. I know that 

Mike Koelzer, Host: we're not supposed to pick sides here, but I think our listeners you're going to score well with them instead of the other 50%, 

AJ Loiacono, Capital Rx: the way I look at as well as we get help from each other, which any person that you refer to us, I think they're going to see exceptional savings and service.

Mike Koelzer, Host: All right, ADA, take care. We'll keep in touch. Thanks Mike. Talk soon. Bye-bye.