The Business of Pharmacy Podcast™
Nov. 15, 2021

Amazon, PBMs, and Other Huge Businesses | Luke Slindee & Benjamin Jolley, PharmDs

Amazon, PBMs, and Other Huge Businesses | Luke Slindee & Benjamin Jolley, PharmDs

  • The guests on the show, Luke Slindee and Benjamin Jolley, are both pharmacists interested in pharmacy pricing and the pharmacy supply chain.
  • The business model of Amazon is similar to that of pharmacy benefit managers (PBMs) in terms of monopoly power and the abuse of large corporations against smaller businesses and consumers.
  • The doctrine of antitrust enforcement has changed from "harmful dominance" to a focus on consumer welfare, which has led to a lack of attention on the impact on smaller businesses and suppliers.
  • The guests discuss the extractive relationship between large corporations and their communities, and the importance of fighting monopoly power in order to improve quality of life and support small businesses.
  • Ideas for fighting monopoly power include not giving incentives to large corporations, supporting small businesses and local economies, and advocating for antitrust enforcement and regulation.
  • The guests also discuss the impact of PBMs on pharmacy pricing and the need for transparency in the pharmacy supply chain.

Amazon, PBMs, and Other Huge Businesses | Luke Slindee & Benjamin Jolley, PharmDs

(Speech to text)

Mike Koelzer, Host: Benjamin and Luke. For those that haven't come across you online, introduce yourself and tell our listeners what we're talking about today. I'm 

Luke Slindee, PharmD: Luke Slindee, I'm a pharmacist. I'm very interested in pharmacy pricing and in particular understanding the entire pharmacy supply chain and where every dollar of each prescription ultimately goes with respect to the manufacturer, wholesaler, pharmacy, PBM, and plan.

I have a background that includes independent pharmacy chain, pharmacy, and large health plan 

Benjamin Jolley, PharmD: analytics. I'm Benjamin Jolley. I'm a pharmacist in Salt Lake City, Utah. I work at an independent pharmacy. My family. I [00:01:00] also have worked with hundreds of pharmacies across the country and understand PBM contracting.

In addition to that, I would classify myself as a proponent of the self-determination movement. Today. We're going to talk about monopoly power and in particular, how, how the business model of a well-known monopoly, Amazon is very similar to the pharmacy benefit managers, particularly the big three pharmacy benefit managers and how there are a lot of parallels between what we experienced in pharmacy and what folks in other industries like chicken farming experience.

Mike Koelzer, Host: Don't take that away from my audience. We just like to bitch about PBMs and pharmacies. Have it, the word. Everybody in the world is picking on pharmacies and we deserve all the sympathies of the whole world looking at what the [00:02:00] big guys are doing to us. And you're telling me that other businesses have problems too.

That might be similar. Yep, absolutely. We're not going to 

Benjamin Jolley, PharmD: feel special anymore. That's I guess my whole thing is that we aren't, I mean, in some ways we are certainly no one else has a Mac list, right? No one else has a DIR fee. They don't use the same words, but the business model is extremely similar. And the abuses that other people experience are extremely similar. Instead of a DIR fee, you have a tournament system where you get paid a different rate, depending on how heavy your chickens are, or instead of a Mac price.

Um, you have fluctuating prices every day that are dictated by your trading partner. They don't use the same words. The reason why it's important to me, that we accept as an industry that we aren't unique is that [00:03:00] the coalition of potential people that can influence public policy is so much bigger.

If we give up our uniqueness as it were. I mean, there's certainly something to be said for that. We should say we are unique and different, but, um, considered that no one really cares. No politician really cares what 20,000 independent pharmacies think they care what 4 million people think, right? Or enough people to swing an election.

And if we can move the conversation about PBMs from being this weird thing that only pharmacists care about from that to being a part of a much. Picture the concept of monopoly power generally, and the abuse of large corporations against smaller businesses and against the consumers, then we gain so much more influence, right?

[00:04:00] Because again, 20,000 pharmacists own pharmacies, maybe 300,000 pharmacists across the country, that's a tiny group. You bring in farmers, you bring in people who sell on Amazon. You bring in all of these other people who experienced the same problems. You're talking about millions, tens of millions of people.

That's the kind of stuff that the president of the United States listens to. That's what the Senate listens to. They listen, when you've got a big movement and 300,000 people. Ain't, ain't it. 

Mike Koelzer, Host: I can prove that no one gives a crap. Pharmacist, because maybe my ears will perk up a little bit. If I hear about something that's been in the news before, you know, coal miners, you know, or I hear about maybe chicken farmers, cause I've seen the documentary where these guys got together in the middle of the night and things like that.

Maybe some of those I have sympathies for, but there's a hundred other industries where there's little guys [00:05:00] and I just don't give a crap. Maybe I would give a crap if I saw a story on it or something, but I don't even want to take the time to listen to the story I'm fond of. And for yourself, we do finally have so much sympathy to go around.

That's a great point that once you get past that hurdle of saying, no one really cares from industry to industry, but when you bring all these industries together, that all feel like they're getting screwed, then you've got a big. 

Benjamin Jolley, PharmD: Exactly. Yeah. So what brought this up? Um, where were you and I connected this last time? I wrote an article on my blog that I entitled Amazon as a PBM.

My point was not, Amazon is literally a pharmacy benefits manager. They're not sure my point was that the business model that Amazon has on Amazon marketplace is the same kind of business model that express scripts and Caremark have on pharmacy benefit [00:06:00] manager. It's putting yourself in the middle of a transaction and extracting rents, right?

In economic terms, an economic rent is basically. Anything that you extract more than the value that you provide. And generally that's through information asymmetry, like a PBM, for example, can extract a substantial amount of value, um, from the system by exploiting the difference in pricing knowledge between them and their client.

Similarly, a pharmacy can extract any economic rent by, you know, filling a prescription that costs them 50 bucks, but they sell it for several thousand. Those concepts of where you are extracting more value than you're providing that is an economic rent. And 

Mike Koelzer, Host: usually that's because of some shift in power, which to me, the.

Seems like it's the power of mystery [00:07:00] of, of smoking mirrors. That's gotta be a big part of even the two that I'm hearing you right now. When I think of even pharmacies selling something for a hundred times, the cost probably wouldn't happen. If there was knowledge of that happening, 

Luke Slindee, PharmD: it's not just knowledge.

It's also a lack of viable alternatives. So that's kind of where the whole concept around monopoly or, you know, a broader term it's probably more accurate is concentrated economics. Uh, and there's a direct relationship between the number of individual firms in a market and the power that each firm has.

And the fewer firms there are in a market, the more difficult it is for small businesses to compete in any market. And also the less incentive that each individual firm has to treat their customers and also their employees. Appropriately. So, you [00:08:00] know, one example that I could throw out there that is a, you know, an extreme oversimplification, but in the pharmacy space, if let's just pretend that Walgreens and CVS were literally the only pharmacies, there was no independent pharmacies, no specialty pharmacy has no mail order.

Um, this is purely hypothetical, but if there's only two pharmacies and you're a pharmaceutical. You know, you're a pharmacy graduate. You only have the ability to work for one of two companies, and it really removes any incentive for them to treat you decently as an employee because Walgreens could treat you poorly.

And then you're just going to your, your only other alternative is to work for CVS. Well, they know that in a game theory scenario, so they can also treat their employees terribly. And so it's kind of a race to the bottom with respect to how employees are treated. And then also the same metrics apply to consumers as well.

So if those two companies are the only two [00:09:00] places where people can receive their prescriptions, they don't really have much of an incentive to actually provide good customer service because where else are you going to go? The other guy is also terrible. So this is just a very general problem across any marketplace that when there's too few firms involved in a market supply chain, you almost always see these trends.

Customer service gets a lot worse. Um, the economic Liberty of the customer to do what they want to do is decreased. And then inevitably employees of those firms end up getting treated poorly as 

Mike Koelzer, Host: well. And there must be some magic for how many companies it takes to break that more than one and a few. Is there a magic number to that?

Benjamin Jolley, PharmD: It depends on the industry, right? You don't need a hundred different manufacturers of amlodipine, right? There are about 15 and the price of amlodipine has crashed through the floors, the result, [00:10:00] right? Versus if you look at, I mean the generic drug market to me is a great example of this phenomenon. The more companies that are producing a drug, the lower its price goes, and I'm bloated.

The wholesales now for less than a penny, a tablet versus, um, you know, the, the whole design of the generic drug market is that you have, um, you give exclusivity to the first company to come to market. And like, if you looked at Truvada, um, a year ago, it was brand only, and it was wholesaled for $1,800 a bottle in November of last year, the first generic came to market and the, the price of per bottle dropped for that generic dropped to I think, $1,300 a bottle.

And it stayed there for six months. They, so Gilly had full market power. They had a literal monopoly on the market [00:11:00] and then Tava came in with their generic, they have substantial market power because they're the only generic firm. They still have to sell it at a discount relative to Truvada. No one would buy it, but then.

On April 11 companies jumped into the market and the price dropped to the last. I checked $14 a bottle. I mean, this is the impact of going from one company in a market to going to 11. And apparently there's still enough margin for those 11 companies to be profitably producing this drug. And so like the difference there between that $14 a bottle, which is presumably the market clearing price and the $1,400 a bottle, that's the economic rent that you obtained through the market power, which in this case is granted directly by the government.

It's a sanctioned legitimate monopoly, um, because we [00:12:00] want to incentivize people to come to market with new generics. The 

Luke Slindee, PharmD: The thing is, you actually need to reapply this lens to every step in the drug supply chain, right? So it's not just manufacturers. It actually applies to every, uh, every link. And so, uh, rough numbers, if you look at the most concentrated, uh, Lincoln, the pharmacy supply chain, right now, it's actually the wholesaler market where three firms and, you know, their names control over 95% of that market.

And so that is a situation where we have a very small number of firms that are exerting extreme markets. And there are lots of effects that could become above that. Now, alternatively, if you look at other links in the supply chain, uh, there are three firms on the PBM side that control somewhere between 75 and 85% of the market.

So still a very [00:13:00] concentrated marketplace, but not as concentrated as the wholesaler market. And I would argue that a lot of the plight of the independent pharmacist is that you are effectively, uh, a, you know, a relatively small entity that is dwarfed on either side of the supply chain, the wholesaler on one side, the PBM on the other.

And those are markets that are incredibly dominated by a small number of very giant firms and pharmacies effectively get crushed between two giant boulders. 

Mike Koelzer, Host: Does the consumer suffer when you've taken away too many. Monopolies when you've made it too small and you've now allowed 800 wholesalers and, you know, a million PBMs, is there a point where the consumer suffers on the low end?

No longer on the high end because there's too few companies. 

Benjamin Jolley, PharmD: So first of all, consumer, I don't [00:14:00] like that to be the, be all end all measure of, of monopoly because frankly, the concept of the consumer welfare standard is the reason why we're in the situation we are today in theory. And if you accept, if you accept the consumer welfare standard, the whole concept is that if you have too much competition, too many competitors, then prices will be higher because each of those companies has to have a minimum margin to maintain, to be profitable.

I gotcha. The last 40 years of concentration, I think, is evidenced that that concept is bogus because yes, you might get lower prices by letting one PBM run everything and tell all the pharmacies and all of the manufacturers that you're going to stick to my formulary. And you're going to accept the prices that I [00:15:00] dictate, but price is not everything right.

W we talked about other harms that we see when there's a monopoly monopoly market, or too much concentrated power. You see abuses of employees, which means customer service suffers. You see abuses of suppliers, which means that the quality of the supplies going in is lower. When you look at the generic drug market, it's really good at lowering prices because you have these three wholesalers that have 95% market power, and therefore are buying everything from all of these manufacturers.

And so the price becomes so low that the only companies that can compete are those that are willing to cut corners. And so when you look at the generic drug market today, where is all of it made? It's all made in China and India because they have the lowest marginal cost of labor. And also they're willing to play games to buy markets.

There is a point where price [00:16:00] becomes too low and there's too many suppliers, but I think that that's mainly caused by a dominant firm in a different step of the supply chain, extracting value. 

Mike Koelzer, Host: A lot of it is what's the definition of how the consumer is really helped. And I'm sure that's across the board in people's ideas.

Luke Slindee, PharmD: Yeah, I think you nailed it on the head. And that actually dovetails really nicely with the change of definition of antitrust, which I, you know, uh, Benjamin was kind of alluding to. So there's been a long history with respect, with respect to how the, uh, the federal government has treated antitrust regulation.

And so prior to, you know, around 1980, the main interpretation of antitrust was to look at it as like a multifaceted thing. Right? So it was, it was to say, we've recognized that when markets become overly concentrated and too few firms control too much of the marketplace, [00:17:00] that all kinds of these negative things start happening across different metrics.

Uh, people get treated worse. As employees, customers have less say in which business they are able to buy their product from and stuff like that. Uh, it is there, you know, his history is born out. Then whenever we have overly concentrated markets, All kinds of different problems that arise, and they tend to affect each one of us in each different capacity that we serve in.

So no, any one person, it's not realistic to think of people only as consumers, because we all wear multiple hats in our daily life. Right. You know, we are employees, we are members of our community. We are family members. We, you know, we all do lots of things. We're not just consumers. And so when you're, when you're trying to understand how to regulate a market to avoid over concentration, you need to understand the way that that will affect everyone in all of those different capacities.[00:18:00] 

There was kind of a sea change in the 1980s that occurred where they started to look at everything solely through the lens of price and focusing on thinking of people solely as consumers. And so then everything became. Efficiencies. And that was the argument that large organizations would be able to apply economies of scale to drive efficiencies, which would then result in lower prices for consumers.

And if we're solely looking at everything through the lens of price, lower prices are better. Right. You know, that's why we have Walmart. That's why we have Amazon, a lot of these businesses and a lot of people, you know, they look at that and they only look at things through the lens of themselves as a consumer.

And they will say, yeah, this is great. You know, but they're not looking at the effect that it's having on them as trying to be an employee. And they're not looking at the effect that it's having on their community that they live in and the social ties, the tie that community together. So, you know, really, you need to look at this [00:19:00] as a comprehensive lens and not, you know, prices.

One of the factors it's important of course, but it's just one of many things that you need to get. 

Benjamin Jolley, PharmD: What Luke was describing the prior doctrine before the 1980s, and really before 1978, the doctrine of antitrust enforcement was called harmful dominance. Um, meaning basically that we will break up any company that becomes so dominant that they are harming other people in the supply chain, whether that be their competitors, whether that be their suppliers, whether that be their customers.

And it's actually fascinating to me, if you look at the antitrust guidelines that the Carter administration had, it's th they specifically said that a merger between a company with a 10% market share and a company with a 1% market share was presumptively illegal. That is such a foreign concept today.

Or that a merger between a company with a 5% [00:20:00] market share and another company with a 5% or greater market share was presumptively illegal. It was presumed that if you were trying to merge two companies like that, it was not to benefit anyone except yourself, just with 

Mike Koelzer, Host: 10% of the market. That was not where they wanted to go.

Yes. That 

Benjamin Jolley, PharmD: that was presumptively illegal. And you basically, the onus was on the business to prove that they were not breaking antitrust law in 1978. Robert Bork, the judge who anyway, wrote a book entitled the antitrust paradox policy at war with itself, basically arguing that the point of antitrust was to benefit consumers, that only there was no other purpose of the law and that any other interpretation of the law was total garbage.

So he rubbished that in 1978, the next year the Supreme court started citing it in cases that were brought by the department of justice, trying to break up, companies are trying to block [00:21:00] mergers. And then the next administration Reagan his, um, antitrust assistant attorney general named Baxter, rewrote antitrust law, to conform to Robert Bork's view of the world.

He rewrote all of the policies to say that basically we presume that mergers are pro-competitive. And so now it's on the government to prove that your, that your merger is illegal rather than on you to prove that it's legal. Right. And that's a massive change in how, um, in how the enforcement went. And so you went from in the Carter administration, there were like 300 cases brought saying, this is an illegal merger, two in the Reagan administration.

There were like 10. And so mergers started to become just a way of life and that you can draw a straight line from the Reagan administration to today [00:22:00] of increasing concentration in every industry. 

Mike Koelzer, Host: I know that we've talked that there's other things besides price involved, Luke, you were mentioning about the workers and the community and things like that.

I know there's more to it than low prices, but in general it would seem to me that mergers and acquisitions, the price drops to make it look good for the government and so on. And then they start to creep up because they have that monopoly. Is that not a broad enough thought on my part? Is that commonly what happens?

Benjamin Jolley, PharmD: I mean, basically, yeah. What really happens is that since that book was written by Robert Bork, um, the guidelines basically required. The government produces these extremely complex economic models, showing that you're going to harm consumers. And there are plenty of economists out there in the world that are willing to [00:23:00] develop an economic model for the emerging companies, showing that, you know, it's totally fine that Fox and Disney merge, because prices will go down and see here's this model that proves it prices go up later.

But no one really cares because the model was what was in the courtroom and what allowed it to go through. And so basically under the current standard, which is that consumer welfare standard has been since the eighties, you're asking judges to make a prediction about what will happen rather than asking judges to make a judgment about the facts of the case as they actually are.

And so. That to me is a fundamental error, um, because it's not a judge's job to predict the future. Anyone who tries to predict the future knows the saying that he lives by the crystal ball often has to eat broken glass because it's [00:24:00] impossible to predict the future. Right. But when we, when we transitioned to this consumer welfare standard, we expected judges to somehow become these like super economists that understood.

First of all, understand what these models say, which is difficult for even really intelligent economists. And then also to understand, to be able to predict the future and say, yes, I think that the model as you've described it actually does predict what will happen in the future. 

Mike Koelzer, Host: My guess is since the low prices come first and quickly, that's the easier one to predict and thus cases go that way.

Benjamin Jolley, PharmD: Yeah. And usually you'll see some, like you described a lower price initially, and then the prices will go up. Um, but I mean, with a big company, you don't necessarily even have to raise prices, right? Um, if you, if you do a merger and you're able to fire half of your employees, [00:25:00] um, or you do a merger and suddenly instead of being the 30% market share, you're now the 80% market share, then you can extract all of the price difference out of your supplier.

Right? Suppose a counterfactual here. Instead of there being three big wholesalers, there's like a million wholesalers and there's one huge pharmacy chain that pharmacy chain can go to any of those wholesalers and say, look, I'm going to need you to work for like, I don't know, a penny, a bottle to ship me all of the product.

And then. They're able to maintain the price the same, but extract a higher profit by abusing their suppliers. And that's honestly, the way that we see things actually have happened like that, that is Walmart's whole business model is to lower prices below the regular market clearing price, and then extract the difference out of the people who make it, which has all sorts of downstream effects.

It means that we [00:26:00] ship a ton of jobs to China, 

Mike Koelzer, Host: where we started this off was saying that people don't care about individual businesses. They don't care about just pharmacy. It takes a group of all these thinkers together. That's where the power is with all these companies talking about this, but it doesn't necessarily go talking about the consumer.

That's not necessarily the end point, that power stops with a bunch of. Business people in different industries talking about the effects of their industry, of their employers and owners and consumers, but not necessarily just consumers. 

Benjamin Jolley, PharmD: Yes. And Luke mentioned also as a member of the community. And I think I'd like to point out just some [00:27:00] concepts about that from my perspective.

So, um, let's take the state of Indiana, um, in Indiana most and in most of the country, most small towns, most cities receive most of their revenue to operate the city's infrastructure from property tax. Right. And, uh, One of the impacts that large businesses, particularly big boxes, like Target, like Walmart and so forth have is that they put up these, you know, basically prefabricated big boxes.

And then eventually that store closes, right. They build a bigger one down the road, but they either maintain the lease on that property. That's now closed or they sell it to someone with the restrictive covenant saying, you cannot use this for retail. You can use it for, I dunno, an [00:28:00] amusement park or something like that.

A church we're a church. So I'm Walmart. I just have a Walmart. And then I decided to open a Walmart supercenter down the road. I don't want any target opening in that old wall. Right. And so I say to the person who buys the building from me, that you can't use it for retail, there's a restrictive covenant built into the purchase agreement.

So what that does is down the line, that means that now that this building is closed and has basically no tax value, it's the property value of that property is practically nil now, right? 

Mike Koelzer, Host: Because if it's empty, no one's paying tax on 

Benjamin Jolley, PharmD: it. They are paying tax, but like the assessment of its value, right?

The tax assessor comes in and says, I think this building's worth $18 million. And you say, I'm not doing anything with this. It's just a hunk of junk. I think it's worth five bucks 

Mike Koelzer, Host: at that point. It's only worth that because no one's buying it. 

Benjamin Jolley, PharmD: [00:29:00] Right. And so like, if I sell this to someone else, they're going to buy it for like a hundred thousand dollars.

They're not going to buy it for 18 million. Gotcha. And so what the large chain stores and. Um, I believe in particular, this is the target for example, um, what they've done that they're, they're smart lawyers will Sue a city's tax assessor and say, yeah, so you, you valued our building at $20 million because you know, it's an open store.

There's lots of business running through it and that's about what it costs to build, but I don't think it's worth that. I think it's worth what this store that's closed is worth. And so downward spiral, my tax assessment should really be, you know, half a million dollars instead of 20 million. And so now the city's ability to extract taxes, to support the infrastructure for the entire city.

And particularly, just to say that Walmart or that target, they're now not able to extract the taxes that they need to [00:30:00] be able to just maintain the plumbing to that building, right. Or the road to that building or the police. And so one of the impacts of this. Focus on consumer value only like consumer welfare is that we ignore the impacts on small towns of having gigantic companies that have lawyers, whose job is just to reduce their tax bill.

Right? If it's just a mom and pop, you don't have the money to pay a lawyer to go Sue the city to say, to come up with this fancy theory that your building isn't worth anything. Right. Right. I don't have that kind of money. And the savings to me is like, you know, several thousand dollars, it's not enough to pay a lawyer.

And so one of the impacts of concentrated market power is that your city doesn't get enough money to fund the roads and send, suddenly you end up with Flint, Michigan with no water [00:31:00] because their waters, you know, because the water lines haven't been replaced in 70 years, Because we don't have the taxes to bring in because the big boxes have such concentrated market power.

So no individual in society is purely a consumer. 

Mike Koelzer, Host: That's a great example, Benjamin, because when you say it's not just consumers, then my mind automatically goes to all right, it's the workers well, too bad. The workers have to up their game and go to college and get better jobs and all that kind of stuff.

But the stuff you're talking about, it's like, it's in the DNA of this thing. It's like, it hurts everybody. And 

as a whole, 

Luke Slindee, PharmD: the larger the organization, it's an extractive relationship where they show up to your town and they extract as much value that they can out of your town. That money then gets shipped elsewhere to like wherever the corporate headquarters is or wherever their stockholders live or any of [00:32:00] that kind of stuff.

And then a lot of these relationships are abusive in the way. Benjamin just described. So a lot of times the cities end up getting the real short end of the stick when it comes to that. So, the big businesses, and this is, you know, this is also true. If you really think about it from a perspective of any kind of a mail order business, like Amazon too.

Because when we purchase things through the mail, again, all of our dollars are leaving our household and going somewhere else. And they're not, they're not coming back to the city. Now, let me flip that into an alternative. Right? So I've never been to Benjamin's neighbors. But I'm going to make some assumptions.

It's probably a gate. 

Mike Koelzer, Host: He probably wouldn't let you in. Anyways, Luke, his 

Luke Slindee, PharmD: family owns his pharmacies and the buildings in which his pharmacy is, are in, are generally viewed as being community assets. You know, they are providing a service to the community and also in the terrible situation where if they needed to [00:33:00] close one of their pharmacies, I'm assuming that they're in the opposite situation where their building could probably very easily get transferred into something.

Some other kind of small business in a way that a large business, a large big box retailer absolutely cannot. So then you have that fact where, you know, you're basically maintaining the built environment, uh, even if the pharmacy isn't in existence anymore, while the pharmacy is in existence, uh they're they are the owners of that pharmacy.

And so any of the profits that get accrued to that pharmacy are going to be spent in the town in which they live. I think people understand this at a very basic level, but when you start to really look out to the second and the third order effects of what really this happens, um, we really need to take this into consideration.

So a really strong reason to. Monopoly power is that we want to fight that extractive relationship with our environments and that we live in our, literally our communities know that we're running out of money to have things [00:34:00] like little league and an ice skating rink and all these things that really have a big effect on quality of life.

Meanwhile, the other version of that, where we have a distributed market where there's all kinds of firms and people are utilizing small businesses, that money is staying in town. It's it's, it has a huge effect on the way we all live our lives. 

Mike Koelzer, Host: Is there any way for town leaders to say, all right, well, maybe we'd haven't or we're not going to keep out this monopoly, but here's what we can do.

How can they not have that money going elsewhere? I'm sure there's taxes and fees and things like that. Is there anything workable once these places are already in a. 

Luke Slindee, PharmD: You can definitely start by not giving them incentives. Right? So that's, you know, we want to bring it back to Amazon. Think about that ridiculous situation that we had, where they basically put out a call to say, Hey, where are we going to have our HQ [00:35:00] to?

And all of these cities basically just prostrated themselves before Amazon. And they said, we'll give you millions of dollars and we'll give you all this free land and we'll do anything you want. That's such an abusive relationship. Cities should not be in that environment. So, you know, they think that they might be generating economic activity and getting jobs, but it is a devil's bargain.

I promise you that. So, you know, if anything, I would just start with not giving any economic incentives to a large organization to bring their business to your town. I'm 

Mike Koelzer, Host: a young pharmacist listening to this, and I say, all right, Luke and Benjamin. Fine. Eventually it's going to hurt the city, but I'm going to be out of this city in a couple of years, whatever, but at least I get really low prices on Amazon prime [00:36:00] because they're a monopoly and they're giving me the lowest prices or are, 

Benjamin Jolley, PharmD: I guess I'll just respond to that concept.

First of all, I don't think you need to feel guilty about buying stuff from dominant firms. The other impact of this consumer welfare standard has been that we've internalized this concept. That the only way that we can influence change in the world is by boycotting big companies or by boycotting companies that we don't like.

That's absolutely not the case. Right. We can ask, we can be politically active. We can talk to our city leaders like, like we were just describing saying, Hey, let's not give money to Amazon to build a gigantic warehouse in, uh, just right next to the salt lake city airport. I think they gave him over a billion dollars in tax incentives.

[00:37:00] It makes me sick. Basically the city completely funded the building of this gigantic warehouse so that Jeff Bezos can have another yacht anyway, but we don't have to feel guilty about buying from them because we live in a world where they exist. It is okay for you to buy stuff from Amazon and still think that Amazon is terrible and should be broken up.

It is okay. It's okay to spend money in companies that you do not like, that is okay, because. It's pointless to try to boycott a company unless it's part of a larger political movement. Okay. Unless, unless it's you and a lot of other people boycotting them at the same time to get something very specific done.

I want wages to go up. I want this company to be broken up. I want, um, you to S to pledge, to stop cutting [00:38:00] down Palm in, in the Philippines. Like, unless, unless your PO your boycott is targeted to a specific political end, it's pointless. 

If you looked where everybody had their fingers in and then looked at your 401k and who owned what, and this and that you'd have to live naked in a cave, basically you couldn't live in the society.

There's too many tentacles everywhere 

In particular, Amazon, like Amazon, is a gigantic conglom. They have Amazon, which, you know, sells you stuff online. They have an Amazon marketplace, which lets other people sell your stuff online. They have Amazon web services, which basically runs the entire internet, 

Luke Slindee, PharmD: including maybe this conversation.

Benjamin Jolley, PharmD: Probably. Exactly. Yes. And so it's it, it would be absolutely inane to try and cut off your life from Amazon while they are still so big. Right. And so [00:39:00] we have to come to terms with it's okay to use these services and advocate that this thing is wrong because this consumer welfare standard has made people internalize that their only role in society is a consumer, but that's not your role in society.

And you as, as Cory doctor puts it on his blog,, great website, by the way, you are not a consumer, you're not an ambulatory wallet. Um, vote for things by buying or not buying you are a citizen and you can ask for your government to intervene on your behalf and you should, right. The problem with concentrated market power is like, there's all sorts of them.

But in particular, it's that the power of a large company becomes comparable or bigger than that of the government 

Luke Slindee, PharmD: sometimes they're referred to as private 

Benjamin Jolley, PharmD: governments. Yeah, [00:40:00] absolutely. I mean, and to me, the hallmark of a company that is too big is if they can impose taxes in pharmacy, we call these taxes DIR fees, right?

They are a tax that is imposed by a dominant market player on the smaller market player in Amazon, they call them Amazon seller fees. They call them fulfillment by Amazon. Uh, another example of software development. I have an iPhone right here. Every app that sells into the apple app store asked to give a cut of their proceeds to apple, about 30%, the average, um, company that is selling on Amazon marketplace.

When they say, when they win that buy box says buy now about 30% of that goes back to Amazon on average. And like you see this over and over and over and over again. If a company can extract taxes out of people [00:41:00] to be able to run their business, they're a monopoly that to me is the definition of, of a monopoly in very gross terms.

Like I can't impose a tax on my customers. I can try to raise my prices, but it doesn't really have much, much of an impact because I have this dominant market player dictating my prices too. When I say that a company is able to extract a tax. Amazon is a phenomenal example of this. Amazon reserves the right to remove your product listing.

If you list it somewhere else on the internet for less money. So, I mean, and that's extremely similar to the way that the pharmacy benefit management market works. Right. You have to have a usual and customary price that you submit. And if you say, At a lower price to a cash bank customer you're in violation of contract and they reserve the right to audit you on that.

Amazon is [00:42:00] able to therefore in force the price on Amazon is the lowest price that you can buy on the internet. But that really means that really means that the price elsewhere is higher because of Amazon. The reason they're 


Mike Koelzer, Host: lowest price is because they don't allow lower prices anywhere. They're the lower price, just because there's no one else that's allowed to lower it.

Benjamin Jolley, PharmD: Right? Like if, say, I don't know a supplement company and I sell on Amazon and I also sell on my own website, I have to raise my prices to pay Amazon their 30% cut on Amazon. That's fascinating. And so my prices on my website would be in a functional market that didn't have Amazon in, it would be, say $10 a bottle, but because they're taking 30.

I got to factor that into my price point. So I'm going to charge $15 on Amazon. And on my website, 

Mike Koelzer, Host: they've almost raised the world's prices on certain categories, if not all categories, because of that, [00:43:00] 

Benjamin Jolley, PharmD: Walmart does the same thing, right? They market themselves as the, as the bargain basement place. Right.

And they also extract these discounts out of their suppliers. Right? If you want to sell, if you want to be displayed on their shelf space, you pay Walmart for that shelf space at the front of the store, you pay them 20% of sales or something for the right to put your product in the front of the store. I 

Mike Koelzer, Host: know there's a couple of.

Interactions there, but it sounds a lot like the PBMs, you know, how the customer paying this higher amount of Walmarts getting this lower amount because of the placement, 

Benjamin Jolley, PharmD: it's just like a formulary placement, right. 

Mike Koelzer, Host: It sure sounds 

Benjamin Jolley, PharmD: like that. Yeah. I mean the same thing with the Amazon buy box. Right. You get in the buy box by paying Amazon a higher advertising fee, which is really just the same as a formulary rebate in pharmacy.

Mike Koelzer, Host: Yeah. So Walmart's not passing that along. They're getting it. And the consumer's paying [00:44:00] higher. 

Benjamin Jolley, PharmD: Yeah. It's the same concept. Like w when we talk about formulas in pharmacy, like, oh, that's a nice Trulicity. You've got, there'd be a shame. If I only covered Victoria. Right. That's a really nice product.

You've got, there'd be a shame if no one ever saw it, because it's on the fourth page of Amazon's results. Right. Right. You gotta pay me or else. No one's ever gonna buy your product. Right. 

Luke Slindee, PharmD: The textbook example of this in the pharmacy space is the self, the self introduced, uh, insulin generics, right? So both, both Lilly and Novo Nordisk basically got tired of paying the rebate game to get on the formulary for their respective insulin products.

And so they self introduced their own generics at significant, you know, like half, half of the, of the list price of what the insulins were and a lot of the PBM. Still excluded them from the formulary. I mean, they, they, they effectively said, I don't [00:45:00] care if it's half the price, I'm new. You're not allowed to even be there.

So it's, it's exactly like what we're talking about in the retail space, where it's like, if you don't play by their rules, they don't even, they, they make you disappear 

Mike Koelzer, Host: basically. And we don't carry any brand names in our pharmacy anymore. And I don't carry any insulin in my store. And it sounds absurd to be sitting here talking about it, but I don't care about any insults, but you got the brand names that they're cutting way down.

And then all of a sudden this generic comes out and you know, the customers can't get it. It's excluded. Even if we did give it to them, we'd still have to play the same brand name, pricing games and stuff. It's crazy. Yeah. So it's fun to bitch about our own industry. And now we can even bitch about all the industries.

Is there any hope in this? 

Luke Slindee, PharmD: There is a, and that's part of the reason why it's kind of exciting to have this conversation is that there has been an ideological shift that's occurred at the federal [00:46:00] level and probably the biggest, uh, signpost of that or signal was the nomination of Lina Khan as the FTC chair uh, and you know, she, 

Mike Koelzer, Host: A young, gal 

Luke Slindee, PharmD: yes, and someone who has been very, very critical of the, uh, overly concentrated markets and the ways that they abuse that power and someone very aware of the history of the regulation of antitrust and, you know, kind of this hundred plus year cycle that we've been on in terms of different ways of managing antitrust.

And so there's been a ton of positive developments, including, uh, open meetings where now for the first time, because of, you know, zoom and those types of technologies, they're actually allowing the public to view their meetings, which is unprecedented. And they're also taking public feedback. So our very own Benjamin was one of the [00:47:00] first people to take advantage of that.

And he was able to record a, what was it a 30-second statement. 

Mike Koelzer, Host:

saw that they gave you a full minute didn't they. 


Benjamin Jolley, PharmD: I think my statement ended up being 52 seconds actually. Um, but yeah, they gave me up to, up to a full minute and then they were going to just cut me off. So I practiced it multiple times beforehand.

And I was like, I wrote this whole page long thing, and then I had to boil it down to like three sentences. And, but yeah, um, there is hope is the main thing, right? That we can, um, see the light at the end of this dark dark tunnel of corporate concentration. It's not, it's not a sure thing. And it requires political will and it requires political organizing.

But the appointment of Lina Khan, Lina Khan was first a business journalist. She went in and interviewed small business people all over the [00:48:00] country, asking them what was wrong in their industry. And then she went to law school and while she was in law school, she wrote this article called Amazon's antitrust paradox.

In a nice little jab at Robert Bork antitrust paradox the book, and basically said that under the consumer welfare standard, you can't prosecute Amazon. They are not breaking antitrust law under that standard. Meaning that the standard is totally bogus because Amazon is totally a monopoly. Like theirs.

You ask any person on the street and they're like, and say, is Amazon an anomaly? It's obvious. But 

Mike Koelzer, Host: the loopholes in that are such that they're not officially breaking it, right? 

Benjamin Jolley, PharmD: Uh, under, under the, um, economic models of this consumer welfare standard, you can't prove that Amazon is doing anything wrong under that doctrine, which means the doctrine is flawed.

That was in 2017. She wrote that article and graduated law school [00:49:00] that same year. And now this year she gets appointed as the chair of the F of the federal trade commission. Like that's a, that's a. Quick story from graduating law school, four years later being the chair of the FTC, but it's totally deserved.

And she is a brilliant lawyer. And also she was a journalist. She went and interviewed people. She gets it. And so after, after she was appointed FTC chair, the Biden administration actually put out an executive order saying basically every single, every single level of government, the defense department, everyone else, I want you to stop buying from your big supplier.

And I want you to enforce the antitrust law. I want you to source things from smaller companies, wherever possible, basically, because the procurement that the government goes [00:50:00] through has also become concentrated because the way that we won world war two was we had literally thousands of companies that produced all of the defense stuff that we produce today.

There's like three companies that dominate the entire industry: Raytheon, Lockheed. And so I don't remember the other one. I'm not, I'm not into federal dynamics. Yeah. Yeah. And so we've gone from this situation where during world war two and under the antitrust enforcement of the FDR administration, we basically forced the government to get really, really good at procurement.

In the nineties under Clinton, the secretary of defense told all of these suppliers, basically the cold war is over. And so they merged and merged emergent, emergent merchant, emergent merged. And now we've got like three suppliers, maybe one for a lot of the stuff that we, that the government buys, like we can't rebuild our nuclear arsenal [00:51:00] because there's only one company that knows how to do it.

And so they get to dictate the price. We can't build a jet that is functional because we are so reliant on these big companies. The government procurement officers have gotten bad at writing what they want when there are lots of suppliers, they had to say, I want this. Exactly. And they had to have really detailed specs for what they wanted.

Now that you say, I want this. And then the cost goes into the ceiling. And like, this happens again and again and again, and to get across industries that the. Has been spending money like a couple of companies. I mean, Medicare part D is a great example of this. The entirety of Medicare part D is like 90% of all of the enrollees are with like five companies.

They offer a lot of products and Medicare part D is for the most part successful, but it's also extremely concentrated to just a [00:52:00] couple of companies. And that's in part because the government has chosen to source things from only a couple of companies 

Luke Slindee, PharmD: devil's advocate. All right, good luck guys. You're fighting against the biggest companies on the planet that have the most money because of their monopolies.

Mike Koelzer, Host: And they're buying off nearly everybody in Washington who is needed to make these changes. Now, what. 

Luke Slindee, PharmD: I mean, we need a political revolution. We need, we need a political participation revolution, really. I mean, first of all, we need people to understand the effect that antitrust has on their daily lives, which is significant.

And, you know, to express the fact that they want the government to basically hold the private power in check. And we've reached a point where private companies are, in a lot of cases, more powerful than the [00:53:00] government. It should not be that way. We need to enforce the laws that have been on the books since 1914.

And, you know, do all of all of that. It is very exciting. One thing I want to really stress is that this, you know, in this age of unfortunately, a very polarized political environment across the two major political parties, uh, this lack of antitrust enforcement and all the subsequent effects of it is a bipartisan phase.

Like, this is something that has occurred for the last 40 years under both Democrat and Republican administrations. And they both have equally failed on this measure. And it seems like, I mean, we're very early in the process, but it seems like the, you know, the, the, the people that are interested in turning this ship around also are coming at it from a bipartisan bipartisan perspective.

And so, you know, even though obviously the current administration belongs to one party, there's no reason why this [00:54:00] has to be a partisan issue. It really is an economic Liberty issue. And, you know, people should be able to shop and have lots of options when they want to buy something and not be Dick, you know, not told by the one company or the two companies that provide something that they have to buy it from them.

You know, look at the pharmacy space and the steering and whatnot. I don't need a PBM telling me what pharmacy I have to go to. That's a loss of economic Liberty and we should, everyone should care about that regardless of your political affiliation. So at this point, I think we're really hitting the pendulum swing where, you know, the proverbial phrase, it's always darkest before the Dawn.

Um, you know, you look in the pharmacy space and take a look at the fortune 20, uh, there's a lot of names that we know there. And, uh, and I would say a lot of them, it seems kind of ridiculous why the company that does what they do, they should not be in the fortune 20. Um, so, you know, we need to raise awareness.

I'd really recommend that people read. There's been a whole collection of excellent books that have come out on this [00:55:00] subject in the last couple of years. Um, you know, I would say break them up by Zephyr. Teachout was a very good Goliath by Matt Stoller Liberty from all masters by Barry C. Lynn is another good one, uh, monopolized by David Dan.

These are all books that Benjamin and I have. And I think it's a really great way of helping somebody have the context to understand what's going on in the pharmacy space so that we are not alone. As we've been talking about during this entire podcast, this is a problem that's plaguing every industry.

And we just happened to see the particular manifestations of it in our industry. And so, uh, this is a, this is a great political movement. That's just taken off the trains, leaving the station. So I'd say, everybody's welcome. Let's get on board. Yeah. I 

Mike Koelzer, Host: like what you said, Benjamin about the boycotts and sometimes those boycotts, I mean, unless it's for a purpose, with a ton of people, sometimes those boycotts can hurt because I feel like I'm doing [00:56:00] my part by not buying, you know, back a bubblegum from Walmart or something like that.

But instead of eating. Conscience that way say, now I'm going to buy that bubble gum, but I'm going to do something proactive that might have more impact 

Benjamin Jolley, PharmD: if I might suggest, uh, something that you could do, like, like Luke mentioned, read a book, go by Matt Stoller is Goliath phenomenal book. The, one of the theses that he has at the beginning of his book is that the revolution in the eighties that transitioned us to the world that we're in today was so thorough that we lost the words to describe our reality.

And so reading these books and reacquainting ourselves with the vocabulary that our great Graham grandparents had back in the forties is really important. It's a really important first step. Another that I would suggest [00:57:00] is look at who's running for office. And vote for people who consistently are in favor of greater antitrust enforcement.

I will say for me, there's two people in particular. One is that I need to get out of the office and the other is that I want to get into the office. Um, Mike Lee is my Senator here in Utah. He's up for election this year. I want him out of office because he is a true believer in the consumer welfare standard.

He wrote the forward for the republication of the antitrust payer paradox. I want him out of office simply for that. I also don't really like him for a lot of other reasons, but that's whatever, but I'm putting my personal efforts into electing. One of the wonderful people that are running against him.

There's, there's two Lei, some being one. Um, the other is on the other end of the spectrum. Is this extremely bright? [00:58:00] Young man in Missouri named Lucas Kuhns. Um, Lucas Koontz is running for Senator for the Roy blunt seat. It's an extremely contested seat. There's like 20 people that are running for it.

Lucas, um, though he's an Afghan war vet, an Iraq war vet. And he got the idea when he shipped out to Afghanistan for the first time he left from Jeff Jefferson city, Missouri, there were corner grocery stores in his town. There aren't anymore because of the monopoly power that we see and he gets this, he actually works currently for, um, for a group called the American economic liberties project whose work I think you should totally look at it's phenomenal, but there's, there's this resurgence of interest.

And, um, Luke mentioned that this is, this is a bipartisan. Concept. And it totally [00:59:00] is. If you look at Lena and confirmation, she was confirmed by 75 senators out of, out of, you know, that means that 25 Republicans voted for her because they see the problem in the world is monopoly. They seem like the most obvious ones are Facebook, Google, and Amazon.

Once you get the concept that this is, this is the problem is monopoly power. It's everywhere. 

Mike Koelzer, Host: Someone's listening to this and you're going to get their attention for three to five minutes after this, as they're walking into their store or home or parking and they're on their mobile phone or something like that.

The question to both of you individually, Luke and Benjamin. What do you want someone to do with those three minutes? After hearing this, you don't get a lot of time for three minutes. It might be signing up for a blog or, you know, listening to one [01:00:00] listening. You can listen to Benjamin three times in a row for his FDC, a conversation he had for those three minutes.

But what are they going to do with those three minutes? 

Benjamin Jolley, PharmD: Sign up for Matt Stoller blog, big it's Matt Stoller dot sub Just sign up for his new newsletter, on your email. He sends a newsletter about once a week and just talks about this stuff. Any links to all sorts of other things in, in the same subject, but it's a great read every week about what kinds of things have happened in this space.

Mike Koelzer, Host: What's your three minute proposal 

Luke Slindee, PharmD: contemplate your personal relationship with fortune 500 companies and how much control they have over your life and contemplate whether or not you're comfortable with the current amount of control that they exist over your life. And if you're not, what are you going to do about it?

Mike Koelzer, Host: Benjamin and Luke. Golly, thanks for your [01:01:00] time. That was deep information. Pretty 

Benjamin Jolley, PharmD: cool. Thanks so much for your time, Mike, like you say, it is deep. I think of this as once you understand this, it's kind of like seeing the matrix, right? You see the same problem everywhere else. So I'm just so grateful to be able to talk about it some more, 

Luke Slindee, PharmD: really appreciate the platform.

And, uh, you know, I challenge, I challenge every pharmacist out there to, uh, to really consider the effects of this, uh, of concentrated economic power and the effect that it's having on our industry. And then, you know, as Benjamin said, try to find solidarity with other people and let's, let's make this a bigger group and expand the circle to all the other people that are feeling the pain as well.

For sure. 

Mike Koelzer, Host: Thanks guys. We'll be watching closely. 

Benjamin Jolley, PharmD: Thanks so much, Mike, have a great one. Thank you.


Mike Koelzer, Host: You've been listening to the business pharmacy podcast [01:02:00] with me, your host, Mike Koelzer. Please subscribe for all future episodes.