Ending Pharmaceutical Price Gouging, with Jake Frenz

This video provides an in-depth exploration of the complexities and inefficiencies within the US healthcare system, with a particular focus on pharmaceutical price gouging and the role of Pharmacy Benefit Managers (PBMs). Jake Frenz, the founder and CEO of SmithRx, shares his journey from the Marine Corps to a mission-driven approach to healthcare, emphasizing the need for transparency and aligned incentives in the drug benefit space. The discussion highlights the evolution of SmithRx as a transparent, pass-through PBM, contrasting it with traditional models that often obscure drug costs and benefit from higher prices.

The conversation delves into the core challenges of the PBM industry, where the value delivered to patients and employers is often unclear due to convoluted pricing structures, rebates, and administrative fees. Frenz advocates for a "lowest net cost" approach, exemplified by the dramatic price differences for drugs like Humira when sourced through transparent models like Mark Cuban's Cost Plus Drugs. The podcast also explores emerging trends and challenges, such as the rising costs and supply chain issues of GLP-1 medications and the future implications of high-cost cell and gene therapies, suggesting innovative risk-pooling strategies to manage these expenses without government intervention.

A significant theme throughout the discussion is the concept of a "watershed moment" in US healthcare, where increasing public awareness and frustration will drive fundamental, systemic change. Frenz and the host, Spencer, envision a future healthcare system that is simpler, more trustworthy, and patient-centric, where the "American Spirit" and collective demand for reform ultimately lead to a new category of healthcare delivery. While acknowledging the additive role of AI in creating efficiencies, the ultimate catalyst for change is identified as human resolve and a commitment to long-term solutions over short-term fixes.

Key Takeaways:

• The US Healthcare System is Broken and Complex: The drug benefit component, in particular, is characterized by opaque pricing, misaligned incentives, and a significant increase in spend (from 15% to 30% of healthcare spend, projected to reach 40-50%).
• Traditional PBM Models Lack Transparency: Conventional PBMs operate with convoluted structures involving average wholesale price (AWP) discounts, rebate guarantees, and various undisclosed fees, making it difficult to trace the flow of funds and ascertain the true value delivered.
• SmithRx's Transparent Pass-Through Model: SmithRx operates on a fixed per member per month (PMPM) administrative fee as its sole source of net revenue. This model aligns the PBM's incentives with those of the employer and patient, driving the search for the "lowest net cost" drug options.
• Defining "Lowest Net Cost": This refers to identifying the most efficient and lowest-cost supply chain for a drug. An example is Humira, which has a retail cost of $90,000, a discounted net cost of $24,000, but can be sourced as a biosimilar for around $7,000 through transparent channels like Mark Cuban's Cost Plus Drugs.
• Mark Cuban's Cost Plus Drugs as a Disruptor: Mark Cuban's venture, based on an acquisition cost plus 15% model, is highlighted as a significant force for transparency and cost reduction in the drug ecosystem, with SmithRx being an early PBM partner to integrate with them.
• The "Watershed Moment" for US Healthcare: This anticipated turning point will occur when the average American becomes deeply engaged and vocal about healthcare issues, leading to widespread demand for systemic change that results in a fundamentally different and improved healthcare model.
• Increased Fiduciary Responsibility for Self-Insured Employers: The J&J lawsuit, where an employee sued the company for not making healthcare decisions in line with its ERISA fiduciary responsibility, signals a growing legal and ethical imperative for employers to scrutinize their benefit plan choices and ensure they are driving the lowest costs for members.
• Managing GLP-1 Costs and Access: GLP-1 medications offer significant positive outcomes but present substantial cost and supply chain challenges. Thoughtful strategies like step therapy (trying oral alternatives first) and leveraging FDA-approved compounding during shortages are necessary to manage access and cost.
• Innovative Funding for Cell and Gene Therapies: For high-cost, life-saving cell and gene therapies, the video suggests that payment should not solely burden individual employers or traditional insurance. Instead, broader risk-pooling structures (e.g., across 10,000+ employers) can effectively nominalize the risk and ensure access.
• Competition Drives Value: The entry of new players and innovative models, such as subscription-based pharmacy programs (e.g., Hims & Hers offering GLP-1 access), fosters competition, which is seen as beneficial for broadening access and potentially driving down drug costs over time.
• Long-Term Commitment to Reform: Fixing US healthcare is acknowledged as a multi-decade endeavor (10-20 years) requiring sustained commitment from all stakeholders, focusing on creating simplicity, rebuilding trust, and prioritizing patient outcomes.
• AI as an Additive Tool: While AI is expected to create massive efficiencies in daily tasks (e.g., physician note-taking) and operational processes, it is viewed as supplemental rather than the sole "lynchpin" for achieving the healthcare "watershed moment."
• The American Spirit as the Ultimate Catalyst: The true driver for fundamental change in US healthcare is identified as the collective frustration and empowered demand from the American populace, leading to a grassroots movement for a clearer, cleaner, cheaper, and higher-quality system.

Key Concepts:

• Pharmacy Benefit Manager (PBM): An intermediary between pharmaceutical manufacturers, pharmacies, and health insurance plans that manages prescription drug benefits. The discussion differentiates between traditional, opaque PBM models and transparent, pass-through models.
• Lowest Net Cost: A strategy focused on identifying and securing the most cost-effective drug options by navigating complex supply chains, often bypassing traditional rebate-driven pricing structures.
• Watershed Moment: A critical turning point or decisive moment that brings about significant, often irreversible, change. In this context, it refers to a future state of US healthcare reform.
• ERISA Fiduciary Responsibility: The legal obligation under the Employee Retirement Income Security Act (ERISA) for fiduciaries of employer-sponsored benefit plans to act solely in the best interest of plan participants and beneficiaries.

Examples/Case Studies:

• Humira Pricing: Used as a prime example to illustrate the disparity between retail drug prices ($90,000), traditional PBM-negotiated prices ($24,000 net), and transparent biosimilar pricing ($7,000 through Cost Plus Drugs).
• J&J Lawsuit: Cited as a current event highlighting the increasing legal scrutiny and accountability for self-insured employers regarding their fiduciary duties under ERISA in selecting healthcare benefit providers.
• GLP-1 Compounding: Discussed as a temporary solution during drug shortages, where FDA-approved drug manufacturers can compound these medications to offer lower-cost access.