The Edge of Healthcare: Pharmacy Pricing and Customer Success

Martin Cody: Welcome to the Edge of Healthcare, where the pulse of innovation meets the heartbeat of leadership. I’m Martin Cody, your guide through riveting conversations with the trailblazers of healthcare. Tune in to gain exclusive access to strategies, experiences, and groundbreaking solutions from influential payer and health system leaders. This isn’t just a podcast, it’s your VIP ticket to the minds shaping the future of healthcare right now. Buckle up, subscribe, and get ready to ride to the edge of healthcare, where lessons from leaders are ready for you to use today.

Martin Cody: All right. Hello again, everyone, and welcome to another episode of The Edge of Healthcare Lessons from Leaders to Use Today. My name is Martin Cody, SVP of Health. With me today is a gentleman who is the president of the Employee Division for a small company that used to be called Customer Value Store. You probably know them as CVS. So, without further ado, I want to introduce Ed Devaney. Ed, thanks so much for joining us today.

Ed DeVaney: Martin. Thank you for having me. Long time no see.

Martin Cody: Long time no see is correct—too long, in fact. So I think I want to start at a high level with some background on you because you’re in a very hot sector of healthcare right now. And I want to know how you got into healthcare.

Ed DeVaney: So it’s a good question. I started in 1998. I was hired to do consulting by a company by the name of Hewitt Associates. I was hired to do defined benefit and defined contribution consulting. So all more pension for one K consulting. And if you think back to the late 80s, you had President Clinton, who was passing healthcare legislation looking to make some pivot. The increased demand that came into Hewitt at that point was all health and welfare-focused. So they sent me down to Houston, Texas, to learn everything I could about health and welfare and group benefits. And after that, I became a health and welfare consultant for them.

Martin Cody: Why the interest in consulting? Where did that originate from?

Ed DeVaney: It’s a great question. Growing up, I’ve watched my father and my father was a purchaser or a buyer for Walgreens at that point. So I always love watching how the salespeople would communicate. If I go to a dinner or a ball game with them. So sales were always top of mind. And secondarily, I was thinking about getting more into finance. Think about me chasing investment banking jobs, and private equity jobs. At that point, I decided that the perfect middle would be financial consulting on pension and 401 K plans.

Martin Cody: Interesting. It’s funny how when we ask folks what they do for a living and more importantly, follow that up with why they do that, it usually does relate back to exposure at an early age to some facet of that industry. And you’re another case in point. So your dad worked for Walgreens out of the Chicago area?

Ed DeVaney: He did. Yeah, he had one employer his entire life, and it was Walgreens. I think he was there for almost 35 years. And when I joined Caremark, it was, I want to say, 2005, when Caremark had just gotten out of the physician practice called Medpartners, and transitioned to double down on mail order and specialty home delivery. They changed her name to Caremark and O-seven. CVS bought us and my father was not very happy.

Martin Cody: My father hasn’t talked to me since, right?

Ed DeVaney: Oh yeah.

Martin Cody: So I’d be curious what the dinner table conversations were O-seven forward.

Ed DeVaney: I convinced my father to buy a few hundred shares of CVS, and I think I’ll leave it short. He was much happier with the stock performance of CVS, than he was with Walgreens back then.

Martin Cody: I was actually going to unsolicited add that. So I think he’s much happier, especially in light of the last four years, certainly the last two. So that’s interesting. So now tell me a little bit about your role as the president of the employer division.

Ed DeVaney: Sure. We have over 50 of the Fortune 100 employers, but we also have 22 individual state government plans. Think of the State of Illinois, the State of North Carolina, etc., multiple Taft-Hartley accounts, and small municipalities. So, really, everything that is employer-sponsored, even government-sponsored, such as the federal employee plan, is all under the purview of responsibilities.

Martin Cody: And what is your day-to-day, what are you tasked with at CVS in this vertical, if you will?

Ed DeVaney: It’s a good question. So I would say the first thing I’m tasked with is trying to help the people I work with day in and day out, how I can help them by removing obstacles and helping them be more successful. Our group is really more focused on sales and account management. So, how do we go out and win new business? At the same point, how do we keep doing business with each other? How do we align with our customers’ interests and strategic priorities? How do we serve as an extension of their teams? And really, for lack of better words, we pull on the same side of the rope to drive the right outcomes and measure ourselves. Not necessarily against CVS Health’s corporate objectives, but we have individual goals that are client by client, and we measure ourselves on our success in helping our customers be successful.

Martin Cody: And do those folks’ clients jointly participate in the goal setting and KPI setting with you?

Ed DeVaney: They do. So we met with them face to face or some in the pandemic that was more virtual. But that is a key question. We’ll start each and every meeting by saying we understand your top 4 to 6 strategic priorities to be done. We align on that, ask for more in-depth feedback, or try to get their response to what is changing. What is shifting, and what is not? All in an effort to serve really as an extension of their teams.

Martin Cody: I would think that your childhood experience of watching some of the interactions with your dad. And you mentioned the dinners or going to the ball game and stuff like that probably rubbed off on you so that when you’re customer-facing, there’s an authenticity in you and your style and in your delivery that resonates with these folks that you can then bring back to the team. This leads me to question how much of your time right now is customer-facing, where you’re now that the pandemic is behind us, you’re actually visiting with people pressing the flesh, as they say, versus how much is it behind the scenes working with your team and helping lead them forward?

Ed DeVaney: That’s a great question. And I would state, Martin, it’s changing or evolving. So last year, I spent over 200 nights a year in a hotel, all of which was to be front and center with the customer. If you think about where we are within the pharmacy benefit management industry, we’re at really an inflection point. And I needed to understand where the market was. So, you saw me travel much more extensively in 2023 than I am in 2024. Now that I have feedback from our customers, specifically our Client Advisory Council, which is driving many of the pivots we’re making now, it’s a matter of executing that. So, we have brought forward a new economic model. We brought forward multiple changes in the marketplace. We think of biosimilars. I think that’s a great example of that. In 2024, we made a really hard decision to exclude Humira, the world’s most popular medication, in light of biosimilars. If you look at the United States marketplace, overall, there has not been a robust biosimilar market. We were the first PBM to add a biosimilar as a preferred product to our formulary. That’s going back to basically years and years ago, right.? And we’re keeping with being leaders of that by having Humira biosimilars preferred. And this is a big deal. If you look at the cost of it, you’re looking at about a 50% reduction in the net cost for members and the payers of healthcare, as well as their employer. And it comes with an 81% priceless reduction, which is another way of saying that’s tipping to the marketplace that we’re looking to move away from pharma rebates.

Martin Cody: Interesting. You mentioned PBM, and I think as someone who has worked for 37 years in healthcare, only two of those years have been for publicly, maybe three years at a publicly-traded company. So, it is always in the SMB realm, usually for entrepreneurs. And the entrepreneurial companies are the smaller, more nimble ones that are trying to retain operating costs. One of the larger costs is healthcare expenses. How do you work with those sorts of folks and overcome their fears of escalating costs of employee control on switching plans every year? Because I have to imagine that is a very difficult hurdle, but a very real challenge that these employers are facing.

Ed DeVaney: No, I think it’s a good question. We actually study that in just about every customer meeting we have. We have an analysis that talks to leavers and stayers. So you think about people who were on the plan, stayed on the plan, people who were on the plan the prior year but left, and people who are newly added to the plan. So, mixing is obviously an important element. When I say the mix, if you have a disease within a certain therapeutic class, are you using a high-cost brand to manage that, or are there low-cost generics? So these are things that we study, right? We’re consultative with those employers that you’re mentioning. Then, we go forward to those meetings with recommendations. If there’s a bad mix, what solutions do we have to drive them to lower-cost medications? How might we communicate that change, whether directly through the EHR system or through the prescriber, because now we’re embedded into the prescriber workflow? Many people don’t realize that, but Epic, I know you came from Allscripts. It’s people who don’t realize that we’re the single largest utilizer of epic, which is the world or the country’s largest EMR. One of the distinct advantages we have in the marketplace is we’re embedded in prescriber workflow, which allows us to drive to lower-cost medications because, for the first time ever, we’re highlighting to physicians the real cost of medications. So if they’re prescribing a brand that has generic alternatives, we’re going to say, hey, for Martin Cody, he’s newly prescribed, call it multiple sclerosis, they might recommend a high-cost branded medication. We’re going to bring forward three other alternatives within that therapeutic class that will be lower on the net cost for the plan, as well as lower costs at the point of sale for that member.

Martin Cody: And so, is this actually embedded in the prescription writer within Epic?

Ed DeVaney: Yes.

Martin Cody: Oh, that is slick.

Ed DeVaney: And we’re able to leverage that technology across all EMRs if and when that ability or functionality exists.

Martin Cody: Now, that is an outstanding alternative from a standpoint. So then it’s in the physician’s hands, where it should be, because they know your care best and can make the appropriate clinical decision based upon the best information they have at the time, which is perfect.

Ed DeVaney: Yeah. If you look at it, I’ll take it even a step further: prior authorizations and utilization management,  which we know is critical in this space. Employers are looking to keep down costs, but they want a rich benefit. And there are ways in which we can leverage the EMR differently. So, prior authorization is a great example. If you get a prior Martin, you get prescribed multiple sclerosis. We’ll keep on the same example. Most likely for a high-cost brand new medication. There will be a PA, which is part of the UN. And in that typically, we used to rely on faxes back and forth to doctors, which is crazy. In healthcare, faxes still exist.

Martin Cody: Healthcare is single-handedly keeping the fax industry afloat.

Ed DeVaney: Yeah, it is. We operate a little bit differently. We’re trying to get out of that. We’re actually going upstream into the EMR, pulling down the lab values and prior prescribing therapies, and we’re able to either approve or deny PA right there based upon our ability to go upstream versus having the facts of the physician way. It could be a day, could be three days, could even be a week for that to come back. All while the members are in the middle, waiting for an update on when they can or cannot pick up their medication.

Martin Cody: And this may be above both of our pay grades. But I’m curious because prior authorization is literally one of the hot buttons in healthcare right now, and it’s the bane of most health systems and providers’ existence that seems to be sand in the gears. Why do you think it is so integral actually to have prescription fulfillment to have prior authorization and why couldn’t we just rely upon the physician’s clinical decision?

Ed DeVaney: I think it’s a great question. What I have learned in almost 20 years in the PBM industry is doctors are well-educated on drugs and disease states. They aren’t necessarily educated on the cost of medications. And if you’re a payer, if you’re a large employer or even a small employer, you want to get the best value for your dollar the same way I would if I’m going out shopping for a TV, dishwasher, etc., a PA is an opportunity for us to do that. Okay, that is looking at right now. I know we’ll get into GOP ones at some point in this segment, but the cost of those medications is about $1,300. And if you are an employer, you’re going to want to make sure through that prior authorization that it’s meeting the label of which the FDA approved the medication is your BMI, right? Do you have a history of diabetes, etc., so you can check the boxes to make sure it’s prescribed properly?

Martin Cody: It’s interesting because you’re hitting upon something that I think is absolutely necessary. My challenge, and this relates back to something you said earlier about pivoting, is that CVS has been pivoting the last couple of years, and certainly in 2024, twofold because the prior authorization, in theory, is an excellent vehicle or device to make certain to what you just said, that this is the appropriate use for this classification of drug, given that it is data provider information, if you will. It seems this should be done within minutes or hours, let alone days and weeks. How do we fix that part of the process?

Ed DeVaney: I think we already have at CVS Health. We are a leader in how we’re leveraging EMRs compared to competitors, so I think that’s first and foremost.

Martin Cody: Yeah, I think that’s huge. As someone who sold the EMRs for eight years, that’s impressive.

Ed DeVaney: It’s about time. That’s probably the vision you guys had back in the day. And it’s taken a while for us to get there. It was not a small investment. We made well over $200 million investment into it all around. If you look at what’s most valuable to my customers, where they tell me we need to spend our time, it’s the economics. So, we can now leverage our EMR to drive the highest-value product with the same clinical efficacy and outcomes. Secondarily, it’s around the member experience. So, going back to the PA option, how do we remove the friction for members so it’s easy for them? Last but not least, in a rapidly changing marketplace, our customers are pushing us hard right now. This goes back to what you said earlier about my career. While I own sales and account management, I don’t view myself in sales or account management. I still think of myself as a consultant. So when I’m in front of a customer, it’s all around educating them on what’s happening in the supply chain, what’s driving up costs or what our headwinds, what’s driving down costs or tailwinds from their perspective, that’s typically where we spend the majority of our time being consultative. Then, once they understand the broader context and what’s happening in the market,  we go to how we started the conversation on their strategic goals, and then we mix and match how we might tweak them. So we’re all pulling on the same side of the rope.

Martin Cody: And it’s interesting because you just mentioned a perfect segue for the follow-up question I had on pivoting, and you guys have made it, in this particular area, a $200 million investment. And it takes time. And one of my infuriatingly most frustrating things about healthcare is the speed with which healthcare changes or doesn’t change. I’m curious: given the size of CVS, how do you and what would you tell someone younger about the speed of change? And we all know the old analogy that it’s easier to turn a boat than a battleship-type thing. How do you balance that with where you know the industry is going? You know what your customers need, but you’ve got a battleship of an organization that doesn’t turn on a dime.

Ed DeVaney: So I do agree with you. Healthcare moves very slowly. I think what’s interesting is I met with our client advisory council. Gosh, I want to say it was March of 2023, and we laid everything out. Here’s where the supply chain is. Here’s where the market’s at. Here are different approaches we can take to the market. They all stood up in solidarity and said you guys have the size and the scale to change this. And without you guys changing it, it’s not going to change. So you see us acting, behaving ever since that meeting very differently to a point where we have actually brought to market a brand new economic model that will be the most transparent pharmacy pricing model in the marketplace, and we have a ton of customers lining up for it. Honestly, Martin, without our customers saying push it, do it. If not you, no one will do it right. We probably would have waited to see how it turned out. But I do think there’s a level of being conservative, right? And we’ve viewed this as an opportunity to kick the conservative boot and get out and be aggressive in the marketplace.

Martin Cody: And I’m curious, given your position in the organization and your history in healthcare, I look at some of these decisions at the organizational leadership level as a lack of leadership in the industry. I don’t see it so much at CVS. And I’ll give you an example. I’m amazed at what I see in other industries and how fast these folks, even large organizations, move pivot. They’re very agile. If it’s a mistake, they’ll iterate on it and continue to evolve. And there’s a leveling-up sensation that happens over weeks, months, and years that seems much faster than healthcare. We’ve always said that in healthcare, we’re 50 years behind the private sector in certain types of things. Even though of business, it still seems in 2024. We’re 50 years behind the private sector—case in point: the fax machine. And I’m wondering, is there a vacuum of leadership? Is there a collective CYA component? Is there just the overall fiefdom protection that people in their territory? And that’s what’s holding healthcare back as a whole from really the leaps and bounds. I’d just be curious about your take on that.

Ed DeVaney: It’s a good question, and I think if you had asked me this question yesterday, I probably would have a different answer than today, but I’m going to give you my answer as of Tuesday. I do think leadership exists, but I think when you start thinking about where we are in pharmacy benefits, you have the FTC looking into PBMs. You have over a thousand active state bills, all of which are challenging the ERISA and Medicare preemption. And we step back and say there’s probably a limited number of people that can speak to everything around the pharmacy supply chain. We know we have the expertise to do so. When we opened up that conversation with our customers, they were amazed about how the system really works and what options existed. That’s when they said, hey, we need you to go full steam ahead. But that created challenges for us, right? Hey, we’re going at risk with investing capital and moving to a new economic model. You saw what we did with the biosimilars, right? We are in N of one on that approach. We have influencers within our same marketplace. So, for all the customers we have, every single one of them has a new contract every three years.

Ed DeVaney: There’s a pricing event that happens on an annual basis called a market check. All of this has to be done by the consultants. It becomes difficult, Martin, when we change away from Humira, which was a high whack or wholesale acquisition cost and high rebate, into a low list price medication, 81% reduction off of the list price of Humira to our preferred biosimilar. You’re not going to get the same rebates. So then we have to work within the system, across all consultants, to say, look, this is how we model it because you have to model to decrease costs of the list price of the medication on top of rebates. And those are all new learnings. So essentially, when you innovate, you add more work to your plate. And we recognize it. We knew it, and we were up for the task. So to go out. So you asked me a question about where I’m traveling. I probably spend most of my time now with consultants, just educating them on what’s happening in the supply chain, where we are pivoting, why we’re pivoting, and then the math behind it of how we model all that.

Martin Cody: I like that it makes perfect sense from an investment standpoint. And you’re right: Those types of formative changes at mass scale don’t happen overnight. So you’ve got to go out and re-educate the industry. I’m curious, looking at Ed’s personal skill attributes and what you fall back on the most. What would you say are your top three skills that have really allowed you to persevere in a very complex industry and rise to the level where you currently reside?

Ed DeVaney: I highly value the consultant experience I had at Hewitt. Honestly, I think if they were, they would go public and they trade. They sold themselves to Aon. Years and years ago. But I honestly thought when they hired me that  I would have one employer, and that was it. They were, in my opinion, the absolute best of the best. So that all has to do with it, and it doesn’t make a difference in what we at Hewitt want to do. Everything has to do with what your customer wants to do. So, we’ve oriented our entire field within CVS Health. Being client-centric we might have corporate goals A through Z, but if it’s not aligned to what the customer wants, we need to be able to throw that out and align to strategically what our customers want. So I would say that number one is, to me, it’s all about the customer, how we make sure that they are delighted. Number two is that I’m a finance guy. So, I understand the supply chain. I understand the money. I also found a niche within healthcare where not everyone understands how everything works. So I spent an inordinate amount of time up front with customers walking them through the supply chain. What’s happening? The economics? What are some headwinds and tailwinds, and how might they think about their budgets and future years is typically where I’m at, which is probably not a whole lot different than when I was a health and welfare consultant back in the day in, gosh, 98 305 now, it’s long ago.

Martin Cody: I mean, everyone’s going to apps. Everyone’s looking for ways to hack things; everyone’s looking for ways to accelerate the stimulation aspect. And we’re in immediate need of gratification, seemingly in the last generation and a half. But at the end of the day, I think the first point that you made is still valid and still resonates. It’s still paramount, really. And if it’s taken care of, the customer or someone else will. And if you make certain that the customer is successful, first and foremost, you will be a happy customer who will sell ten times more than you will because they’re going to they’re going to sell. They’re going to tell so many more people. So if you make that kind of your North Star, for anybody getting into healthcare consulting or healthcare sales, the more time you invest in making certain that they’re successful, you will become successful. I’ve seen it time and time again.

Ed DeVaney: And I wholeheartedly agree with that philosophy. It’s even going back to finance classes in college or when I got my MBA. Warren Buffett’s famous line is just to let your customers. And that’s what we seek to do day in and day out.

Martin Cody: Yeah, it’s funny when you get down to it at its core, which is essential. It’s not rocket science. It’s just being good to the customer and helping them succeed, and you yourself will be successful. I like it. You talked about a classification of drugs that is seemingly all the rage and might be the only thing hotter in healthcare right now: AI. So tell me what you’re doing with that and why it’s unique to CVS.

Ed DeVaney: First of all, GLP one has really come out in the last few years and is primarily made by two manufacturers, Novo Nordisk and Eli Lilly. So, to me, this is the most polarizing topic that I’ve seen in healthcare. I’ll go coast to coast if I’m in Silicon Valley with tech companies one day. The next day, I’ll be in New York with the big banks. They’re all talking about the need to cover GOP ones to not only attract new talent but to retain existing talent.

Martin Cody: Right.

Ed DeVaney: If I’m the next day in the Midwest with a manufacturer. They are looking at it and saying, we think these are great medications, but we can’t afford them. And Martin, I’ll give you a quote. If everyone who could qualify for these medications took them, it would cost our system $1.2 trillion. That is not a small number. So, if you’re an employer right now, you look at that as a major risk to your business.

Martin Cody: Yep. And what is CVS doing along those lines to mitigate that risk?

Ed DeVaney: That’s a great question. Going back to the prior example, think of it as a continuum. On the far left, we’re going to have as much price control, utilization management, and PA as our customers want all the way to the far right. If you’re in Silicon Valley or if you’re a big bank, that’s a very different philosophy. How do we allow them on this side to get access to the medications? But at the same point, how do we make sure that they’re in anti-obesity management, that they’re following the protocols as prescribed by their doctor, and in alignment with how the FDA approved these medications? So it’s a long continuum. I think one of the difficulties of being in our company is you have such a diverse set of customers who all have different needs. So we can’t build a one-size-fits-all. That doesn’t work for us. We need to build a continuum and offer optionality to our customers in alignment with their philosophical thoughts.

Martin Cody: Interesting. I have one final question before we go to the speed round sales, and I have learned over the years that it is filled with rejection. You get far more no’s than you do yeses. How has Ed developed a personal resiliency that others could learn from as it relates to rejection?

Ed DeVaney: Martin, I’m an old baseball guy. So, in my head, if I try something every ten times, I try something three works. I view myself as a Hall of Famer.

Martin Cody: I was going to say that it is Hall of Fame material.

Ed DeVaney: And so that’s just built into who I am. And that’s not to say, though, that when you don’t win, to me, there are more key learnings when you lose than there are when you win. I think when you win, you need to celebrate. When you lose, you really need to go 2 or 3 layers deeper to understand what happened, why, and what part of our process that we stood up worked. What part of the individual personalities worked or didn’t work? To me, it’s right or wrong. I seem to focus more on the losses, to learn from them and hopefully alleviate them in the future.

Martin Cody: No, I think you’re right. And there’s evidence that supports that. And there’s certainly being an old baseball guy, and as you mentioned, growing up in the Walgreens era of Illinois and Deerfield and that whole area, you’re familiar with Michael Jordan, and I’m not certain who isn’t. But, you know, Jordan used to say famously, I don’t lose, I learn. And Kobe said the same thing. And so you look at some of these top performers, whether they are in athletics, whether they are in government, whether they are in business. They will echo the same sentiment; they will learn more from decisions that didn’t go their way than they will from the ones that did because this is where the investment of work comes in, right? You’ve got to check your ego after you get a loss and sit down. And whether it’s with a legal pad or an app or something like that, write down what did you do? And you really have to do a forensic excavation of what went right and what went wrong and then learn from that. And I think it’s through that personal self-study that the next time you are in front of a prospect, you’ll be much better equipped to answer any of the questions. And you’re right; it should go your way more favorably than in the past if you don’t do that.

Ed DeVaney: I’ll even add to that I am now in my position. I have VP’s executive directors all the way down to new hire analysts. I actually grow more concerned when people aren’t failing because if you’re not failing, you’re getting comfortable. And if you’re getting comfortable, you’re not growing, you’re not developing. So that’s a key aspect that I personally look at, is what percent of my people are looking to push the envelope, do something different versus not.

Martin Cody: Yeah. Because if you’re not failing, you’re not trying things exactly. So awesome. No, that is a great insight for anybody who is looking for a career in sales and healthcare. Basically, it’s not just healthcare. This is a career in sales. You’re going to get rejected, but you can learn from it in any industry. I like that sentiment. It resonates as well. All right. We’re going to come to the speed round. So we’re going to play a word association. And this is the one where corporate communications are literally going to be hanging on by the white-knuckled legal team, who sometimes has to call us afterward. No, you’re fine. I’m going to say a word or a group of words and you tell me the first thing that pops into your head. We’ll start with a softball one because, unplanned, you hit upon this earlier. I’m going to say the word Walgreens.

Ed DeVaney: I have to be careful about this. I think the retail pharmacy space is going to contract. You have about 70,000 retail pharmacies today. I think that number will be in the next 18 months. Your soul will contract down smaller. I don’t know exactly where it will be. I want to see Walgreens be successful. It’s a company that I grew up with. I have a lot of respect. Sure. I know Tim Wentworth went over there. I do believe he’s going to make some changes. Many people don’t realize that pharmacy pricing today is cross-subsidized.

Martin Cody: What do you mean by that?

Ed DeVaney: If you are Walgreens or if you’re CVS pharmacy, if you’re an independent pharmacy, it doesn’t make a difference. If you are dispensing a high-cost brand of medication, you are losing money on that if you are dispensing a generic. The old formula used to make up more than your fair share on the generics to cover some of the losses on the brands. And if you think about aligning interests or goals with customers, that was an easy talk track of saying, hey, we’re all on the same page to incent generic utilization to drive down the cost of healthcare instead of brands. Now that’s changing. Right now, you don’t have generic launches or another wave of generic launches. They won’t hit again until 2026, all while you’re seeing explosive growth of high-cost branded GLP-1 medications. You did see the CVS pharmacy shift they’re launching. It’s mandatory with CVS Pharmacy, not Caremark. And I’ll get into Caremark in a second. CVS Pharmacy is realigning the rebalancing to everything in alignment with how we acquire the medication. So you’re not going to have that loss on brands versus generics. Caremark is offering true cost, which is doing essentially the same thing, but it will serve as an option for our PBM customers, effective at 1125 MBM.

Martin Cody: Interesting. All right. The next phrase and the first thing that pops your head is Medicare Advantage.

Ed DeVaney: I think Medicare Advantage is a tough market right now. If you look at Humana, United Healthcare, and even Aetna, you have the MLR that’s running awfully hot right now. I know all the analysts, both the buy side and the sell side. They’re tracking that every earnings call is hyper-focused on it. It’s interesting the increased subsidies are now coming to target versus the MAPD. I used to think there would be a massive migration from AGWEB into MAPDs. Now I’m starting to wonder if there’s going to be migration out of MAPDs into AGWEBs, where employers will have more control over those pharmacy costs.

Martin Cody: Interesting. Interesting. Next word or phrase? The first thing that pops into your head. This seems to be a relatively hot topic right now since we’re talking about PBM as Mark Cuban.

Ed DeVaney: Mark is doing a great job. He is. He’s out in the market. He has the loudest microphone, so to speak. Here’s what I find interesting about Mark’s model. He covers two brands in 2500 generics. I already walked you through the cross-subsidization, right? He’s purposely staying away from branded medications, recognizing that he doesn’t want to dispense any medications underwater. Which is another way, the economics way of saying this is he’s following an arbitrage pricing strategy is he knows that PBMs, retail pharmacies, everyone in the supply chain, even wholesalers are cross-subsidize he’s looking at and saying, hey, I’ll get this in alignment with my acquisition costs. I’ll highlight to the rest of the market where there are inefficiencies on the pricing. PBMs traditionally always looked at a market basket of goods and how everything is priced together. Mark, similar to good Rx, is looking at specific generics and trying to highlight the cost differences. I think what’s interesting is I talked a little bit earlier about the true cause, and that is an option for our PBM customers to adopt. One 125, I did an analysis. We have multiple true cause deals that went out the door effective 1125. And I asked our analytics team to pull it back and say; I want to know the top 50 generics. And how do two cos offer compared to Mark Cuban cost plus?

Ed DeVaney: It turns out that Mark Cuban generics, when we stopped the cross-subsidization he, has 80% more expensive than us on the generics, but it’s only a subset. We cover all 50 of the medications. He’s only covering 44 or 45 because we know he’s not covering every medication. And then one other stat that I think is awfully important to know, not covering the branded medications and not all generics. If an employer was seriously interested in the Mark Cuban cost,  he’s only going to count for about 18% of an employer spend on pharmacy benefits. I do think while I love the competition, I love that he’s bringing out something new to the market. I think that’s always a good thing. I do think the angle in which he’s going at it is not necessarily solving the problems that are really happening in the marketplace. If you look at generic spending, we created Red Oak, which is by far the country’s largest generic sourcing entity; it could be the country’s or the world’s largest generic drugs that have been deflationary since 2015. As I am meeting with customers as they worry about the economics of what you can and can’t afford, the conversation never pivots to generic medication. The conversation is centered on high cost.

Martin Cody: Sure. Absolutely. Yep, that makes perfect sense. All right, last question. I don’t know if you’re a wine guy, a bourbon guy, or what your favorite adult beverage is, but if you could sit down with someone who could influence healthcare and that person could either be living or deceased, who would you sit down with? And what are you drinking?

Ed DeVaney: I know you’re a big wine guy. I’m not. I do see a bottle of Farniente back there.

Martin Cody: So, for the record, Farniente is not a paid sponsor. Go on.

Ed DeVaney: I’m a bourbon guy, and I would spend more and more time with legislators in DC, specifically in Congress and the Senate, as they look to make legislative changes to healthcare. I’m a big believer that when a government makes changes, there are always unintended consequences. And I believe the best way to rid yourself of most of the unintended consequences is to understand everything that’s happening. There are loud voices that are not necessarily telling the full picture. My goal would be maybe 2 or 3 Bourbons and get in-depth on the pharmacy supply chain. How did we get here? What is working well? What’s not working well? I believe there’s an opportunity we could educate the legislators that ultimately when they do pass legislation, they have a full comprehension of the puts and takes that are associated with the decisions they’re making.

Martin Cody: Now, you bring up a good point because maybe instead of a lunch and learn, since you guys have got the size and scale to change the industry, maybe you have a bourbon and benefit where you sit down, or you do it virtually because they can’t effectively pass legislation unless they understand the intricacies of the entire picture, not just a subset of it.

Ed DeVaney: Exactly. There are very loud voices, and pharmaceutical companies are backing a lot of this. If you think about what’s happening with pharmaceutical manufacturers, with IRA and AMCAP, it used to be that pharmaceutical companies only negotiated with one entity, the PBM. Now, they have to negotiate with the federal government on the Medicare plans and PBM.

Martin Cody: Interesting.

Ed DeVaney: So we view it as they’re trying to play a role in which we have less of a reach opportunity, trying to restrict the PBMs to recognize they’re getting squeezed in MedD and then can make additional value in the commercial plan. It’s interesting. When I am in DC, I ask a very simple question. If not us, negotiating with pharma on the commercial plans, then who? Who else in the supply chain is solely dedicated to driving down the cost of pharmaceutical products? And the answer is nobody. And I think that while a very much an easy, basic question, I think those are the types of questions that get some thinking.

Martin Cody: No, I agree, and let me know if you need some company on that trip to DC next time.

Ed DeVaney: I’m there all the time. Join me any time you want.

Martin Cody: You got it. Ed DeVaney from CVS. Thank you so much for participating in this episode of The Edge of Healthcare. Enjoy the conversation very much.

Ed DeVaney: Thank you, Martin, I appreciate it.

Martin Cody: Thanks for diving into the Edge of Healthcare with us today. I hope these insights will fuel your journey in healthcare leadership. For more details, show notes, and ways to stay plugged into the conversation, head over to MadaketHealth.com. Until next time, stay ahead of the curve with the Edge of Healthcare, where lessons from leaders are always within reach. Take care of yourselves, and keep pushing the boundaries of healthcare innovation.