In the Matter of the Pharmacy Benefit Managers Report

Takeaway: Everyone is trying to “lean into patient care and support” only to find the real world of patient care and support is defined and controlled by PBMs.

**********

Verily, and now OpenAI, are coming to the healthcare system near you.

Verily has decided to join the fray fighting for a piece of an emerging market we can call “access to GLP-1s” [Note: When you unpack “access to GLP-1s” as market space, it’s really referring to a loose ecosystem that touches big markets in personalized medicine, employee benefit consulting, electronic medical records, pharmacy benefit management, evidence generation and continuous glucose monitoring, for starters].

Verily’s next effort for growth in healthcare is branded Lightpath.

Open AI’s was launched on Monday, the day before the FTC report was released, and is branded Thrive AI Health. It will be funded by the OpenAI Startup Fund and Thrive Global as lead investors; the Alice L. Walton Foundation is also a strategic investor -- as a sign for how misdirected all of this has become, Alice Walton is the daughter of Sam Walton, the founder of Walmart, which just exited the primary care market Thrive AI is getting into (for more on this, see "Walmart Checks Out" published by Blue Spoon).

Lightpath was unveiled in Vegas at the annual expo of AHIP, the trade organization whose 127 members are the same “middlemen” that were the subject of the investigation by the FTC, who released the preliminary results of that investigation on Tuesday (“Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies”). Presumably, the growth strategy for Lightpath targets this group as a primary customer.

In ecological terms, these “middlemen” are the apex predators in the American Way of Healthcare , controlling access to medicines generic and novel, and by extension the practice of medicine itself, for essentially the entire country. A data point from the FTC’s report captures the nut of their power:

“Because the Big 6 PBMs control over 90 percent of dispensing volume and the Big 3 cover approximately 270 million people, pharmacies often have little choice but to contract with the dominant PBMs to serve patients.”

Lightpath says its aim is to treat diabetes, obesity, hypertension and other related conditions with teams of clinicians including endocrinologists, primary care doctors and coaches. But the thing to keep in mind is that these HCPs, and their prescribing behavior, are bound by the rules of utilization management (“optimization levers”) defined by the PBMs, who also define and control the personal health experience LightPath and Thrive AI are trying to transform.

It looks something like this, via the FTC report:

“I am a [diabetic] patient. I am given ONE chain option for local pharmacy use for my maintenance medicines, and get nasty letters in the mail if I take on anything less than a ninety- day supply, to boot. This pharmacy chain is already so overladen, that sometimes it can take weeks, plural, to get medicines filled. My other option is mail order, and when the mail order option fails to fill after waiting a week to ten days, I then have to wait more days to have the already overloaded local pharmacy fill my prescription.”

Lightpath will be augmented by artificial intelligence, because no modern strategy is complete without it and because, well, this is coming from the Silicon Valley understanding of how to fix healthcare, which is invariably through technology. In an op-ed for Time Magazine framing the grand vision and ambition for Thrive AI Health (AI-Driven Behavior Change Could Transform Health Care ), Sam Altman and Arianna Huffington restate and recycle the cliches, the fumes of a legacy narrative sustaining the unsustainable:

A staggering 129 million Americans have at least one major chronic disease — and 90% of our $4.1 trillion in annual health care spending goes toward treating these physical and mental-health conditions. That financial and personal toll is only projected to grow.

We know this is unsustainable. But there are solutions, because health outcomes are shaped by more than just medical care or genes. Behavior change can be a miracle drug, both for preventing disease and for optimizing the treatment of disease.

Yes, behavior change is hard. But through hyper-personalization, it’s also something that AI is uniquely positioned to solve.

AI is already greatly accelerating the rate of scientific progress in medicine—offering breakthroughs in drug development, diagnoses, and increasing the rate of scientific progress around diseases like cancer. In fact, OpenAI is partnering with Color Health on an AI copilot to assist doctors in cancer screening and in creating treatment plans after a doctor has made a diagnosis.

But humans are more than medical profiles. Every aspect of our health is deeply influenced by the five foundational daily behaviors of sleep, food, movement, stress management, and social connection. And AI, by using the power of hyper-personalization, can significantly improve these behaviors.”

Theoretically.

But the battle cry is also 'foundationally' incorrect. Without positioning its “transformation” vision as original, something that leads with big economic innovation instead of big technology vision, where the objective on the roadmap is to displace or degrade the control of PBMs, Thrive AI Health is trying to make the "horseless carriage" work better.

Kyle Wiggers from TechCrunch explains things this way:

Thrive AI Health is the latest in a long string of tech industry efforts to create health-focused apps with AI-driven personalization. Many have run up against intractable business, technical, and regulatory hurdles. IBM’s Watson Health division, launched in 2015, was supposed to analyze reams of medical data — far faster than any human doctor could — to generate insights that could improve health outcomes. The company reportedly spent $4 billion beefing up Watson Health with acquisitions, but the tech proved to be inefficient at best — and harmful at worst .

Elsewhere, Babylon Health, an NHS-partnered health chatbot startup that once promised that it could “automate away” consultations with medical professionals, collapsed after investigations revealed that there was no evidence that the company’s tech worked better than a doctor. Once valued at over $4.2 billion, Babylon filed for bankruptcy in 2023 — ultimately selling off its assets for less than $1 million.

One of those “intractable business hurdles” Wiggers is referring to is, believe it or not, the fax machine, invented in 1843. The fax has been weaponized by the PBM market, intentionally deployed as a form of control, part of ‘system advantage’ impervious to the best intentions and ambitions for all the “game changing” technical potential of generative artificial intelligence. To wit:

Some PBMs deploy what they call “passive contracts,” which are described as a notification outlining terms that take effect without the need for affirmative consent or signature, the FTC investigators discovered. These passive contracts can make up a large percentage of contracts sent out by PBMs, often to independents and smaller chains. Mass notifications, including through communications using facsimile machines, called “fax blasts,” typically automatically enroll the pharmacy into new terms and conditions.

Vindell Washington, chief clinical officer for Lightpath and head of Verily's Center of Excellence for Health Equity, told Fierce Healthcare at AHIP that Lightpath will use AI and its wealth of data to drill down to the "n of one" for a truly personalized experience. That data will come from medical records and devices such as continuous glucose monitors.

Apparently, this is the same pool of “free” data that Thrive AI Health will use to power its hyper-personalized health experience.

From the press release : “The Thrive AI Health Coach will be trained on the latest peer-reviewed science, biometric, lab and other medical data, as well as users' personal preferences and goals around the five key daily behaviors.”?

Verily didn't say whether the people — the patients, the physicians, the nurses, the consumers, the employers, the health plans, the hospital systems, the pharmacies, the medical device companies, the media and medical journals — who contribute data to the medical records and devices used to train Verily’s AI will get a cut of Verily revenue and earnings based on their contribution.

Neither did Open AI.

What Silicon Valley Doesn’t Get About Healthcare

“Beyond America’s West Coast, there is little sign?artificial intelligence?is having much of an effect on anything.”

The perspective is from The Economist last week (What Happened to the Artificial-Intelligence Revolution? ), and its relevant here because it speaks to the allure of the Silicon Valley sell that defines progress in technological terms. But so far the technology has had almost no economic impact.

“Move to San Francisco and it is hard not to be swept up by mania over artificial intelligence. Advertisements tell you how the tech will revolutionise your workplace. In bars people speculate about when the world will “get AGI”, or when machines will become more advanced than humans. The five big tech firms — Alphabet, Amazon, Apple, Meta and Microsoft, all of which have either headquarters or outposts nearby — are investing vast sums. This year they are budgeting an estimated $400bn for capital expenditures, mostly on AI-related hardware, and for research and development.

Markets are about gravitational pull, not technical push. Verily and Thrive AI Health are positioned to reinforce the past, not construct a future, because their technology-led visions feed the same set of 'control points' (i.e., the AHIP members, Big PBM, Big EBC) around which a $5 trillion system of markets currently rotate and depend for business success.

They are not shifting the center-of-gravity for healthcare.

Verily, itself trying to move past recent layoffs and executive exits, said it wants to transform into a commercial-focused organization and believes "leaning directly into patient care and support" (i.e.., primary care) is one way to do so. Walgreens, its stock at a 27-year low, thought the same thing. So did Walmart and Dollar General. So does Best Buy. So does the pharmaceutical industry.

Everyone is trying to “lean into patient care and support” only to find the real-world of patient care and support is defined and controlled by PBMs.

According to the FTC report, the entire pharmacy reimbursement model operates based on complicated and unclear calculations.

“This is on top of the inherent complexity of the prescription reimbursement system, where, when a health-plan beneficiary purchases prescription medicine at a retail pharmacy, the payment flows through several entities, including the patient, pharmacy, PBM, health plan, insurer, and plan sponsor.”

Said differently, Verily’s and Thrive AI Health’s latest push for growth in healthcare is trying to succeed in a context that nobody understands except that it stopped working decades ago.

When it comes to big market innovation in healthcare, the roadmap doesn't start with the conventional frame, the journey doesn't start alone, the vision is not led by technical potential, and the 'impact horizon' extends beyond three years.

“The status quo is unsustainable — a challenge that AI-driven hyper-personalized coaching is uniquely positioned to address,” says the Thrive AI press release.

But the status quo is sustainable, which is precisely the point. And all the technical potential that money can buy won’t fix it.

“This [FTC] report is based on anecdotes and comments from anonymous sources and self-interested parties, and supported only by two cherry-picked case studies that are implied to be representative of the entire market,” said JC Scott, president of the Pharmaceutical Care Management Association, a trade association representing PBMs, in an interview for the Wall Street Journal’s coverage. “The report completely overlooks the volumes of data that demonstrate the value that PBMs provide to America’s healthcare system.”

Maybe. Maybe not.

Reality is hard to know, because of all the hired bullshit, but even without being sure of the validity of the volumes of data from Big PBM, it seems entirely reasonable to think that every now and then, the energy of a whole era comes to a head in a long line flash.

It is the energy that needs to get harnessed.

The thing this moment needs is ambition from business and government leaders willing to make a hard narrative turn, a Big Strategic Rotation to pull the American Way of Healthcare into a new orbit for competition and creativity, where the ‘production of affordable health’ is at the center of large-scale system change, not the extraction of value from administrative complexity.

And the whole thing needs to rotate around a new pharmacy-reimbursement-pharmacist-as-provider model….enabled, of course, by the humanity-saving potential of generative artificial intelligence.

/ jgs John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. For market access innovation: [email protected]