Podcast interview with Ralph Kalies, CEO of BidRx (transcript)

This is a transcript of my podcast interview with Dr. Ralph Kalies, CEO of BidRx.

David Williams:  This is David Williams, co-founder of MedPharma Partners and author of the Health Business Blog. I am speaking today with Dr. Ralph Kalies, he is CEO of BidRx.

Dr. Kalies, how are you today?

Dr. Ralph Kalies:  I’m pretty good.

David:  Great! Well, tell me about BidRx. How did you come up with the idea for it?

Ralph:  Well, I came up with the idea, because I’ve been involved in the healthcare area for about 30 years, mainly with the pharmaceutical use process. Looking at the pharmaceutical use process, I’ve owned PBMs, I’ve owned physician practices. I’ve consulted pharmaceutical manufacturers, and done pharmaceutical phase three and phase four research. I’ve been involved in that whole aspect.

So, when I got to the point of deciding that I was retiring from many of those things, I decided that there were still a lot of problems out there. So I got together and put together my knowledge base, and thought I found the solution to solve all the problems with the prescription drug industry.

So, we essentially tried to put together a situation in healthcare that doesn’t exist, and that is a real true marketplace, that is making sure the consumer and the sellers have an ability to have full information, full disclosure and have an ability to make choices, being an informed consumer.

Right now, when a physician prescribes a prescription, the patient could say to the physician, “Doc, that prescription you’re writing, do you know how much that costs?” The Doc will not be able to tell the consumer how much that costs, and the consumer has no idea how much it costs either.

The next question the consumer may have is, “Doc, is that covered by my plan?” The Doc may or may not know if it’s covered by his plan, and the consumer may or may not know if it’s covered by his plan. “Doc, what is my copay or what costs will I have to bear of my insurance cost for this particular product?” The Doc usually does not know, and the consumer doesn’t know.

Then the final question, of course, is the consumer says, “Well, Doc, of all the products that are out there, is there another product that will do exactly the same thing, or get me just as well but not cost me as much?” The Doc says, “Well, since I don’t have the answer for the first questions, I sure can’t answer that question.”

So, that’s what we end up with in the current situation. BidRx was set in place to solve that issue and by solving that issue, allow consumers and payers to experience a dramatic decrease in the cost of prescription drugs.

David:  In terms of the system that you actually put together, tell me about what it is and how it works for the typical user?

Ralph:  It’s a competitive electronic marketplace where the consumer, or the prescriber, or the consumer’s advocate or the pharmacist as a consumer advocate, everybody has access to the information. It is truly interoperable, which the current system is not. What that means is that everybody has access to all of the information, and everybody has the information to make proper decisions, and they can access it very easily.

So, what happens is the consumer or any of the other people we’ve just talked about, put in the prescription that they have or they’re thinking of prescribing. What BidRx does is takes them through two levels of competition. The first level of competition is what we call “Product Competition” where the consumer sees all of the products that are similar to the product they put in, and not only product but similar prescriptions, which take advantage of looking at side effect profiles, and also adverse reaction profiles, as well as potency. So, it aligns prescriptions that would be an apples-to-apples comparison to the prescription they put in.

Then what happens is that the thing that is shown is the price of those prescriptions, so that it gives the consumer and the prescriber, and whoever else is looking at it, what I like to call the “catch-it-by-a-look.” You can see all the products down the line, you can see the Hunts, Heinz, Del Monte, and whatever and see the prices of those products and see the value propositions of those products so one can make an informed decision what would work. Typically, you will see that there are products that are hundreds of dollars to products that are tens of dollars.

The next level of competition, once we decide on the product that we are going to purchase with the physician and the physician prescribes it. Then the consumer goes out and then defines the service area they like, and if they would like see mail order prices, and they would like to also have different service levels like home delivery or other types of things. They then click on BidRx, and then instantaneously, they get electronic bids from all of the pharmacies that meet the criteria that they’ve set up in their profile.

So they then will see all the pharmacies, and the pharmacies simultaneously bid instantly on that product. The consumer then can select the pharmacy that has the best fit for them, and has the best price. The pharmacy prices can vary widely, and if you’ve been watching the studies that have been done, the prices can vary as much as 500 percent to 1,000 percent.

When WalMart came out with four dollar prescriptions, the next day all of a sudden Kmart was matching that, and Target was matching that. The same type of thing happens on BidRx, but not only for a couple of hundred products, but for all products that exist. So it essentially shows what happens when you shed light on the competition and people do know what the prices are, it would be like otherwise consumers are shopping in the dark.

So they then pick the pharmacy, they then get a reservation, and the pharmacy at that time gets a reservation. That’s the first time the pharmacy knows who the person is that is getting that medication. So now, they would be able to contact that person, set up whatever delivery situation would be there. Or on the other hand, the consumer could contact the pharmacy or go into the pharmacy, whatever they wish.

But now they have a set reservation just like if you were on Expedia or Travelocity, or a hotel room, or for an airline ticket, which we know everybody pays different prices for depending on how good a consumer they are.

David:  Now, what you’re describing there sounds very valuable in particularly for a self-pay patient, someone without insurance. And, I think on both levels —  in either case the doctor won’t know what the formulary status is. The fact of having a formulary may do some of what you’re describing in terms of finding alternative products. You still have the issue about how you interact with the physician, but the health plan may provide some of that value.

And then, the health plan may also have negotiated the reimbursement to the pharmacy so the end price to the consumer won’t tend to vary that much depending on kind of what plan they have.

Is this, then, primarily for patients that don’t have insurance? Or, is there value for patients that do have insurance, as well?

Ralph:  It’s valuable for all people who have prescriptions whether they have insurance or not. The consumer and the physician would have to know what the formulary is, what tier a product’s on, what’s covered, what’s not covered. All of those things have to be done even if they have a benefit plan. And right now, they don’t find that out until they get to the pharmacy. Because when they get to the pharmacy, that’s when you find out there’s prior authorization, the drug’s not on formulary, the drug’s not covered. And then, the process has to start all over again back to the physician to re-prescribe the product or get things taken care of, or the consumer has to pay a higher price if they continue on that same product.

So, that process is very, very inefficient for the pharmacy, for the physician, and for the consumer. With BidRx what happens is everything’s condensed at the front end. In other words, it shows you all of the products and all of the tiers. But, it doesn’t show it to you in a normal way. What it does is it just shows you the “You Pay” column. So, it shows you based on the price of that prescription about what you’re going to pay as a patient copay.

David:  So, I know what you’re talking about. When the consumer gets to the pharmacy and it’s only when the claim is adjudicated they find out about what happened, and then you set the process off. So, I understand how there’s efficiency at the front end. On the one hand, some of that could be solved by eprescribing, but I think we’re not there yet.

And then, on the other hand, there’s another piece which is that there’s a part of this which, I guess, may be something that the consumer is doing as opposed to the pharmacist. Because in the instance where the consumer gets to the pharmacy, finds out that, wow, this thing costs $100 and I was expecting to pay $10, it’s fairly frequent that a retail pharmacist might call the physician to see if a switch makes sense.

Are you suggesting that the consumer would do that as opposed to the pharmacist? Does the pharmacist have a role? Do consumers do that now anyway?

Ralph:  Well, what happens is that would happen as you got to the pharmacy at this point in time, and the pharmacist would, your right, many times if they took the time, contact the physician, get it re-prescribed, and get the right product in place. But, many times that requires a delay in the whole process because many times the pharmacist can’t get the physician.

David:  Now, you’ve described how there’s value for the consumer, for the pharmacy, and for the physician. Is there value to a health plan, as well, with BidRx?

Ralph:  There’s a value to a health plan, or let’s call it the real payer, to the employer.

What happens here is that the real payer ends up in a situation where if the consumer is not acting as the consumer, and the physician does not have the information to make good decisions for the consumer on a cost basis, then we end up with products being prescribed, like the Lipitor that you tried, and finding out that it costs, you know, $358 versus it would cost you $3 to get the Simvastatin.

So, those are the differences in prices that the employer, or the real payer, ends up paying versus would be able to experience that decrease in cost.

David:  Now, what happens if people have a whole big portfolio of prescriptions, which would be fairly typical especially for older people, and they get a good deal on one prescription at one place, and somewhere else they get a better deal on another one, and they end up having a somewhat fragmented collection of suppliers?

Are there issues for that in terms of either convenience or patient safety?

Ralph:  Well, let’s analyze what really is going on today to begin with. There’s this sort of untrue situation that assumes that a person goes to the same pharmacy all the time. They typically don’t. And, there’s nothing in their current benefit plan that requires them to, In fact, as we just discussed, many people want to push as many of the generic maintenance drugs to the mail order pharmacy and have the more emergency drugs billed at retail, and want to eliminate certain pharmacies from even filling some of the prescriptions.

So, there is not this idealized situation where you go to one pharmacy and all your prescriptions are filled there.

As far as the information on the prescriptions, many times the PBMs have indicated they do the drug analysis for drug interactions and other things so that even though somebody goes to a different pharmacy each time, they actually have that information to do the drug interactions and do the drug utilization review that needs to be done, and then can report that to the pharmacy that is filling it, even though the pharmacy does not see the whole profile because it is not an interoperable system. They only see the results related to the one prescription they’re sending in.

So, those are huge disadvantages of the current system at this point in time in trying to, for safety and also for convenience as you talked about. With BidRx what happens is we solved those issues.

One other thing I didn’t cover with the old situation: remember, the PBM only keeps a record of the prescriptions that are covered by your plan. So, when you do the drug utilization review and you do the drug interaction review, it’s only on the products that are covered.

For example, if you were on Nitroglycerin for your heart and then that was covered, but your Viagra was not covered and you went to get that at another pharmacy, they would not know that those two life-threatening products were being given together.

Let’s look at BidRx. BidRx now tries to solve that whole situation because, remember, on BidRx, it doesn’t matter if the product is covered, not covered or whatever. They all appear there, and for the first time, the patient has a complete electronic record of all of their prescriptions, covered and not covered, with one plan or another plan, they are all together in their own personal health record that they electronically can share or print out for anybody they wish.

They can give their pharmacy access to that, they can give their physician access to that, by letting them act as an assistant for them. For the first time ever, the patient, the physician, the pharmacy, and any other health care professional or anybody else they give access to, will have a complete electronic record of the prescriptions they received; and they will know when they had them filled, so they can check compliance. They will know all of that, which is hidden from everybody at this point in time, except the PBM.

David:  Tell me a little bit about how successful have you been. Are consumers using this? Are pharmacists getting online and bidding? What do physicians think?

Ralph:  Once again, the pharmacies will follow their customers. So, as customers become familiar with BidRx in an area, the pharmacies come online. What we have seen when we talked to all the major chain pharmacies is they all have, in a nutshell, said consumers will love this, payers will love this and don’t lock us out. We will be there when you have customers, but don’t expect us to help you, because right now we like the consumer that does not know and shop the price we know. We like the consumer that comes in for one reason: that’s convenience.

That’s why you will see a pharmacy on every street corner and you see all of those things that you see today. But once BidRx comes into play, then the consumers will have a whole lot of different ideas about what they can use to make proper prescription fulfillment decisions rather than just convenience.

Consumers, once they find out about it and once they use BidRx, they would never fill another prescription without using BidRx. Because what happens is just like anything else, as time goes on, there is more aggressiveness in the marketplace by the providers that are out there or the sellers, not only in price but in coupons and services. They compete on price, they compete on services, and they compete on making sure there is a good customer experience.

All of those things continue to happen. Because BidRx is also tied with the pharmaceutical manufacturers from a standpoint of they have an interoperable portal to the site, they want their brand of ketchup to be used above all other brands of ketchup. So they are going to constantly try and figure out a way to find that product to be selected by the physician and the consumer.

David:  Tell me, what is your business model? How does the site support itself financially?

Ralph:  The site supports itself financially by a number of different ways. The first way is that pharmacies, it doesn’t cost them anything to get onto the site and be part of BidRx at all. When the pharmacy comes on board, they can tell all the consumers their value propositions, the products they sell, the services they provide and the cost of all of those things and they can do that at no cost. The only time they actually do pay, they pay a marketing fee, a sales marketing fee, at the time they win a prescription, they win a bid.

David:  OK.

Ralph:  It is a fixed fee. It’s not determined on the basis of the cost of the prescription because it’s really like picking an ad in a newspaper or something but you only have to pay if somebody buys something.

David:  Right.

Ralph:  So, that’s one revenue stream. The other revenue streams that we have, again, are the advertising by the pharmacy, because if they want to put coupons on, just like if they put coupons any place else, if the pharmaceutical company wants to put coupons on, and then all of the other Google-like revenues that would come from a Google-like site, this becomes a Google of pharmacies.

So, to promote any of the products that may be potential picks by the consumers, all of that activity ends up being part of the revenue stream of BidRx, which is just huge. So, what we would anticipate, instead of the consumer paying more and instead of the payer paying more, what happens is BidRx really exists from those dollars that typically went to Madison Avenue and on buses and in magazines and things of that nature.

David:  I’ve been speaking today with Dr. Ralph Kalies. He is CEO of BidRx. Dr. Kalies, thanks for your time today.

Ralph:  You are welcome! I thank you for the opportunity.

October 27, 2008

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