How to Cure a Rebate Junky

A $350 Billion-a-Year Habit

Nobody can agree which tree is the most photographed in the world.

Some say it’s the Lone Cypress in Monterey, California, a symbol of American resilience held up by wires. The Lone Cypress is also trademarked — it is the logo for The Pebble Beach Company, owned by an investor group that includes Arnold Palmer, Clint Eastwood, Peter Ueberroth, and the investment arm of the Taiheiyo Club of Japan.

(While no official valuation is public, sports business sources estimate the company’s value in the $2–3 billion range.)

Others argue The Wānaka Willow in Lake Wānaka, New Zealand tops the list. In 2014, Kiwi photographer Dennis Radermacher won the New Zealand Geographic Photographer of the Year award for best landscape photograph for his picture of the tree, and since then its fame has continued to grow on social media #thatwanakatree has been used in well over 200,000 Instagram posts). Many consider the tree, which appears to be rising alone out the water, a symbol of hope.

Millions of brains have been attracted to the hidden and half-hidden truths that emit from these solitary trees. They trigger something in a photographer’s subconscious, which responds by giving their owners a pleasurable hit of feeling. Lonely, brave, relentless and beautiful, those who stop and snap are not taking pictures of trees, but of themselves.

What these images reveal is that human consciousness works on two levels.

There’s the top-level on which occurs the drama of our day-to-day lives, “the customer decision journeys” that have become check-the-box, the hackneyed heart, of most business strategy. This is the neural landscape from experiencing the physical world, where sight, sound, touch, taste and smell engage and interact. Beneath that, though, there’s the subconscious level of another network of neural models, a stewing ocean of tensions from ambiguous feelings, broken resolves and bits of memories. This is the place in your mind where competing urges engage in a constant struggle for control, making the nerves in the back of your neck constrict.

In screenwriting, it’s not uncommon for a character to want something on the conscious level and yet subconsciously needsomething entirely different. Story theorist Robert McKee on this inner contradiction:

“The most memorable, fascinating characters tend to have not only a conscious but an unconscious desire. The conscious and unconscious desires of a multi-dimensional protagonist contradict each other. What he believes he wants is the antithesis of what he actually but unwittingly needs.”

Which is not too far afield from the psychology — call it behavioral economics — sitting at the heart of Big PBM market strategy, keeping basically three entities firmly in control of the economics of the $600 billion drug market in the United States: the rebate checks given to employers deliver something they unwittingly need: a pleasurable hit of feeling. But they are not just alluring, like the Lone Cypress, but a form of substance abuse, like an addiction. They are visible, sizable, and feel like free money, even though they often obscure the fact that the system is inflating drug list prices in the first place.

Eversana acquired Waltz Health last week to “build an alternative to traditional pharmacy benefits middlemen in the United States” — in other words, to displace or degrade an embedded economic system. The combined company will remain closely held and is valued at $6 billion, according to Mark Thierer, who will lead it. “The company aims to eliminate barriers and misaligned incentives by connecting health-care purchasers with drug manufacturers, allowing them to get the net price of drugs without the complexity of rebate payments.”

The difference between the list price of a drug and the ultimate amount that drugmakers receive is sometimes called “gross to net.” The amount of this gap for brand name drugs was around $350 billion last year.

Thierer says the combined company is taking aim at that spread, allowing drug purchasers to get the net price without the complexity of collecting a rebate payment after filling the prescription. “There is no rebate on the back end,” he told Bloomberg. “The rebate is in the price.”

Which sounds very logical. Which may be part of the problem.

A Different Ignition Point

Story is what brain does. It is a story processor, not a ‘logic processor’.

Eversana is standing on a narrative beam of storytelling born from The Standard Model: it’s dominated by surface action, the top-level stuff. It is aimed at a theory of control that misses the subconscious level, a hit of pleasure that comes from receiving a big rebate check. For a Fortune 500 employer or a state Medicaid program, the rebate checks can easily be in the tens or hundreds of millions per year. These lump-sum payments are large, visible, and easy to market internally as “savings captured.”

In his book The Heroin Diaries, Nikki Sixx, the former Mötley Crüe bassist, wrote of the moment in December 1987 when he turned blue and couldn’t be woken after taking an overdose. He required a shot of adrenaline injected directly into his heart and admitted he was closer to death at that moment than he’d been at any other time. But he said his darkest moment was not the moment a lot of people talk about, which was his near-fatal overdose. It was when he realized he was caught in an action-reaction cycle he couldn’t break.

From his interview with Rolling Stone (The Last Word: Nikki Sixx on Drugs, Groupies and What Dying Taught Him:

“It was about halfway through that year when I knew I couldn’t get out.

I was stuck. Have you ever been physically stuck somewhere? It’s exactly like that. I was going through the beginning stages of withdrawal because the dealer’s dealer had been busted. The supply was gone. I was a day and a half without any heroin and I was really in a lot of pain.

Finally, he says, his dealer made contact to say that he’d scored a supply, and came over to hook Sixx up. “ I’ll never forget. He was fixing up the rig and he said, ‘You’re in hell, and in about eight seconds you’re going to be in heaven.’ That’s what that drug can do. If I’d just rode it out another week I could have broken the cycle.”

The dimensions of what is whacked in the American Way of Healthcare are beyond any coherent explanation. Albert Bourla having to defend the safety and efficacy of Pfizer’s COVID vaccine, and suggesting President Trump deserves the Nobel Peace Prize for his role in its development, is fallout from a mushrooming cloud of weirdness. Healthcare suffers from origin damage going back generations. It’s beyond any reasonable rage and almost beyond repair, at least in conventional terms. Organized around ‘cost control’ and prior authorization, it suffers from an epidemic of arrested development of “market access” to innovations with life, industry and GDP-reshaping potential. (for more Blue Spoon thinking on this, see When An Entire Brand of Science Gets Terminated.)

What Eversana is missing in its strategy story is this:

To cure a rebate junky is to break a $300 billion/year habit. Rebate checks are the ideal product, the ultimate merchandise. They are the face of total need. No sales talk necessary.

But there is a frenzy building, a Rising Tide, as it were, against Big PBM and its ‘reality studio’ — this is a mix of financial optics, leverage, and stakeholder psychology that uses rebate guarantees and check sizes as proof of their negotiating muscle with drug manufacturers.

Story begins with a moment of unexpected change. This is when our powers of attention switch on. If you step off into a corner and look with a different scanning pattern, you might see this: Donald Trump’s “MFN Letter” is a gift to the pharmaceutical industry, the technology services industry, and the financial services industry, all at the same time (for a strategic logic why, see The Keystone Advantage for Pharma).

The system is out there, just waiting for a shot of adrenaline to kickstart its heart.

/ jgs

John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. Blue Spoon specializes in constructing new industry narratives.