Much of pharma is approaching a patent cliff right now, meaning that the blockbuster drugs of the last decade or so are about to lose their patent exclusivity. One report estimated that this patent cliff could represent a loss of $300 billion for the pharma industry by 2030. And pharma companies have become heavily financialized companies, mostly focused on seeing their stock number go up. (My colleague Matt Stoller calls this “the number go up rule.”)

Financialization and the loss of R&D

Luckily for the companies, the numbers have been going up for a few decades: many of the major pharma companies had blockbuster drugs that helped a lot of people, and they made a lot of money. Some of them focused on maintaining those patents instead of reinvesting in their R&D functions. Many of them realized that it’s actually cheaper and less risky to act as giant investment banks and choose assets to bring to development, relying on small biotech startups to take the risk of discovering new therapeutic compounds. In recent years, many of them have taken the next step and started licensing therapeutic assets from China, where clinical trials are much cheaper to conduct (a topic I am working on at length).

TL;DR: their R&D functions have atrophied, and now number about to go down.

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• Generic drugs by another name?

• GLP-1s are propping up virtual care startups

• Peptides, compounding, and a disdain for regulation

Eli Lilly and Novo Nordisk, though, seem to have been saved from this fate. These two companies found their next blockbuster drugs in GLP-1s…only to be confronted with another series of problems. They’re facing down compounders and a lot of bad press for high drug prices. The easy availability of certain drugs online, especially during the pandemic, seems to have primed the general population to expect to be able to access prescription drugs through telehealth and at accessible cash prices.

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In response, Lilly and Novo Nordisk decided to open their own consumer portals.

Telehealth as a vending machine

These portals — called LillyDirect and NovoCare — offer drugs at a discount, and they link out to recommended telehealth and in-person providers. Although the providers are independent, it seems likely that if you sign up, you’re going to get a prescription. Not only that, but it also seems likely that the providers will prescribe the referring manufacturer’s specific drug.

There are several different formulations of GLP-1 medications, and in a typical care setting, a physician is likely to try to triangulate your particular condition and medical history with your insurance formulary to choose the right medication. In this setting, it seems likely that the physician is going to default to the best drug offered by the referring manufacturer. I’m not trying to impugn the physicians associated with the telehealth services promoted by Lilly and Novo…but even independent physicians are influenced by financial ties with pharmaceutical companies.

The power of a subscription

Eli Lilly and Novo Nordisk are contending with another issue, too: the patient non-adherence rate for GLP-1s is very high (a study from 2024 found that only 32% of patients remained on a GLP-1 at the 1 year mark). Some people might purposely cycle on and off, at the recommendation of their wellness doctor or a Reddit thread. But many experience untenable side effects or find they can’t afford the prescription long-term.

In a situation where a patient is using this drug to manage uncontrolled diabetes or another condition, and where they are presumably being seen by a traditional endocrinologist, these side effects can be managed with additional drugs and a ramp-up schedule with the medication. But in a telehealth setting, many people are left to deal with the side effects — and many do, by stopping the drug. That’s bad for Eli Lilly and Novo Nordisk, who want everyone possible on their GLP-1s.

At the same time, the two corporations have been battling for market share, especially for their oral GLP-1s. Novo Nordisk undercut Eli Lilly’s prices when Novo launched its oral Wegovy, and Lilly just responded with its latest tactic: lowering its price for patients who continually renew their prescription. (You just know a McKinsey consultant somewhere is gleeful over that one.)

The catch: if your prescription isn’t renewed in a timely fashion, your price reverts to the higher cash pay price. For the 14.5mg dose of Lilly’s Foundayo, that’s a difference of $50 as of this writing ($299/month with refills within 45 days, or $349 without the discount). Novo Nordisk’s Wegovy pill is also $299/month.

Of course, that’s not a huge difference if you’re already willing to pay nearly $300 a month for these medications, but there’s something that feels off to me about monthly discounts for medications. (Maybe pharmaceuticals shouldn’t be wholly commoditized and direct-to-consumer! Maybe we should’ve learned lessons about how aggressive marketing can result in patient harm!)

Also, it’s neither here nor there but STAT News noted in its coverage of the speedy FDA approval of Foundayo that Lilly received approval as part of its commitment with TrumpRx to offer some of its GLP-1s at reduced prices — and indeed, Foundayo is currently available on the TrumpRx website, which links out to LillyDirect. (Reuters, meanwhile, reported that Lilly executives were pushing the FDA to move even faster.)

It’s all totally chill! Come get your subscription drugs!

Last week, the New York Times breathlessly reported that a startup telehealth provider was using AI to run most of its business. In fact, the story explained, MEDVi has only two employees — its founder and his brother. What’s more, this company is on track for $1.8 billion in sales in 2026. They’re making that money as a dropshipping service for GLP-1s, using a white-labeled telehealth provider called OpenLoop.

The New York Times wrote about this company almost as a scaremongering tactic, making the company into a symbol of what we can expect when AI takes over everything.

A $1.8 billion company with just two employees? In the age of A.I., it’s increasingly possible…Mr. Gallagher does not anticipate hiring more people. He said he just didn’t see how it would help Medvi [sic], though he misses the camaraderie of colleagues.

“At this point, I kind of want to hire people because I’m lonely,” he said.

The problem is that this company is on track to do so much revenue probably because it’s committing fraud.

RICO for healthcare

Brendan Keeler has been tracking this company since January in his newsletter Health API Guy, writing then that MEDVi is named in a RICO (Racketeer Influenced and Corrupt Organizations) Act lawsuit alleging that it and several other companies were shell companies, using OpenLoop’s white-labeled service to sell oral tirzepatide that was no better than a placebo. (Because, according to the suit, tirzepatide is not a molecule that can be processed orally by the human body.)

It gets even worse. In a piece published this week, Brendan wrote:

When we first mentioned MEDVi back in January, it appeared as one of many nearly identical storefronts in the OpenLoop litigation, just a name among a list of brands sharing templates, infrastructure, and a common backend. It looked interchangeable. The recent filings suggest otherwise. Across multiple cases, MEDVi shows up not just as a participant, but as a central node connecting traffic generation, conversion, and downstream clinical and fulfillment processes.

MEDVi is also allegedly violating the Federal Trade Commission’s requirement on clearly disclosing paid advertising by actor portrayals — or in MEDVi’s case, AI portrayals of doctors on social media. The company has been sued for its AI bots and advertising affiliates (the reporting on MEDVi uses the word “affiliate” a lot, and I suspect that it’s because the reporters can’t verify if a given action is being taken by a human or an AI agent) violating spam laws, as reported by Bloomberg.

This is not a telehealth company that is providing healthcare, it’s a cash grab while compounded GLP-1s are still mostly unregulated. The humans who interact with it are funneled through trick mirror AI from the ad they see to the website they visit to the customer service agent they use. (You would think the New York Times could do a quick google search before publishing.)

Related articles

• The war of pricing bots

• Peptides, compounding, and a disdain for regulation

• GLP-1s are propping up virtual care startups

We’re moving fast and breaking things, but it’s to obscure shady business practices, sell more people more compounded weight loss drugs, and pocket the cash.

Accelerating the worst parts of the healthcare system

I am once again confronted with a recurring question: is AI creating anything net-new, or is it exacerbating existing issues? I’ve been writing some version of this question for about 6 months now. In healthcare at least, it’s mostly exacerbating existing issues.

This isn’t me saying that AI can’t be transformative or that it should be dismissed as merely a tool to commit fraud. (Although the recent JAMA study showing that AI scribes aren’t saving meaningful time so far is jarring — as is the conclusion that this means providers using the scribes can see one additional patient every 2 weeks.)

It is me saying that AI dropped into our current healthcare system — broken in all the ways that are familiar, from misaligned incentives to loss of trust in physicians — is causing humans to react in predictable but harmful ways.

AI is accelerating, but it’s accelerating our broken system.

Independent physicians are struggling. The pressure to consolidate is coming from many quarters, including the unfavorable negotiated rates independents receive, aggressive offers from health systems and private equity firms, and existing debt, including that left over from medical school.

Last week, I spoke at the ONCare Alliance National Leader Summit in Phoenix about capital options for independent physicians. I’m also working on a report with American Economic Liberties Project on this topic, out soon!

The burden facing independent physicians

It has become harder and harder to exist as an independent physician. The software and technology burden is high, the administrative burden is high, independent physicians have to do more work to get their claims reimbursed, and they’re paid less for those claims because they have less negotiating power.

We’ve constructed a system that encourages physicians to consolidate on the promise of efficiencies — but those efficiencies rarely materialize. Instead, study after study has shown that physicians are happier and provide better, lower cost care when they’re independent.

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A loss of independence

I used to think “capital” was about as boring a topic as you could find. That was wrong! The capital that a physician has to run their practice is the difference between flourishing and floundering. The options that independent physicians have are limited but varied. They can take out a standard small business loan from a bank, leverage their real estate as collateral or sell it, pursue a joint venture with a health system, or sell a majority stake to a private equity firm. (This list is not all-inclusive but these are the major options for most specialties.)

With each additional step along that list, a practice loses more control. For some physicians, that might be ideal. As running a small practice becomes more complex, more physicians feel ill-equipped to be both a doctor and a small business owner. Medical schools often take for granted that physicians plan to join a system or otherwise be employed, rather than running their own shop. Education on all of the ins and outs is limited.

Related articles

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• Provider consolidation: an interview with Health Tech Nerds’s Martin Cech

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• 1990s continued: Physician roll ups round 2

If you aren’t, like me, innately opposed to the idea of being employed by a much bigger system, that might not sound that bad. After all, doesn’t it make sense to aggregate the billing and administrative functions to experts? Shouldn’t a doctor have more time to just be a doctor?

This is a pitch that has worked on thousands and thousands of physicians over the last few decades. Paul Starr’s Social Transformation of American Medicine has chapters like The Growth of Corporate Medicine, and Doctors, Corporations, And the State, tracing the increasing employment of physicians as they flocked to corporate providers.

At the same time, physicians have felt the sting of the loss of independence. Once you’re employed, you often lose control over your own scheduling templates (and therefore the length of each appointment). You don’t always get to choose the equipment that you use, the billing practices you follow, the number of patients you take on. Combined with other major trends in healthcare, including increasing administrative burden, the burn-out rates among physicians have skyrocketed. In 2020, before the pandemic, I wrote about how physicians had begun to organize, with echoes of traditional labor organizing, as they work to get back some control over their work.

A loss for innovation

I would also argue that this loss of independence is a loss to innovation and quality healthcare. Not only are the statistics dramatically in favor of independent physicians providing high-quality, low cost care, disproportionately in care deserts, but physicians who are operating independently have more time to practice the way they want, change how their practices run, experiment with new models of being a doctor.

There’s a reason that physicians who have been burned by being part of a large system or who are under a noncompete often turn to concierge care — it’s a much better way of life! (I should note that while I think cash pay care is an important safety valve for a lot of physicians and patients in our current system, it’s not a sustainable, long-term policy fix for American healthcare; not enough people can access it, and it doesn’t work for high acuity care.)

Now what?

I’ve been working on that report about physician capital options, which is forthcoming and I’ll share when it’s published. Most of our policy recommendations involve developing new, more favorable terms for financial products, rather than relying on efficiencies or AI to solve the problem. When I first started writing this newsletter, I thought that technology had the potential to fix everything in healthcare. I still hope it makes a difference — it must, looking at the arc of healthcare history in America — but I no longer think it’s a substitute for real policy changes.

We need our human doctors to be able to practice how they want. The vast majority of doctors want to provide affordable, high quality care in a setting that respects them as skilled workers. The further we stray from that ideal, the worse American healthcare becomes.

This is a cross-post from my new newsletter, the Remedy. Subscribe below to get future issues.

The Remedy

A newsletter making health policy clear, simple, and practical.

By Olivia Webb Kosloff

The Michigan Senate race

Perhaps more than in any other race right now, Medicare for All has become an issue in the Democratic primary in Michigan. There are three main Democratic candidates running. One, Haley Stevens, is considered the moderate candidate. The two more progressive candidates, Mallory McMorrow and Abdul El-Sayed, have been trying to differentiate themselves by fighting over some very niche health policy details. (Polling suggests that the race is between Stevens and McMorrow, with El-Sayed generally in third.)

McMorrow argues in favor of a public option, meaning allowing people who don’t currently qualify for Medicare to opt in to a Medicare plan. El-Sayed — who previously wrote a book on Medicare for All — is in favor of M4A. These two policies don’t seem that different — they both expand the number of people who are on Medicare. But in a close primary, the two candidates (and by proxy, centrist Democrats and progressives) have been accusing each other of being incremental and unrealistic, respectively.

Then, in January, El-Sayed went on a podcast and mentioned that he had heard concerns from union leaders that his Medicare for All plan wouldn’t allow them to keep the union-won health coverage that they enjoyed. In response, he said that his plan would allow them to keep non-Medicare coverage if they wanted. This meant that the difference between El-Sayed and McMorrow’s approaches narrowed — El-Sayed’s plan is essentially that you can opt-out of being solely covered by Medicare (through maintaining private plans), while McMorrow’s is opt-in.

M4A and the 2020 campaign

Much of the Democratic infighting triggered by El-Sayed vs. McMorrow has mirrored the infighting of the 2020 presidential campaign. Several of the primary candidates — most notably Senators Bernie Sanders and Elizabeth Warren — proposed some version of Medicare for All during that contest. Sanders has been supporting M4A for decades and regularly re-files his Medicare for All bill. Warren has shown interest in M4A as a policy but clearly ranks other legislative priorities first (two books, Edward-Isaac Dovere’s Battle for the Soul and Joshua Green’s The Rebels, argue that Warren’s priorities have been a wealth tax and other financial reforms).

In 2020, though, healthcare was a major issue and Warren’s team felt forced to release a plan for how they would financially account for the costs of M4A. Although the plan was detailed and included acknowledgment that Medicare for All would in part cover itself because of the gains from administrative simplification (a key part of the cost accounting, in my opinion), it fell into the trap that Warren unfortunately has fallen into when she runs for national office: it was way too complicated.1

Centrists and progressives

Reflecting on the 2020 campaign and the Michigan senate primary, Stefanie Feldman, the national policy director for Joe Biden’s 2020 campaign, wrote a post for Majority Democrats’ newsletter urging Democrats to take healthcare seriously by proposing more incremental reforms, referring to Medicare for All as a pipe dream:

Even more importantly, voters prefer candidates who will deliver real improvements to their health care instead of a pipe dream. A pipe dream doesn’t pay your hospital bill, but your Obamacare plan does.

It’s worth noting that the public option seemed like a pipe dream just a few years ago — not to relitigate 2009 (I was a freshman in high school), but centrists cut the public option out of the Affordable Care Act. From the hindsight of 2026, Obamacare plans might be covering bills but they’re not doing much to bring down the cost of healthcare, which seems to me like the major issue going into the 2026 and 2028 elections. And as I mentioned in the announcement post for the Remedy, it seems that Democrats (and Republicans, for that matter) are lacking a plan beyond fighting over subsidies for Obamacare plans. That does nothing to change costs, and nothing to move the ball forward. (And meanwhile, Medicare Advantage is marching along, costing far more than traditional Medicare.)

Affordability and M4A

For this first newsletter interview, I posed some of these questions to Alex Jacquez. He is the Chief of Policy and Advocacy at Groundwork Collaborative, and a former Special Assistant to the President for Economic Development and Industrial Strategy at the White House National Economic Council during the Biden years. He was also previously a Senior Policy Advisor for Senator Bernie Sanders, so he has deep familiarity with M4A on both the policy and political sides. Here is our discussion:

Olivia Kosloff: I’m interested in the Michigan Senate race and the way that they’re talking about Medicare for All. Because I think what is interesting is that it doesn’t seem like they are necessarily fighting over whether or not Medicare is a good program anymore, but whether or not how much Medicare to give people, or whether it’s opt-in or opt out.

Do you agree with that, and is that something that you have seen shift over time in your interactions with democratic candidates?

Alex Jacquez: I think things have certainly shifted since 2017 — or pre-2017 — and Bernie Sanders really popularizing both the slogan and the policy of Medicare for All.

The branding relies on the fact that Medicare is universally popular. People are overwhelmingly satisfied with it. It is a beloved institution. People want to protect it. And the argument that Bernie makes is that we have this great insurance program that’s run by the government, we should extend it out to more people.

And I think it’s something that certainly the establishment Democrats and middle and centrist Democrats have, post-ACA [Affordable Care Act], taken a lot more interest in — using Medicare or Medicaid or some of the public programs to explicitly call for public options. There’s definitely more appetite in covering more people, if we look at the pie of people and who they’re covered by.

There’s more appetite I think from Democrats now in covering more of that pie in public programs than there was before. And really moving not just to the the elderly and the low income, but being available and an opportunity for young families and middle income people as well.

It’s certainly something I credit Bernie with. I think even some of his other pushes to expand Medicare, to cover dental/hearing/vision, to lower the age threshold, these are now things that have been picked up elsewhere. Getting more people onto those public plans is a fairly standard talking point now for Democrats.

And do you think of a public option as a viable halfway step, or do you think that people who are calling for a public option are treating it as like a terminal option — and under that framework, you’re against it?

I think it really matters what the details look like. And the reason why is something that was discussed in that 2017 to 2020 period, but I really feel like fell off — President Biden campaigned on a public option. And then we never heard about it again. It never got proposed. We never really had a debate about it. And so we really haven’t had this discussion about what the Democratic plan for healthcare would be.

And I think the important part to understand about a public option is that it could suffer from this unstable equilibrium problem where if you design it too weak, you just draw sick patients and people out of the risk pool who private insurers are, actually, more than happy to get rid of. It becomes a spiraling doom loop and the plan never gets the critical capacity and the diversity to be able to sustain itself on its own. So it either dies or you have to pump a ton of subsidies into it.

The other side: if you make the public option too good, then it draws people out of private insurance and creates those doom loops on the private insurance side too. So you have to design it almost perfectly to get the risk pools and the networks and everything to match up to make it almost perfectly comparable to private insurance.

But the promise of a public option is that you can cut out all that administrative bloat and deliver things for lower costs than the private insurance. So if it spurs competition amongst private insurers to get them to adopt administrative efficiencies and the rest, I think that would be a good outcome.

But I think the position that some people have taken, just saying, oh, well, we’ll have a strong public option, misses many of the details that would actually make it palatable. I mean, you could imagine a scenario where you have a very strong public option in which insurers are not able to compete, and you see the exit of private insurers, you see the constricting of networks, you see plans canceled, you see states, people pulling out of coverage areas, and generating much of the same kind of chaos in the private market that, a Medicare for All system would — essentially ending private insurance by being too good.

I think you’re the first person I’ve ever heard that from, because I would see that as a good thing [competing favorably with private insurers]. But the way that you’re framing it is almost like we would have to bail out UnitedHealth because the alternative — you are assuming, probably correctly, that the public option going really well wouldn’t necessarily mean the implementation of Medicare for All. It wouldn’t mean that we’re all hitting the button on Medicare for All because this public option experiment went really well.

It could, right? I think that the interesting thing is about framing. Critics of Medicare for All don’t want to move people off of their private insurance that they generally like to a public plan, which they might like more, but it’s still a forced choice. People really don’t like things being taken away from them. And the public option is presented as a choice — but if your insurer pulls out because it’s no longer competitive, then you’re not really faced with a choice, right? You are losing something and going onto the public option. I could see a scenario in which that kind of chaos happens and everybody really loves the public plan, and then it perpetuates until it eats up more and more of the pie. But I don’t think that’s what proponents are really envisioning when they talk about it like this.

Yeah, it’s a very interesting point.

Groundwork recently put out a report about the annoyance economy, and you gave an interview to Fortune and you called it a vibes-based analysis, which I really appreciate. So I’m asking you for a vibes-based analysis here. What do you think Democrats that are running in 2026 and 2028 should be thinking about when they’re thinking about what to do with Medicare?

My personal policy preference — look, it’s no surprise. I worked for Bernie Sanders, I believe deeply in Medicare for All. I think that, of course, he’s very right about the interests that are aligned against it. There is a lot of money out there to be made in the private insurance and private healthcare world. And there’s also a lot of public opinion that that can be weaponized against it around existing insurance and doctors and things like that.

This is maybe a cop out of your question, but I think we need to tackle the insurance question. First of all, there’s going to be millions of people thrown off their insurance because of the One Big Beautiful Bill. We need to figure out a system that works for them.

I don’t think the answer can be — 15 million people are kicked off Medicaid, when Democrats come in, we’re gonna put 15 million people back on Medicaid. I think we need to be thinking about a bigger system.

If I were giving ‘26, ‘28 candidates advice on what to do with Medicare and the system specifically, I would go less at expansion of insurance and more at reduction of cost. And so in the Medicare program, specifically Medicare Advantage, Democrats need to take a stand on Medicare Advantage. The fraud, the corruption, the administrative bloat, and the price increases that are affecting that program. [They need to] really take a stand against the corporatization of Medicare. I think that’s a really dangerous direction that Medicare is going in. Prescription drugs, certainly, both in the Medicare population and outside.

And I think we need to think about supply. I gave this talk at Democracy Journal. Groundwork will be putting out a paper on what we’re calling an American Health Service, where we massively scale up both the scope and number of community health centers.

We introduce a new hospital building program and massively increase our supply of physicians and nurses with a focus on primary care, in particular where we’re going to see massive shortages. And with the ability for those public sector entities to bring down costs in the system.

We’re going to hopefully not have the same kind of 2020 discussions about Medicare for All versus public option, and then end up doing neither of them when Democrats win. Hopefully we will have some discussion about insurance and what the right pathway is there.

But I’m hoping that we get some really focused attention on costs for people within the system right now. We’re seeing it creep up again and again. It’s a top three issue for people, how much their premiums are going up, how much their prescriptive drug prices are going up, how much their out of pocket costs and deductibles are going up.

And so I think taking those head on while we figure out the broader system is gonna be critical.

ICYMI, I started a second newsletter, where I’ll be writing more explicitly political/policy-focused pieces. The first one is coming out later this week with an exciting guest interview. You can subscribe here:

The Remedy

A newsletter making health policy clear, simple, and practical.

By Olivia Webb Kosloff

Peptide parties

If you don’t live in San Francisco, you might not have heard of the peptide craze. In fact, if you do live in SF, even mentioning it might feel out of date — peptide parties have been going on for months at least. But most of the country has not heard of this.

If you’re one of us who does not live in SF: Peptides are unlicensed, unproven drugs that are easily accessible from online vendors, and for which there have been peptide-injection parties. The idea is that there’s a peptide for everything; as GLP-1s are to obesity and weight loss, so are other peptides for insomnia, ADHD, rosacea, or any other ailment, real or imagined.

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These peptides are mostly coming from vendors based in China, which may or may not be manufacturing the peptides themselves (many Chinese manufacturers — as do other manufacturers globally — subcontract out). They’re unlicensed and unregulated, so even if the FDA was good at touring overseas factories (it’s not), these would not fall under the FDA’s purview.

I’m not sure what’s happened with pharmaceuticals in American culture recently — it’s probably a combination of MAHA influence and a built-up sense that the FDA takes too long to approve new drugs and is overall too strict — but long-held shibboleths are changing. Dr. Marty Makary, head of the FDA, recently suggested that all drugs should be available over the counter unless they’re addictive or dangerous. There are these Chinese peptides. And compounding DTC companies are almost entirely out of control.

Almost.

Pushing the FDA…

Hims, one of the big DTC telehealth companies that prescribes medications, and which went public in a SPAC in 2021, has been on the vanguard of making pharmaceuticals accessible to patients outside the traditional bounds of what the FDA would allow.

Compounding these drugs, or taking active pharmaceutical ingredients and doing the last steps of drug manufacturing at a small scale at compounding pharmacies, is legal under certain circumstances, including if the drug meets certain conditions and is in shortage. GLP-1s were declared to be in shortage in 2022, which opened the door for telehealth companies like Hims to compound these drugs. They sold them for a fraction of the brand name price, directly competing with on-patent drugs, a move so bold as to be nearly unprecedented. Then, in April 2025, the FDA declared that GLP-1s were no longer in shortage.

Related articles

• The Food-Pharma Civil War at HHS

• Generic drugs by another name?

• GLP-1s are propping up virtual care startups

• Hims & Hers and the end of GLP-1 compounding

Novo Nordisk, the manufacturer of Wegovy and Ozempic, took an incremental approach to this, perhaps not believing that Hims would continue to flout the rules so blatantly. In June 2025, Novo announced that it would no longer partner with Hims. Although Hims’ stock price dropped on the announcement, the company’s CEO framed the Novo decision as anticompetitive and Hims continued to sell GLP-1s.

…past its limits

During the Super Bowl this year, Hims aired an ad that framed its compounded drugs as a way of democratizing access to the expensive lifespan-lengthening treatments that the wealthy are using. In its blog post on the ad, Hims noted that “[i]f our message makes the industry uncomfortable, it’s because their profits rely on the many but benefit the few.”

Then, Hims debuted a compounded version of Novo Nordisk’s semaglutide oral pill. Combined, these actions seem to have been a bridge too far for both the FDA and Novo Nordisk; the FDA named Hims in an announcement that it was taking “decisive steps” against compounded GLP-1s, and HHS asked the DOJ to investigate Hims. Novo Nordisk finally filed suit. Hims announced it would stop selling the compounded pill.

Now what?

Hims was making a bet that, as with the peptide parties, the general approach toward pharmaceutical regulation was relaxed under the current administration. It wasn’t a crazy bet. As I wrote above, Makary is interested in reforming key tenets of American pharmaceutical regulation, like keeping drugs behind the counter.

But Hims pushed it too far when it copied the semaglutide pill. As STAT’s Readout Loud podcast pointed out, compounding an oral GLP-1 is particularly difficult chemically, meaning that Hims was potentially introducing new risks to its customer base. And also if the FDA were to allow Hims to proceed unencumbered, it would upend decades of patent law and tradition around pharmaceuticals (not that that would necessarily be the worst thing, but it definitely shouldn’t happen haphazardly).

What will happen to Hims? The always-worthwhile Health Tech Nerds newsletter reviewed Hims’ earnings call last week:

[I]f you took away all identifying details and told me a company generating $2.3 billion of revenue, growing 59% YoY, with an Adjusted EBITDA margin of 14%, is only trading at an enterprise value around $3.8 billion, I’d tell you that seems like a great investment. Yet when you tell me that the company is Hims, and their management team neglected to mention on the earnings call that they’re under SEC investigation, after all the recent shenanigans, I very much see why investors are skeptical here.

I’m not a culture writer — but taken together, the general public reaction to peptides (so far a very localized phenomenon) and the compounded semaglutide seems to indicate that we’re ready for a loosening up of the pharma rules. Is that because the FDA has done such a great job over the last few decades, such that Americans can’t picture a drug being really harmful? Or is it because of a general desire for democratization of access, like Hims was trying to market?

But the bigger question is how (and if) the FDA manages to reform pharmaceutical regulation, while cracking down on companies like Hims that have gone too far, while maintaining its reputation as one of — if not the — finest pharmaceutical regulatory agencies in the world. It’s a tall order.

Questioning the last 20 years of health policy

I recently had the delightful experience of going on the podcast Organized Money with Matt Stoller and David Dayen. We talked about the low rate increase that the Trump administration proposed for Medicare Advantage for 2027, and what that might mean for the Medicare Advantage program.

Part of the fun was saying what I think about health policy, something I haven’t written many newsletters about because I find that health policy conversations (1) often turn far too wonky to be interesting, and (2) tend to tread the same tired paths. The Organized Money conversation was fun because we jumped way outside the path. Forget talking about site-neutral payments (which are important!), we talked about whether the neoliberal worldview — the assumptions that led to value-based care, Medicare Advantage, and high-deductible health plans — is now being questioned among health policy thinkers.

I started Acute Condition in 2020 and its audience reflects the different facets of the industry I’ve written about: policy, health tech, global competition in pharmaceuticals. Because each of these audiences comes to my newsletter for different reasons and represents different parts of the healthcare industry, I’ve always tried to walk a fine line between having an opinion and being overly political.

That said, I think health policy is at a particularly interesting crossroads right now. Is the neoliberal paradigm being questioned? I think it is. The system that the last 20+ years of health policy build is worthy of questioning; the system is increasingly more of a financial game and less of an actual health delivery system. Even more interesting: if you’ve ever had the enjoyable (but lengthy) experience of reading Paul Starr’s The Social Transformation of American Medicine, published in 1982, he more or less predicted all of this.

At the same time, what’s next in American health policy seems to be locked in the brains and academic papers of policy wonks who want to debate in mind-numbing detail. And if I have anything to contribute, it’s my love of explaining things in written form.

Explaining how the future will be shaped

This brings me to the main point of this newsletter: I’m starting another Substack, which I’m calling The Remedy, explicitly focused on the health policy debates that I think are shaping the next era of American healthcare. My goal is to go a layer deeper than the repeal Obamacare/Medicare-for-all duality that have dominated the political conversations over the last few election cycles — I think that dichotomy is basically dead anyway. The Affordable Care Act is here to stay, and Medicare-for-all in its original form has lost a lot of steam. At the same time, I don’t want to bore you with information you can find elsewhere.

I intend for most of my pieces to be detailed interviews with experts (see Santi Ruiz’s newsletter Statecraft for my inspiration there), and some of them to be more in-depth posts about themes that I’m seeing. I’ll also be keeping Acute Condition going with a regular cadence, and I might cross-post.

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I don’t want to over-promise and under-deliver; I suspect this new newsletter will take shape as I go, as Acute Condition has.

I hope you’ll follow along!

High-value, novel drugs seem to be taking up a lot of the air in the conversation about the future of healthcare. People haven’t given up on value-based care explicitly, but there’s a lot more skepticism and willingness to admit that it hasn’t worked the way it was supposed to.

So value-based care is complicated (something I have been trying to write about, stay tuned). Administering and paying for high-cost drugs might be less so, and there’s probably more money to be made. Which brings us to oncologists, the topic of today’s newsletter. These are specialty physicians who prescribe a lot of drugs. This makes oncologists a very attractive target for pharmaceutical advertising.

Reaching oncologists

To reach oncologists (and other physicians), pharmaceutical companies are spending more and more on digital advertising, a move away from traditional TV ads. Industry data shared with Fierce Pharma suggests that healthcare and pharma companies spent nearly $25 million on digital advertising in 2025, a number that is expected to grow. These more targeted ads are, in part, being served to doctors on platforms like Doximity, a popular social network for doctors, and OpenEvidence, an AI-powered medical search tool that’s rapidly growing in popularity.

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• The power struggle in infusion centers

Of course, it’s not quite as simple as: advertise to oncologists, reap the rewards. Payors, health systems, and PBMs often have clinical practice guidelines and formularies that purport to be the most cost effective and evidence-based set of therapies for a specific indication.

These guidelines can be fraught. Not only does each player developing a formulary have its own agenda and incentive structure, but the physicians who are hired to help develop these lists are, on average, more likely to have conflicts of interest with the pharmaceutical industry. And these lists can determine what a payor is willing to cover and what a health system is willing to stock.

It’s also important to note that the financial health of an oncology clinic is more heavily linked to pharmaceuticals than in other specialties. Oncology clinics that provide infusion services encounter all of the complicated dynamics of reimbursement for highly expensive drugs. Many reimbursement models have the clinic purchasing the drugs in advance and taking the revenue risk until the payor reimburses for a specific treatment (I wrote about the dynamics of infusion services here and here. The TL;DR, it’s very complicated). This can make oncology clinic cash flow difficult to manage, and it’s driving the decrease of independent oncologists as they are acquired by health systems and other players.

Why not just acquire them?

Wholesalers — the middlemen between pharma manufacturers (making the drugs) and pharmacists/health systems (buying the drugs) — are increasingly acquiring huge percentages of the oncologists in America. In 2010, McKesson acquired US Oncologists, then worth more than $2 billion and serving nearly 3,000 oncologists. In 2024, Cencora and Cardinal Health took similar steps, acquiring national groups of oncologists.

That seems like kind of a weird play, wholesalers aren’t traditionally in the business of serving patients at all. But with a limited number of oncologists in the U.S., wholesalers have discovered that it’s easier to acquire these physician groups and have oversight over prescription decisions rather than having to advertise and deal with all of the complicated dynamics of how oncologists choose which drugs to distribute.

What’s next?

For those who can’t afford to buy oncologists and make them use their drugs, some startups are experimenting with new advertising channels. The most-discussed player in this space right now is OpenEvidence.

Kevin O’Leary of Health Tech Nerds had a great write-up of the search tool last week. While its advertising model right now is successful and fueling rapid growth, its valuation almost demands that it move beyond advertising. As he wrote:

It’s worth noting that OpenEvidence’s biggest competitor, Doximity, is currently generating ~$620 million in annual revenue and has a market cap of around $7.5 billion. The entire healthcare digital advertising market in the US is estimated at $26 billion in spending. Point being, in order for new investors to see returns here, it seems OpenEvidence will need to redefine the market entirely.

But what I thought was really interesting was Kevin’s interpretation of OpenEvidence’s next stage of the business model. He noted that OpenEvidence founder Daniel Nadler implied that OpenEvidence’s next iteration may be medical superintelligence, or a specialty-specific expert. But the advertising model presents some serious problems. As Kevin puts it:

If you’re a cancer doctor in rural Georgia, and you know this platform is serving you up ads from oncology manufacturers, are you really going to trust it as your “default operating system of medical knowledge” when trying to answer challenging medical questions about your patients?

This next comment might seem like a non sequitur to end the newsletter, but bear with me. I was talking to someone recently who noted that shareholder-only business models often inflict a grave moral injury on their employees. Employees have to follow directives that might not make sense, and they’re forced to interface with bewildered and angry customers.

To me, it seems like this is increasingly happening in medicine. OpenEvidence currently gives doctors a high-quality search experience in return for their advertising attention. But the advertising sales page emphasizes that physicians are often using the search engine during “high stakes treatment decisions” and that 75% of its usage is during office hours — which implies, to me at least, that part of what they’re selling is physicians’ busy-ness and their need to make quick decisions without thinking too much about the incentive structure behind what they’re seeing.

Over time, and paired with the loss of independence that oncologists are experiencing as they’re told which drugs to use from everyone from wholesaler-acquirers to the very search engine they rely on, the profession may begin to erode the way it has for many other specialties.

As I wrote in May, I see this newsletter as covering a few specific things: how the business of healthcare is changing, how the politics of healthcare is changing, and how the state capacity to achieve these changes is keeping pace (insofar as the state is affirmatively making decisions about healthcare…which is not really the case right now, beyond unnecessarily disruptive tweaks to the vaccine schedule).

One of my areas of interest re: the business and politics of healthcare is the United States’s ongoing geopolitical competition with China. This is certainly outside the mainstream for many in the healthcare industry, but I would argue that it’s worth paying attention to, as it will affect both the business and the politics of healthcare.

Before we all closed our laptops for the winter holiday break, the Wall Street Journal published an article about how the Boston biotech sector is struggling. The article noted that hiring is down, attributing it to research funding cuts at the federal level, and it also highlighted a PhD student, raised in Hong Kong, who is considering taking a job in China because of the tough market here.

This article sparked controversy for a few reasons: did it correctly identify the source of the downturn in biotech? Is it even a downturn, or just a correction from an overly hot 2020-2021? And — the fear that’s been in the minds of many biotech investors and founders — is China truly drawing closer to surpassing the U.S. in this sector too?

The changing biotech market

The mini boom and bust cycle that biotech experienced the last few years was the first boom that I was in private industry for — and it felt crazy. There was a sense that no investment could miss, that all drug targets were going to hit their marks. Then AI became more of a consumer product and it seemed like all human disease would fall before the mighty AI’s ability to generate drug candidates of interest.

Of course, none of that was ever totally true. And the biotech IPOs never really happened; in fact, saying “next year the market will come back” became such a common phrase that I started to block it out.

In 2022, the Fed began raising interest rates, much of the biotech cash dried up, and some key startups failed. The NIH cut billions of research dollars. The investors that had flocked to the space departed in droves. The remaining investors painted it positively, saying that this belt tightening would reveal who was truly good at evaluating a solid candidate compared to those who were just chasing venture dollars. The market corrected.

China’s investment in biotech

Meanwhile, China has been coming after biotech like a heat-seeking missile. The Chinese Communist Party develops regular Five-Year Plans outlining what the next areas of focus and investment will be. The Fourteenth Five-Year Plan, published in 2021 and covering 2021-2025, stated a desire for China to become a world leader in cutting-edge biotech.

The recent history of biotech in China follows a path that has happened with other sectors, including electronics. China originally served as a manufacturing partner, with willing employees and factory bosses who could turn out components to detailed specification. Eventually, the on-the-job training required to turn out these components also produced highly skilled workers and managers who were available for hire for Chinese-led innovation. Then, China became a world leader in creating its own technology, manufacturing it, and exporting it.

Similarly, China has been a manufacturing partner for Western pharma and biotech companies for years. China is the source of an estimated 80-90% of all U.S. generic pharmaceuticals (the number is almost impossible to calculate because the FDA doesn’t track the source of the ingredients that go into pharmaceuticals, but nearly every generic has a dependency on China for some part of the supply chain).

In recent years, China has moved up the value chain, becoming a manufacturing partner for synthetic DNA sequences. Now, companies like WuXi AppTec do contract research, development, and manufacturing as a service. WuXi’s tagline is that it’s available for “DNA to IND” — meaning that it has the ability to help clients generate a synthetic DNA sequence of interest for research purposes, test that sequence, edit it if necessary, and carry the process all the way through to the investigational new drug application that companies file with the FDA for clinical trials in the U.S.

China’s investment in the space has borne clear fruit. Prior to 2015, the Chinese Food and Drug Administration suffered from corruption and incompetence. Starting that year, the CFDA (now called the National Medical Products Administration, or NMPA) began a hiring wave, cleared a massive backlog of new drug applications, and adopted clearer regulations.

Part of this process was a 2018 shift to an “implied license” system, meaning that Chinese regulators allowed IND (investigational new drug) applications to move forward if regulators did not raise objections within 60 days. For drugs developed outside China, IND approval took an average of 18.5 months before December 2016. IND submissions after December 2016, in comparison, took an average of 8.6 months (as of May 2018, the latest date I could find a source for).

Chinese drug development is also much faster because of the size of the patient population and the centralized nature of the health system, allowing physicians to recruit for drug trials much faster — half the time than required in the U.S. for conditions like cancer and obesity.

As a result, China’s biotech companies have taken off. In late 2024, Summit Therapeutics announced that its drug candidate, licensed from the Chinese company Akeso, far surpassed the leading U.S. drug Keytruda’s ability to slow tumor progression in lung cancer. U.S. companies began rushing to the Chinese market to acquire or license their drug candidates for their portfolios. And China is investing in and encouraging more development, including among younger research teams. At the 2025 synthetic bio “Olympics,” the International Genetically Engineered Machine competition, or iGEM, 50% of the teams were Chinese.

Why does this matter?

The loss of a thriving American biotech sector means the loss of homegrown novel therapeutics and treatments for conditions that affect all of us. And even though the U.S. pharma sector has real problems with stagnation (namely: lessened spending on R&D in favor of stock buybacks), the basic research and legwork that these companies do has the potential to create the next penicillin or GLP-1.

Why does it matter if China takes the lead? As with the other sectors where China has surpassed the U.S. on research, development, and manufacturing, the loss of the American ability to do these things means we lose all of the side benefits that go with it — jobs, process knowledge, downstream research effects, and more. There are the geopolitical concerns, and there are data concerns.1

And as Drew Endy and Mike Kuiken, both of the Hoover Institution, recently wrote in an op-ed in the Boston Globe, this matters long term as well:

The first nation to make routine the building of cells will own an “operating system” for life, coded in DNA rather than ones and zeros. The first nation to establish biomolecular standards — the “weights and measures” underlying the bioeconomy — will have a persistent competitive advantage. If we miss solving biotechnology’s coordination problems, catching up later will become almost impossible. Without question, the United States can do these things, but a sustained whole-of-nation effort is required.

Editorial note: The original version of this piece stated that companies like WuXi AppTec have “the ability to help clients generate a DNA sequence of interest for research purposes.” It has been updated to specify that WuXi AppTec generates synthetic DNA sequences for research purposes.

Administrative and other waste in healthcare is one of those topics that everyone knows about and begrudgingly accepts. But one thing I’m increasingly convinced is contributing to that waste is that more healthcare entities are operating like banks, rather than entities primarily administering healthcare services.

Lending money

UnitedHealth Group is, as usual, on the forefront of this enterprise. As my colleague Emma Freer wrote in a recent whitepaper, UnitedHealth Group is a Bank, the 2003 Medicare Modernization Act, which established health savings accounts (HSAs), was an exciting moment for UHG. Months before the MMA was passed, UHG founded Exante Bank and purchased Golden Financial Bank, an HSA pioneer.

Exante Bank was chartered as an industrial bank, which is a specific designation meaning that the industrial bank is owned and operated by a nonbank parent company. Industrial banks are also not supervised by the Federal Reserve. This means that UHG can essentially use its financial institutions outside many of the regulations and oversight that exist for commercial banks.

UHG’s financial components eventually became Optum.

In 2021, Optum announced an intended acquisition of Change Healthcare, the payment rails for a huge percentage of the physician reimbursement and claims transactions happening in the U.S. every day. Although the Department of Justice sued to block this merger, a federal judge ruled in favor of UHG, and the acquisition went through in 2022.

Less than 18 months later, many of the concerns raised by the DOJ and others by UHG/Change’s combined size were revealed to be accurate when Change experienced a cyberattack on its systems (it didn’t have multi-factor authentication protecting its data on roughly 55 million Americans…). Change’s payment system went offline in the wake of the attack, leaving physicians unable to access reimbursement for many of their claims. Eventually, this became a backlog of at least $14 billion owed to physician practices.

For physicians operating on thin margins — margins made even thinner because of claims denials (particularly by UHG) — this pushed many over the edge. Practices closed or were acquired by UnitedHealth. Optum Financial launched an emergency loan program for providers, and then-CEO Andrew Witty testified before the Senate Finance committee that Optum would not seek repayment until physicians self-reported that their business had returned to normal.

However, just a few months after Witty’s testimony, physicians began receiving notices from Optum that full repayment would be required within just a few business days — or Optum would begin garnishing reimbursements. As I wrote earlier this year, this saga showed UHG behaving almost cartoonishly evilly, becoming a byword for the problems with American healthcare.

Denying claims to hold onto money

But acting as a loan shark (as Emma puts it in her paper) to physicians isn’t the only way that healthcare entities have been acting as banks. As the biggest entities have grown in size and revenue, and the interest rate environment holds steady at a relatively high rate compared to recent years, these corporations have also sought to hold onto their money for as long as possible — even if it means delaying payment to other entities to which they owe money — to reap the rewards of investment.

Payors denying reimbursement claims from providers enables payors to retain more cash on hand, keeping their total amount invested high and their shareholders happy. Meanwhile, providers and health systems struggle to get reimbursement, requiring their administrative teams to continually refile and appeal denied claims and going after individuals (with much less money than the payors) who haven’t covered their whole copay.

Other, non-insurer entities do this too. Wholesalers, which control the flow of pharmaceuticals and pharmaceutical dollars between manufacturers and pharmacists, tend to have contracts that give them 3 months to reimburse pharmaceutical manufacturers — but require pharmacists to reimburse within 30 days.

Why does this matter?

These dynamics most dramatically affect independent physicians and pharmacists. Without the ability to cudgel big payors and wholesalers into paying, they’re left begging for scraps (and taking emergency loans from Optum Bank). Eventually, these independent providers are essentially coerced into joining bigger health systems or practices that provide worse care at a higher cost.

As my colleague Matt Stoller has written, optimizing everything for shareholders has become a dominant policy goal in America, even when it affects quality of care (or health system reimbursements, or physicians’ ability to stay independent). The stagnation and administrative waste inherent in allowing corporations like payors and wholesalers to hold onto cash just to please their stockholders while everyone else suffers is a disaster for American healthcare as a whole, but it just keeps happening.

And, ironically, focusing purely on financialization and shareholder value is worse for everyone in the end! Innovation goes down; the most financialized companies become hollow, bloated, and obsolete; and everything begins to suck more. As the Wall Street Journal pointed out last year, health insurers are becoming chronically uninvestable. You can try to please shareholders, but it turns out you really can’t.

Wouldn’t it be better to actually provide patient care at a reasonable cost?

This is our first holiday season confronting the dilemma that parents across the country experience: what happens when childcare/school is off but you’re not? In my case, resharing a post from the Acute Condition archives is what happens.

This article covers a lot of threads that I’ve been spending more time on: supply chains, concentration of power, state capacity, cases where government involvement is helpful vs. undesirable, and what that involvement should look like.

The following post was published in December 2020, which feels like a lifetime ago but also still quite relevant.

***

This week I’ve been thinking a lot about all of the markets that have to function for the COVID-19 vaccine distribution to take place. There’s almost too many to name—vials, syringes, dry ice, cargo flights, saline, gloves.

I’ve also been wondering why we weren’t more prepared. Pandemics of the COVID-19 magnitude are rare, but we experience an almost-pandemic or a milder pandemic every few years. The flu season of 2014-2015 was particularly bad, as was H1N1 in 2009-2010.

The answers, from what I’ve learned, are complicated:

First, the government does prepare for pandemics. A few years after the anthrax scare of 2001, the government formed BARDA (Biomedical Advanced Research and Development Authority), an agency under the Department of Health and Human Services. The role of BARDA is to prepare against biological threats, including biochemical weapons and the inevitable pandemic.

But we were not prepared for COVID-19 for several reasons.

1. After the SARS outbreak ended, research into coronaviruses became less popular. Not only did it seem like coronaviruses were of low importance, but research on a potential SARS vaccine ground to a halt. Why? Because the way we currently run vaccine trials requires the virus to be actively circulating in the population.

2. We expected the next pandemic to be caused by the influenza virus. (There’s a complicated history here involving our close proximity to birds and the 1918 flu pandemic, but I’ll skip it.)

3. The pharmaceutical market is highly concentrated and calcified; the pursuit of science for science’s sake has largely fallen away in pursuit of forever growing shareholder value, and so we’re less prepared to quickly pivot into new areas. These factors are magnified with the vaccine market; because pandemics require a large upfront investment with no guarantee of return, the federal government usually has to motivate (fund) forays into vaccine research.

4. The global markets that handle commodities that go into fighting pandemics (the aforementioned syringes, vials, gloves, dry ice, etc.) are hinged on the just-in-time thesis. Just-in-time, or JIT, was pioneered in Japan as a way to save money by keeping just the bare minimum of inventory in stock. For example, Toyota stocking just enough parts for one day at a time of car production. Using a JIT supply chain means there’s less money tied up in inventory, and the company runs leaner and has more cash around. But JIT also makes supply chains much more prone to disruption.

Given that background, I want to talk about two things. First, how we might face a dry ice shortage during the initial phase of the COVID-19 vaccine roll out. Second, how the federal government has stepped in in the past to rectify the market distortions caused by a pandemic during an era of global JIT supply chains, using chickens as an example.

Dry ice

The Pfizer vaccine, likely to be approved by the FDA today or tomorrow, will be shipping across the country on dry ice. Will this cause shortages? It looks like it might.

But I started to wonder, after the hosts of the This Week in Virology podcast brushed aside concerns about a shortage (note: TWiV hosts, I love you, lmk if you ever come out with a branded mug). After all, dry ice is just a solid form of carbon dioxide, the gas we exhale.

However, the simplicity of a product doesn’t necessarily correspond to whether there will be a shortage. After Hurricane Maria hit Puerto Rico in 2017, shutting down several medical saline manufacturing plants, there was a national shortage of saltwater. If there are only a few global suppliers of a product, it doesn’t matter how simple it is, there will be shortages if the market is disrupted by national disaster or the demand of a pandemic.

This looks to be the state of the dry ice market. According to Thomasnet.com, an online platform for product sourcing, there are just a few major producers of dry ice in the U.S.

These producers are used to making a set amount of dry ice every year, and they may very well struggle to meet the increased demand of the pandemic. The dry ice shortage is likely to be exacerbated by the pandemic; apparently the carbon dioxide used to produce dry ice is typically captured as a byproduct of ethanol processing for fuel. And because Americans are using far less fuel during the pandemic, the rate of ethanol processing has gone down. (A side note: I haven’t been able to figure out if medical dry ice production has different suppliers or sources—sometimes the medical industry requires an additional layer of sterility, but I’m not sure if that applies here.)

The American supply of secret chickens

Listeners of the NPR Planet Money podcast will be familiar with the story I’m about to tell, which covers how the federal government, frightened by the possibility of a flu pandemic, decided to shore up the weaknesses of a certain market: chicken eggs.

Most influenza in humans comes from birds. So when vaccine manufacturers need to grow a lot of virus to make flu vaccines, they grow them in chicken eggs. The virus is then killed and the egg white is washed off before it is packaged as a final vaccine. (The science around making flu vaccines is changing, but currently about 90-95% of our flu vaccines are made using flu viruses grown in chicken eggs.)

Around 2004, when BARDA was formed because the government expected bioterrorism and recurrent pandemics to change the landscape, smart thinkers started to realize that the market for chicken eggs was just like that for dry ice. Chickens only lay one egg a day, and the American people only use so many eggs a year. No for-profit corporation wants to feed extra chickens only to potentially throw the eggs out. So the federal government decided to contract with several corporations for a supply of several million chicken eggs every year.

The details around these contracts are purposely vague—not even the name of the companies, the location of the farms, or the number of chicken eggs is publicly available—for national security purposes. But we do know that HHS has at least one contract for $42 million (as of 2017) with a corporation that sources its eggs in the U.S., and at least three other contracts with corporations that source their eggs globally.

In the years that no emergency flu vaccine is needed, the excess millions of eggs owned by the federal government are turned into animal feed. And in the event of a pandemic, the federal government has helped shore up the warped market that would catch us all unprepared.

Conclusion

The market for commodities is more rickety and prone to disruption than you’d expect, and the vaccine roll-out is going to strain it even further. Any single step of the roll-out could cause a shortage that delays the vaccination process.

But with the secret chicken stockpile, the government has one proven way to shore up these systems. To prevent future shortages in essential supplies, the government will have to step in a lot more.

Mark Cuban recently went on STAT News’s Readout Loud podcast and talked about how drug prices are so high that he ended up funding, out of pocket, $1.8 million to cover therapy for twins suffering from a genetic disease.

One of his ideas for how to make this therapy more affordable:

I have three kids and we got…the cord blood thing for all of them, where you save the cord blood and pay X amount a year, but there’s a 99% chance you’re never going to use it.

And so what I’ve suggested is that some of these million-dollar cell and gene therapies go to families through us or whoever and say, look, it’s a dollar a year per child. Or it’s a $50 or a $100 one time fee.

And you accumulate all of this and we’ll put it in escrow so you’re not just running out the door with it and this protects this family, any given family that participates, in the event that they have whatever disease that your therapy works for.

But a better analogy than cord blood banking is…….insurance.

(To be fair to Mark Cuban, if you actually listen to the whole episode, he has nuanced thoughts about how the entity that’s on the hook for payment, whether it’s an insurer or an employer, needs a system of reinsurance for these ultra high-cost drugs. The cord blood banking metaphor is more of a throwaway idea.)

All of this to say, the cost of cell and gene therapies is so high as to challenge the current insurance system altogether. And rather than inventing new types of insurance on top of the current system of insurance, it seems like a good point to pull up and reevaluate everything.

The high-cost therapeutics era

In June of this year, I wrote an update to another article I had written in 2020, about caring for (and trying to reduce the cost of) the most expensive patients. But if 2010s were focused on value-based care, the 2020s vibes are turning toward high cost, fix-all therapeutics. And that completely changes the calculus of reducing the cost for patients.

Even several years after GLP-1s exploded onto the scene, they still seem to be a miracle drug, capable of improving obesity, cardiovascular disease, addiction, and Alzheimer’s. At the same time, cancer therapeutics are making leaps and bounds even as they get more expensive, expanding into CAR T therapy and more. If the current pace of drug innovation keeps up (by no means guaranteed), we might all be on a high cost therapeutic someday.

This chart from IQVIA maps global spending on drugs forecast for 2025-2029 compared to historic data from 2020-2024 (it’s a confusing chart, I’m sorry, I didn’t design it). They expect oncology drug spending to continue to rise at a fast pace, diabetes and immunology drug spending to slow, and obesity spending to slow but still be high enough as to require an entirely separate part of the chart.

And in that case, all the efforts of 2010s-era value-based care might not mean very much.

Obviously prevention and early screening is far cheaper and has fewer side effects. But if a drug takes up far less of a doctor’s time and is more likely to actually work than intensive counseling, the incentive structure is stacked toward just prescribing these drugs for everyone.

And if that’s the case, doesn’t that reshape how insurance works? If the major cost becomes not procedures but therapeutics, then insurance must prepare to bear the burden of lifelong therapy or a one-time fee that’s very high compared to a standard procedure cost. And if that’s the case (a few assumptions are obviously embedded here), insurance is likely to become even more prohibitively expensive.

Reinventing insurance from first principles

So then what’s the answer?

Option 1: As many of these drugs were developed, at least in part, with federal research dollars, the government could declare that lifesaving drugs are priced too high and have to come down. I know I sound too glib for industry people on this, but this is a viable option. Yes, the R&D costs for drugs are high, and we want to incentivize drug companies to continue to take risky bets on developing blockbuster drug rather than less risky follow-on drugs. At the same time, do we want a society where that means blockbuster profits at the expense of patients in perpetuity? The government grants research dollars (although notably less under RFK Jr’s HHS) and confers temporary monopoly status through the patent process. I think it’s fair for us to ask for a little more in return.

Option 2: Insurance structures (and PBMs) have to change. The way the system currently works, manufacturers develop the drugs, and PBMs decide on behalf of payors what will be included on their formulary, or the list of covered drugs. Many patients who rely on expensive drugs lose access when the PBM decides to change which drugs are on a certain formulary or exclude other drugs. As the New York Times reported in 2023:

Scott Matsuda was hit with the formulary problem when his doctor prescribed him a new drug to treat myelofibrosis, a rare type of chronic leukemia. For years, before the drug was developed, his insurance paid for a cocktail of chemotherapy drugs that did little to slow the course of his disease and caused difficult side effects like severe mouth sores.

Then, he entered a clinical trial of Jakafi, a pill that markedly slowed his disease. He did not notice any side effects.

“It was amazing,” Mr. Matsuda said. “I was really happy.”

Three months later, the trial ended, and the F.D.A. approved Jakafi. The daily pills that were saving his life cost $6,000 a month, but Jakafi was not on his insurer’s formulary.

“We were dumbfounded,” Mr. Matsuda said. He and his wife, Jennifer, have a photography business near Seattle, but that price was totally beyond them.

“We are solidly middle-class,” Mr. Matsuda said. “We pay all our bills. We have a good credit score. Six thousand a month would ruin us.”

If the formulary becomes less exclusive, the PBM loses some of its negotiating power and a lot of its rebates (manufacturers pay rebates to PBMs to maintain formulary position, a practice that the FTC called out in 2022 as being rife with the possibility for illegal bribery). For insurers to be on board, they might also require some sort of reinsurance program as Mark Cuban proposed, which would provide insurance for the insurance companies. Such plans exist, but this article published in Milbank Quarterly earlier this year notes that some reinsurance companies, not being subject to the same Affordable Care Act rules that health insurers are, exclude cell and gene therapies from coverage altogether.

Option 3: We reinvent insurance from first principles and all pay into a system that probably increases its premiums pretty dramatically every year to account for the wider breadth of therapies available for different conditions. This system would probably invent prior authorizations from first principles too, because many of these therapies for genetic conditions have to be given when a child is very young and won’t have paid much into the system yet.

Option 4: We rely on GoFundMe and people fall through the cracks and die of preventable causes.

This new era of therapeutics challenges a lot of long-held assumptions about healthcare (although the magnitude to which this will actually change things remains to be seen): that prevention is worth spending more time and money on than treatment, that the insurance system is even capable of incentivizing meaningful prevention through value-based care, that the insurance system works at all.

If I’m being optimistic, maybe this is finally what forces some kind of health reform. Really, it probably just increases our premiums for now.

During my time in the private sector, one of the most frequent topics of discussion was the challenge facing young healthcare (and biotech) startups trying to sign contracts with some of the big players that control access to the market. UnitedHealth, Cigna, CVS/Aetna, Mayo Clinic, Intermountain Health, the list goes on — each of these logos is a prize for a startup to have on their website, and a rock on which many a startup ship is smashed.

You could argue (and I do) that each of these companies is too big, controlling access to the market in a way that locks out competitors and allows them to potentially steal competitive ideas from the startups.

The size of these companies might be warping the market in another way: the size of each individual contract is so large as to fundamentally change the dynamics of how they operate their businesses. For example, during Cardinal Health (a big drug wholesaler)’s earnings call in October, one of the analysts on the call congratulated the CEO and CFO on CVS’s recent acquisition of Rite Aid assets, purchased after Rite Aid declared bankruptcy (for the second time) in May of this year. Why, you might reasonably wonder, is an analyst congratulating the CEO of one company on the firesale of an unrelated company to another unrelated company? Well, because Cardinal is the wholesaler of choice for CVS, one of the biggest drug purchasers in the country — which got even bigger with the purchase of Rite Aid. Cardinal makes tens of billions of dollars from CVS, a number likely to go up with the Rite Aid asset purchase.1

This dynamic was also on display in November, when Eli Lilly announced that it was switching PBMs from CVS Caremark to Rightway, a much smaller PBM. This means that Lilly’s approximately 23,000-50,000 U.S. employees (for some reason different reported accounts vary on the number of employees at stake here) will be using the services of Rightway for their medications, a huge coup for Rightway.

Revenge?

Why did this shakeup happen? At least in part, it seems, the answer was revenge. In July, CVS Caremark (CVS’s PBM) decided to drop Lilly’s Zepbound (a GLP-1) from its formulary in favor of Novo Nordisk’s Wegovy (a competing GLP-1). Because Eli Lilly and Novo Nordisk are in a fight to the death over which GLP-1 will capture the most market share, this was a huge loss for Lilly. So the company retaliated by switching PBMs from Caremark to Rightway.

It might not solely be revenge: Rightway has an attractive model, intended to be more transparent than that of the traditional Big 3 PBMs, which control nearly 80% of U.S. drug spend (Express Scripts, owned by Cigna; CVS Caremark, owned by CVS; and OptumRx, owned by UnitedHealth Group). The Big 3, as well as most traditional PBMs, make money on the spread between payments from the insurer and rebates from the manufacturer (as enticements for placing preferred drugs on formularies) and the negotiated rate that the PBM pays to pharmacies.

Rightway makes money through a flat per member per month (PMPM) fee, passing along rebates to the employer that hires Rightway and paying the pharmacy a price calculated with a pricing model chosen by the employer. So, in addition to revenge, it might be Rightway’s approach that enticed Lilly; other major employers like Genentech and Tyson Foods have recently switched to Rightway. One other reason could be that Lilly saw an opportunity to align its public policy stance against PBMs with how it runs its employee benefits.

Surviving with a big contract

Regardless, the Lilly contract is big enough that Rightway likely made some promises to win Lilly’s business; for example, Genentech requested an accelerated implementation timeline, which Rightway delivered. This puts Rightway in a delicate position — the Lilly contract is a huge deal, and it will likely require Rightway to cater to Lilly’s every demand, even as Lilly can (relatively) easily play the field.

In this, the situation reminds me of the Amazon HQ2 search in 2017. For those that don’t remember, Amazon announced that it was planning to build a second headquarters outside of its main campus in Seattle. States and towns across the country put together pitch packages for Amazon, trying to entice it to come to their locality by promising tax breaks worth billions of dollars.

In the end, Amazon got data about localities across the country...and chose where it was probably always going to choose: Arlington, VA (this was the era when Jeff Bezos was considering being a Washington Man) and Queens, NY. These two localities promised, among other things, to subsidize the construction of a helipad so Bezos could helicopter in. Virginia also agreed to fight Freedom of Information Act requests on Amazon’s behalf and to give a cash grant premised on a future increase in revenue from a tax on hotel rooms that Amazon employees might end up staying in.

For a startup like Rightway (and to be clear, I have no insight into their specifics or any details about this deal), a contract with Lilly might alter the direction of the business altogether. They will likely have to hire business development people, account managers, and sales representatives, all for Eli Lilly. If Lilly changes its mind about using Rightway, it fundamentally shifts Rightway’s funding and survival prospects — making contracting in healthcare right now a very delicate dance.

Healthcare startups are in a difficult position

It’s not just Rightway, either. This dynamic is facing most healthcare startups right now as they have to decide what big contracts are worth going after, and which big partners are trustworthy in the long-term.

Amazon used its power to get tax breaks and spin up a bunch of cities…just because it could. Eli Lilly is switching PBMs because, in part, it’s mad at Caremark and because it can. If Caremark promises to go back to Zepbound, will Lilly switch back? Could it leave Rightway in the dust? And: what does this mean for startup founders and employees? It certainly makes things more difficult.

Those of you who don’t have a baby might not be aware of what’s happening in the baby formula market, but it’s bad news.

This month, the FDA, the CDC, and the California Department of Public Health announced that they were tracking and investigating an infant botulism outbreak linked to ByHeart formula. ByHeart is a VC-backed company with millennial startup branding that stands out among the other cans of formula at the store (and does extensive social media advertising). It’s also a formula clearly designed for crunchier, wealthier parents, costing around $1.75 an ounce compared to Costco’s Kirkland formula, which only costs about $0.69 an ounce.

In a triumph of public health monitoring, the California Department of Public Health’s Infant Botulism Treatment and Prevention Program (IBTPP) caught the outbreak fairly early, after only 13 suspected cases. Their monitoring picked up a rise in the background noise of infant botulism cases (of which there are an average of roughly 150-200 per year), noticing that from August 1 to November 10 alone, there were 84 infants who received treatment for botulism. Forty-three percent of those had received powdered formula, and 40% of those had had ByHeart formula, which was a red flag given ByHeart’s 1% share of the total U.S. formula market.

As of November 19th, the most recent day that the CDC reported data, there are now 31 total cases from 15 states, all of whom have been hospitalized. The IBTPP is offering free 24/7 consultation for providers caring for babies sick with botulism and is shipping no-cost treatment nationally. (Interestingly, the treatment was itself developed, licensed, and continues to be exclusively produced by the California Department of Public Health.)

ByHeart’s subpar response

ByHeart has handled the crisis terribly. I didn’t go to business school, but even I know that there’s a very common business school case study on how to handle a sensitive pharmaceutical recall. In 1982, someone added cyanide-laced capsules into Tylenol packaging in pharmacies around Chicago, killing seven people. Johnson & Johnson, the parent company of the Tylenol brand, quickly decided to recall all Tylenol in the market, reestablishing trust.

ByHeart did not do that. Instead, the company posted an Instagram video the same day as the CDC announcement with one of the cofounders arguing that “there is no reason to believe that infant formula can cause infant botulism.” After three days of denial and hinting that the third-party lab may have accidentally introduced bacteria into the formula during its testing, ByHeart finally issued a national recall on November 11th.

As late as November 19th, the company’s posts are still falling short for many former customers of ByHeart; an Instagram post received thousands of negative comments after ByHeart announced that its independent testing had found bacteria that can cause botulism in several cans of formula but didn’t reveal the batch numbers.

FDA formula standards

This recall comes at an interesting time in the baby formula market. The MAHA contingent at the FDA has drawn attention to the mandatory use of seed oils in formula in the U.S., where it’s used to increase the caloric and fat content of the formula, and to provide fatty acids essential for development. In March, HHS Secretary Robert F. Kennedy, Jr. convened executives from several top formula makers to inquire about the formula ingredients and the state of the industry.

This meeting was quickly followed by HHS’s announcement of Operation Stork Speed, which ByHeart applauded, with commitments for more formula testing and a review of the nutrient standards introduced by the FDA in 1998.

Many of the MAHA movement point to the different standards that the European Union has for baby formula than the U.S. does. While many of the standards are similar, EU-regulated formula has more leeway for different options, including more options using milk fat instead of added vegetable oils. The EU also bans corn syrup in formula, while corn syrup is often one of the first ingredients in American baby formula. (In fact, most American baby formula contains added sugar, despite the American Academy of Pediatrics’ guidance to avoid added sugar for babies below two years of age.)

There are also heavy metals concerns: earlier this year Consumer Reports tested U.S. baby formulas and found that some contained toxic chemicals and PFAS that were likely inadvertently introduced during the manufacturing process.

Manufacturing challenges

The baby formula story is also one about domestic manufacturing, supply chains, and food safety. The formula market in the U.S. is — no surprise — highly concentrated, with Abbott (which produces Similac, among other formulas), Reckitt Benckiser Group (which owns Mead Johnson, which produces Enfamil, among other formulas), and Nestle (which produces Gerber, among other formulas) controlling approximately 84% of the national market as of 2022.1

Unlike many other markets (including pharmaceuticals), the vast majority of the baby formula sold in the U.S. is also manufactured in the U.S. The U.S. is a net exporter of formula and imports only about 1.5-2% of total formula purchases. The U.S. also maintains a fairly high baseline tariff rate on formula products.

That said, the domestic supply chain is pretty weak, with only five manufacturers of baby formula in the U.S. as of 2022. Perrigo, listed under “private label” on the chart below, produces white labeled formula for store and other brands. The manufacturing dynamics are changing somewhat, with Bobbie, a new market entrant, opening a manufacturing facility in mid-2024 (while still partnering with Perrigo for the rest of its production). ByHeart was also a new manufacturer.

These market dynamics are, in part, entrenched by how formula is purchased in the U.S. Approximately 40% of all American babies get formula through WIC, the USDA’s supplemental nutrition program for women and children, making it the biggest buyer of formula in the country. WIC implemented a competitive bidding process for formula suppliers to provide a rebate to WIC participants in 1989.

This policy change possibly led to (or coincided with) a bit more diversity in the market, although, as discussed above, there are still only a few manufacturers of baby formula in the U.S. And Reckitt Benckiser/Mead Johnson and Abbott still hold the contracts in every state and tribal nation.

In early 2025, the GAO published a blog post discussing how the bidding process tends to stymie smaller market entrants. These market dynamics are likely why newer formula companies like ByHeart and Bobbie have focused on the upscale part of the formula market and have, at least in their earliest stages, relied on subscription models rather than commanding store shelf space and bidding for huge WIC contracts. But as the GAO noted, WIC contracts can change market share quickly; rewriting the rules of the bidding process could be a powerful policy tool to diversify the market moving forward.

The weakness inherent in the current market concentration most recently came to a head in 2022, when Abbott, which produces Similac and other formula types, recalled powder formulas manufactured at a Michigan plant after reports of several babies sickened by bacterial contamination. Because Abbott manufactures such a large proportion of the supply in the U.S., this recall had reverberating effects in the formula market, eventually leading to a national out-of-stock rate of 70%.

In response, the U.S. implemented Operation Fly Formula, which imported formula from other countries. Then-President Joe Biden also increased manufacturing capacity under the Defense Production Act, and Congress passed the Formula Act, allowing a brief period of duty-free imports of internationally produced formula. Finally, Abbott began manufacturing again.

Continued weakness

While MAHA focuses on the (probably justified!) issues with the nutrient standards of U.S. baby formula, there’s a bigger problem lurking: the concentration of the manufacturing supply chain and how any issues therein are likely to affect hundreds, if not thousands of babies in the U.S.

Bacterial contamination issues are not unique to ByHeart (although its poor response perhaps was), and protecting the most vulnerable members of our society includes ensuring safe and plentiful formula for the babies who need it. The concentrated manufacturing base leaves little margin for error; when something goes wrong, which it will, it’s the inevitable result of a fragile system.

If the formula supply is going to be truly dependable, we have to build that dependability into the supply chain, with a diverse base of manufacturers, strong FDA standards, and well-funded, knowledgable regulators providing oversight. And, perhaps, fewer Instagram posts from founders disavowing responsibility.

I’ve written quite a bit about consolidation of physician practices — by health systems, private equity, and payors — and how physicians are now, for the first time in American history, majority employed rather than independent.

To be clear: I think this is a bad thing. Independent physicians as a whole provide better care at lower cost, and the ability to choose where you practice allows more healthcare that’s purpose-fit to its location.

However, it is very difficult for physicians to remain independent, given trends in reimbursement, administrative burden, and consolidation across the system. And this is changing how physicians perceive health policy — which may, in turn, shape the health policy conversation in America.

Shifting politics

Physicians’ politics are shifting in general. Doctors are increasingly liberal (even though they’re less likely to vote than people in similar white collar professions). This isn’t entirely because of changing work dynamics; other reasons include education polarization and the increase of women entering the medical field. But…it’s at least partly because of changing work dynamics, per this quote from a 2019 Wall Street Journal piece:

“I don’t have the same interests as someone who’s in independent practice,” said Jane Zhu, a 34-year-old who is employed as an internal medicine physician at a large health system in Portland, Ore.

This is striking: the nature of this doctor’s work means that she perceives healthcare differently. To take this point one step further, physicians have gone from being “the man” to being the labor — and this is changing their policy positions as a whole. Some doctors are even considering organizing in unions.

A turn against noncompetes

Changing political attitudes as a result of changing employment structures for physicians was also on display in the last few years, as the FTC nearly banned noncompetes.

To editorialize a bit, noncompetes are almost universally bad. In recent years, restrictions originally intended to protect trade secrets and prevent high-level executives from rapid job switching have begun to be ever-more restrictive, expanding into construction and fast food jobs. Some employers make employees sign a noncompete even if enforcement of that clause is banned because it deters employee churn and entrepreneurship; the employee doesn’t want to risk breaking an unenforceable contract.

Former FTC chair Lina Khan proposed a national ban on noncompetes in 2023, and the depth of employee hatred for these restrictions was revealed: when the FTC submitted the proposed ban for public comment, the agency received over 26,000 comments, with more than 25,000 of those in support.

Then, this year, Trump administration’s FTC chair Andrew Ferguson essentially decided to let that ban drop. So now noncompetes are again permitted nationally, and the U.S. will revert to the patchwork of bans and allowances made by individual states. While some states have regulations carving out physicians from noncompetes, the national landscape is so difficult to navigate that the American Medical Association offers discounted contract review for member physicians.

Not all doctors are opposed to noncompetes; those who own a business tend to be more in favor of keeping this contract clause for their employees. One representative example is from this episode of the White Coat Investor podcast:

I think we ought to inject a little more nuance into the discussion… For example, our employees here at WCI sign a non-compete… We give them a list of the competitors and basically tell them they can’t start another business that’s essentially doing the same things as WCI. We view that as protecting some of the information about WCI, including how it runs and some of that proprietary kind of information. I understand why some businesses want non-competes, because I’ve got a non-compete.

This is a commonly cited concern by employers in the healthcare field (and those employers are increasingly health systems and private equity firms). For example, the American Hospital Association submitted a strongly worded letter to the FTC against the noncompete ban (which raises the question to me — how unhappy are hospital-employed physicians? The AHA seemed to be implying that they would leave and compete en masse).

An analysis of the comments submitted to the FTC published in Antitrust Magazine found that the overwhelming majority of comments were submitted by employed physicians. This wasn’t necessarily a surprise, as a poll by Medscape published in 2021 found that 90% of physician respondents reported being affected by a noncompete at the time of the survey or previously. Still, as Antitrust Magazine emphasized, “the vast majority of public comments were submitted by employees (not employers), particularly in the healthcare field.” That says something!

The future of health reform?

The changing priorities of its physician members has gradually shifted the American Medical Association’s priorities as well. For decades, the AMA has famously opposed any attempt at a national health plan, releasing in 1961 “Operation Coffee Cup,” which resulted in an LP of then-young actor Ronald Reagan speaking out against socialized medicine.

But more recently, the AMA has turned its attention to the issue of physician consolidation, monitoring instances of consolidation and encouraging members to share their experiences with mergers with the FTC.

In 2019, the AMA held a vote on whether to rescind its long-standing opposition to universal health insurance. Although the vote failed, it failed by just a few votes, with more than one publication reporting on the audible reaction in the room.

“I kid you not, there was an audible gasp in the room,” Sophia Spadafore, who at the time was a team leader in the medical-student section’s caucus, recalled. “All these delegates we had never met were coming up to us after, saying, ‘You’re doing it, you’ll get it next time, keep going, we support you.’ ” Much to their surprise, the students had come close to staging a revolution in American medicine.

Since then, the AMA has not had such a dramatic vote, and the official position of the organization is still opposition to single payor. But future health reform in America may not be just single payor (I don’t think it should be, personally) and policymakers may find physicians increasingly on their side.

I’ve been trying to write a piece about AI in healthcare for weeks. My question: does AI change the dynamics in the healthcare system, or does it exacerbate existing issues?

So far, it seems like the latter is more likely.

I think this is probably a good thing insofar as we’re not ready for AI-as-doctors. I don’t have any particularly hot takes on AI-as-doctors — just a vague sense that the tech isn’t ready for it, and that we as humanity probably aren’t ready either.

But the use of AI to accelerate existing problems in healthcare is a bad thing insofar as…there’s a lot of bad stuff in the healthcare system that’s going to get amplified by the use of AI. We don’t need amplification of insurance denials, prior authorization paperwork, or automatic upcoding/downcoding…but that’s what we’re getting.

More downcoding, faster

Last month, Cigna announced that it was going to downcode (or downgrade the amount the company would reimburse doctors for a specific service) certain Evaluation and Management (E/M) service bills. From the press release:

Therefore, in an effort to promote accurate and consistent reimbursement and protect customers from potential overbilling, Cigna Healthcare will implement a new Evaluation and Management Coding Accuracy (R49) medical reimbursement policy on October 1, 2025.* This policy will review certain professional claims billed with CPT E/M codes 99204-99205, 99214-99215, and 99244-99245 for billing and coding accuracy.

In alignment with American Medical Association (AMA) E/M services guidelines, services may be adjusted by one level only for providers who our records indicate as having a consistent pattern of coding at a higher E/M level for routine services compared to their peers.

Cigna emphasized that it would only apply this policy to providers with a history of upcoding (or billing the service at a more advanced code than the service actually warranted, in hopes of getting reimbursed more), and that 99% of doctors would be unaffected. Nonetheless, this policy announcement, and a similar one by Aetna, caused such an uproar that Cigna temporarily paused implementation of the policy.

Is Cigna using AI for this downcoding? It’s unclear. Cigna told STAT News that the downcoding will not happen automatically and would not include use of AI or algorithms. Physician trade organizations said otherwise, telling their members that the policies would be automatic. My close read of the press release leads me to guess that Cigna was planning to use AI to flag certain bills, which would then be downcoded unilaterally by Cigna employees.

Guilty until proven innocent

In a real lesson for comms professionals in how to message your way to the top, Cigna frames the unilateral downcoding as a good thing.

Rather than delaying payment and requesting supporting documentation for the billed code upon receipt of the claim, Cigna Healthcare will issue payment promptly for the lower-level adjusted code, clearly indicating on the explanation of payment (EOP) if a service was adjusted to be reimbursed at a lower level.

Note, however, the assumption that doctors are, in the words of one physician, “guilty until proven innocent.” And it requires that doctors notice the downcoding, then initiate and manage the appeal process.

This is a much bigger burden for the physicians who are trying to stay independent. As one doctor wrote in an op-ed for STAT News:

At first glance, downcoding might sound like a technical tweak. In reality, it creates a crushing administrative burden. Each downcoded visit will surely trigger a full appeal: pulling charts, re-coding, resubmitting, and waiting. Large health systems may absorb this with billing staff. Smaller independent practices cannot. Appeals already clog the system, and a new approach to downcoding risks further backlogs.

Cigna is not the only insurer that is doing this. Aetna, Anthem Blue Cross and Blue Shield, Humana, and Molina all do some version of this, likely with AI involvement. (And it’s worth noting that the tech involvement itself isn’t new; there are many companies that sell algorithms to upcode from the physician side, downcode from the insurer side, and “risk adjust” for practices submitting to Medicare.)

The prices are still fake

And with AI involvement — are we not just sending AI bots off to war over prices that were fake to begin with? The whole thing is enough to turn anyone, including Wall Street Journal opinion editor Matthew Hennessey, into a radical, per his recent op-ed screed against an Evaluation and Management fee:

A fun game to play is to ask your most politically doctrinaire friends if there’s a policy they secretly support that cuts against their usual views. I’m a free-market guy. You can look it up. But my increasing irritation with the American healthcare system could make me grab a pitchfork before too long. Another email like that and I might join the movement to tear it all down. Getting nickel-and-dimed is one thing. Getting treated like an idiot is something else.

Except now we’re all getting treated like idiots while AI tools battle over what the optimal (fake) price for a service should be. Literally no one is winning, including the companies that have to use AI tools to engage in the billing war.

At least some of the money, to answer my colleague Matt’s (somewhat rhetorical) question above, is going to a costly war between pricing bots!

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Fellow healthcare newsletter (and growing Slack community) Health Tech Nerds, founded by Kevin O’Leary, has been a go-to place for me to get news and information about the healthcare ecosystem. So I was very excited when HTN’s new Lead Policy Research Analyst Martin Cech and I got to chat about independent providers and how consolidation is causing stagnation in the industry. You can sign up for his new policy newsletter here.

My interview with him is cross-posted below.

***

Maybe you’ve heard the philosophy joke about the fish in water, but it’s a good one and relevant for today’s interview, so I’ll repeat it here:

There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?”

Unless you’ve been unfortunate enough to experience the health care system in another country while on vacation, you might not spend much time thinking about why things are the way they are in the United States. But you probably know the statistics —

The United States ranks number one in the OECD for health spending as a percentage of GDP:

But we have fewer doctors per 1000 people, lower life expectancies, and higher infant mortality rates than a lot of our peer countries. In short, pretty poor value for money.

Another unique aspect of our health care system is the degree to which our doctors are employed by medical groups and health systems. The single largest employer of physicians in the country is OptumCare, a division of UnitedHealth Group, which employs roughly 10% of all physicians in the United States. If you have chronic kidney disease, it’s likely your dialysis provider is either Davita or Fresenius. The Physicians Advocacy Institute published its annual report showing that 77.6% of physicians are now employed by either a hospital or corporate entity:

This level of concentration is a policy choice. But because it’s the water we’re swimming in, it’s hard to conceptualize what it means for us as patients, or for the people employed by these behemoths to provide care, or for entrepreneurs trying to solve problems in innovative ways.

So today I’m speaking with Olivia Kosloff, a senior fellow at the American Economic Liberties Project and author of Acute Condition, to talk about the consequences of bigness and what a smaller, more independent-friendly health care system might mean.

Physicians are increasingly dependent

Martin: We are at a low point for physician independence in the U.S., with the most recent figure from the Physicians Advocacy Institute putting it at 22.4% of physicians not employed by hospitals or corporate entities, down from 37.8% in 2019. How did we get here? Can you help give us a sense for what’s driving doctors into these employer/employee relationships? Is there any evidence that this is a nadir and the trend will reverse, or do you think it will continue to accelerate?

Olivia: Without going too deep into the history, there have been a few pieces of legislation that encourage physicians to consolidate over the last few decades. The Affordable Care Act did a lot to increase insurance coverage, but one of the explicit goals was also encouraging consolidation in the name of greater efficiencies. Then other pieces of legislation like the HITECH Act, which required “meaningful use” of electronic health records, added additional regulatory and administrative burden to independent practices, which contributed to the appeal of consolidation.

I would also say that very large corporations — UnitedHealth’s Optum being the canonical one — saw leverage in rolling up physician practices under the Optum umbrella. Physicians who are employed by Optum get higher reimbursements than those who are not, so there’s incentive there.

And finally I would call out the rise of private equity in healthcare. I think a lot of doctors thought of private equity as an enterprise that would invest in their practices and make it easier for them to focus on actual patient care rather than running the business side, but they quickly learned that PE is there to flip a profit as quickly as possible. My organization recently hosted the 2025 Anti-Monopoly Summit in DC and I moderated a panel on the topic of consolidation in healthcare. Our first speaker was an orthopedic surgeon who built her practice and then essentially got pushed out by private equity 20 years later (it’s worth watching — the panel starts at minute 54 at this link)

I think we’ve hit a turning point in terms of physicians not wanting to be in an employer/employee relationship, but I don’t think it’s yet affirmatively appealing to be in independent practice — all of the administrative and regulatory burden is still there, the insurers are paying their own doctors better, and it’s an impossible arms race for independent doctors. The more consolidated the industry gets, the more difficult it is for independent practices to negotiate for competitive rates, which contributes even more to consolidation.

Now we need policies that would make it more viable for independent docs to survive (or for newly minted docs to hang their own shingle!).

Ill effects of consolidation

Martin: There’s a sort of knee-jerk response I have where I associate independent physicians better in some hard-to-describe way, and the rising rates of corporate or hospital employment of physicians as bad. But this feeling isn’t very satisfying or a coherent policy argument. From your perspective, what are the consequences of more employed physicians versus independent ones for the patients and the physicians themselves? Where do the ill effects of this consolidation show up?

Olivia: For the physicians, the trade-off was that being employed would mean they got to spend more time with their patients and less time on administrative work and the day-to-day of running the small business of their practice. But many are finding that the reality is that the extra room in their schedule is dedicated to seeing ever-more patients in ever-shorter periods of time. Burnout rates and dissatisfaction is higher among employed than independent physicians. Not to mention that insurer- and PE-driven rollups of practices often result in hospital or practice closures, meaning that doctors lose their place of employment and their ability to care for the community in which they live — The Atlantic wrote about this dynamic recently, in a hospital in Wyoming.

For patients, it’s more of a depersonalized, corporate experience that is linked to poorer care, higher mortality, and less overall satisfaction. Independent physicians provide better care at lower cost. And there’s a less quantifiable but — in my opinion — real loss, which is the loss of dynamic, community-based practices. A rural doctor might want to drive around to his patients instead of having a brick-and-mortar office. A group of suburban doctors might want to start their own practice to serve a specific community need they’ve found. Doctors in Texas might want to focus on diabetes, and doctors in New York City might want to work with long Covid patients. The corporatization of doctors flattens all of that and I think we’re losing the dynamism of the profession, which is harmful to both providers, patients, and would-be medical students who can’t see themselves working for Optum.

The role of SaaS tools

Martin: It feels like every few weeks, I see an announcement that another physician enablement tool that’s going to help doctors stay independent gets announced. Along with this, we’re living through what seems to be a golden age of SaaS and AI tools for back-office and administrative tasks. A story you could tell is that there’s never been a better time to be an independent doctor. Is there any truth to that?

Olivia: I’ve wondered this too. I think the answer is that the countervailing forces are such that back office tools aren’t enough to keep doctors independent unless they already know they want to be and stay independent. At AELP, we’ve heard from physicians who thought consolidation would solve a lot of their problems, and by the time they realized otherwise, it was too late. And as I mentioned before, small practices still struggle to negotiate fair rates from consolidated payors. So yes, tools are great — but we also need policies more aligned with independent practice!

Synergies?

Martin: There’s quite a bit of research about the promised synergies of hospital consolidation failing to materialize, and mostly, prices just go up. But two pieces of anecdata data: First, I was recently talking to a doctor who commented, “I’ve been working shifts in a community hospital where it’s now much more seamless to transfer patients who need subspecialty care to an academic mothership where they can get definitively treated. I have friends that work in more ‘independent’ hospitals (mostly underresourced ones, which skews my perspective), and it’s a nightmare for them to get patients transferred to the care they need.” Second, I was living in France for the past three years, and the doctors are largely independent, and the care experience is just a lot more fragmented and low-tech. This makes sense to me because if you’re making an economic profit, you invest in things like building the network and technology, whereas if you’re an independent doctor, you’re maybe mostly covering your costs. Do you think there’s any trade-off between small and independent physician-owned practices and the patient experience? Is our health care system more resilient than it would be otherwise because larger medical groups and systems are more financially resilient than a lower-margin independent practice?

Olivia: I do think it’s about resourcing, and about how systems are incentivized to spend their money. A lot of the biggest healthcare systems are for-profit, publicly traded enterprises that have a fiduciary duty to their stockholders. And other ones are notoriously in competition for international medical tourists, spending millions on infrastructure and development that’s not directly related to patient care (I’m thinking in particular of the 2017 Politico article describing Cleveland Clinic’s efforts to bring in international patients — in some ways, at the exclusion of local Clevelanders).

Regarding care coordination, seamless transfers are great! But I would argue that it’s not necessarily the result of consolidation. At the risk of making UnitedHealth sole enemy number 1 here (they’re not, they’re just emblematic of larger industry trends), Optum notoriously acquires businesses without fully integrating them. Relatedly: a recent meta analysis in the Journal of the American College of Surgeons found that studies describing consolidation as improving “quality,” tend to be describing better care processes — like staffing levels — rather than patient outcomes themselves. That’s not nothing, but I don’t think the cost-benefit nets out.

To be clear, I think it’s important that hospitals and practices are well-resourced and have tech and infrastructure. But I’m not sure this is mutually exclusive. I think the ideal is both well-resourced hospitals that serve their communities and independent providers that get to practice where and how they choose — and those are mutually reinforcing.

The role of the states

Martin: A strange thing about this political moment is that there’s some sort of bipartisan consensus, a sort of Liz Warren-Josh Hawley-Lina Khan school of thinking that there’s value in promoting more competitive markets in all aspects of American life. Practically, if there is interest from a coalition of regulators and legislators in promoting physician independence, what levers could they pull? Are you seeing anything happening in the states that provides a good framework for what this could look like?

Olivia: Oregon recently passed a corporate practice of medicine law that makes it much more difficult for corporations to own practices, instead of doctors themselves. Ironically, the bill was helped along because corporate medicine directly impacted two Oregon state legislators. The hack of UHG-owned Change Healthcare exacerbated a cash flow crisis at the clinic, which Optum then purchased cheaply. Many of the primary care and specialist doctors ended up leaving because working conditions got much worse, and an Oregon legislator lost her physician in the middle of ongoing cancer care.

A lot of the action is happening at a state level right now. Indiana has started setting price caps for hospitals, which is something other states are also considering. And Arkansas recently banned ownership of retail pharmacies by PBMs, breaking up vertically consolidated pharmacy.

Medicare Advantage reform

Martin: There’s been some discussion of a potential Stark Law waiver in Medicare Advantage given the dynamics of that market (see this testimony from Brian Miller to the Ways and Means Committee earlier this summer), and how this could potentially support more independent practices. How do you think about the pros and cons of such a change?

Olivia: This is going to be a hot take in the world of Health Tech Nerds — but I’m increasingly convinced that value-based care isn’t working. And, going a step further, it might be the wrong direction for American healthcare altogether. Not that we shouldn’t be incentivizing value, but VBC as it currently exists seems like it’s merely adding additional regulatory and administrative burden to providers, encouraging consolidation, and forcing quality metrics that may or may not map onto actual quality.

All of that to say, yes, I want to support and incentivize independent practices. But I’m not sure tweaking Medicare Advantage is the way to go. I suspect the best path forward is one with more difficult, wider-ranging policy choices (i.e., site-neutral payments, price caps, and other incentives) for providers to be able to nurture independent practices that serve their communities.

Part of the reason this newsletter is late, I’m not making this up, is because we had to shop for a new health plan this week. My newsletter is fairly cynical — but the process was still so much worse than I expected. I’ll write about this at some point (the exchanges were involved) but at what point should we all just pay cash?

In honor of that experience, I’m bringing back one of my most-read articles of all time, from August 2020, about MultiPlan. Since this article, much has happened with MultiPlan, including this article from the New York Times, covering how MultiPlan’s Data iSight tool drives down what insurers reimburse providers, sometimes leaving patients holding the bill (despite their having insurance coverage).

I didn’t write about the Data iSight tool (although I suspected something similar existed) in 2020, possibly because, as the NYT writes, MultiPlan “has fought to keep details about Data iSight confidential, contending in lawsuits that the information is proprietary.”

My original cover image from the MultiPlan article still works:

The world of health insurance is deliberately murky. There are monthly premiums, basically a subscription to access the insurance; deductibles, which are minimum amounts a patient pays before the insurance kicks in, usually in an emergency or surgery setting; and co-pays, which are additional fees the patient pays for the privilege of seeing a doctor, usually $20-70.

All of the patient-side fees are confusing, but the provider-side is even more so. Insurers handle negotiations with doctors and hospitals (and, importantly, negotiating with a doctor does not necessarily mean the insurer has negotiated with the hospital and vice versa) to reach a set price for a specific service. These prices are negotiated down from the hospital or physician’s chargemaster (a list of prices). The chargemaster bears no relation to actual charges but is instead the provider’s best attempt to set a high bar at the outset of a negotiation process. When an uninsured patient is billed an extraordinary amount, it’s usually because they didn’t have the negotiation layer of an insurer built in.

The purported value add of insurers, then, is that they lessen costs for patients by handling catastrophic expenses and negotiating down high provider fees.

For a few reasons, this isn’t wholly true. For one, health systems are increasingly merging with insurers, meaning any “negotiation” on behalf of the patient is happening within two divisions of the same company.

But also, many insurers are doing much less negotiation than they make it seem.

Three weeks ago [July 2020], a new merger announcement threw the health care world into a bit of a tizzy. MultiPlan, a complementary PPO network, announced it was going public via a SPAC. The announcement forced quite a few people to start looking up what MultiPlan actually does, including me.

MultiPlan, it turns out, is a corporation that handles a lot of insurers’ work for them. It handles negotiation with providers nationwide and consequently has the largest preferred provider network in the country. This means that insurers can contract with MultiPlan and simply get access to MultiPlan’s network, rather than doing thousands of negotiations. This service is so valuable that all 10 of the top 10 insurers use it, and the corporation seems to have carved out a little monopoly at the top.

MultiPlan didn’t start with so much power. It was founded in 1980 to solve an growing problem: when people traveled, their narrow network insurance plans didn’t follow them. If a person from Delaware had an accident in Colorado, they likely fell out of network and did not receive insurance coverage. To fill this gap, MultiPlan formed a network of “shadow contracts,” negotiated rates with providers that fell outside most networks, and sold this network to other insurance plans.

Over time, as the main insurers became bigger and more national, these shadow contracts became less important. But MultiPlan remained at the top of the insurer network, mostly because the Affordable Care Act of 2010 triggered an avalanche of startup insurers (Oscar, Clover, etc.) while also mandating that insurers cover out-of-network emergency care (although it did not ban surprise billing). MultiPlan offered these smaller insurers an easy way to access a large network of providers.

In 2006, private equity firms began eyeing MultiPlan as a valuable service with few competitors, a market position that only grew after the aforementioned 2010 ACA devlopments. Over the ten years from 2006 to 2016, MultiPlan changed hands between PE firms no fewer than four times. Meanwhile, MultiPlan was also making large acquisitions of competitors and firms in adjacent spaces:

• 2006: MultiPlan acquired by Carlyle Group for $1 billion

• 2006: MultiPlan acquires PHCS, the largest primary care network in the US

• 2010: MultiPlan acquired by BC Partners and Silver Lake for $3.1 billion

• 2010: MultiPlan acquires Viant, another competitor

• 2011: MultiPlan acquires NCN, a reimbursement management platform

• 2014: MultiPlan acquired by Starr Investment Holdings and Partners Group for $4.4 billion

• 2014: MultiPlan acquires Medical Alert & Review, which identifies wasteful billing

• 2016: MultiPlan acquired by Hellman & Friedman for $7.5 billion

Not only did MultiPlan’s value increase by a factor of more than 7 times over 10 years —its owners “cleaned up,” in the words of a Wall Street Journal blog post — it also acquired many of its potential competitors. To my knowledge, MultiPlan no longer has competitors. It’s just MultiPlan and the insurers that use it.

Following some of these acquisitions, MultiPlan expanded its service offerings beyond provider negotiation. The corporation also uses a Palantir-like combination of algorithm and human to root out “fraud and abuse” in payments. And for insurers who worry about what their members think of them, MultiPlan offers a set of analytics services that “balance[s] out-of-network savings and member service.”

From what I can tell, this means MultiPlan has a side business in blocking certain treatments and medications to save the insurer money, or at least making things very hard on doctors who try to prescribe expensive care.

This makes sense from MultiPlan’s perspective, as MultiPlan’s revenue (as far as I can tell — they’re not yet public) comes from a combination of the contract fees that insurers pay to access MultiPlan’s network, in addition to a percentage of the “savings” MultiPlan gets for insurers by routinely lowballing doctors.

Theoretically, MultiPlan’s harsh negotiation tactics should be good for rising American health care costs; insurers are supposed to lower costs by negotiating lower prices on behalf of the patient.

But instead, MultiPlan acts like a mafia enforcer for insurers, forcing doctors to accept low payments while insurance premiums for patients…somehow continue to rise.

MultiPlan’s key strategy for forcing doctors to accept low prices is by erecting a bureaucratic layer so thick and complicated that few can navigate it. On one MultiPlan fax to a doctor that I saw, MultiPlan gave the physician 8 days to respond to a low-ball negotiation. “Please note that if you do not wish to sign the attached proposal,” the fax said, “this claim is subject to a payment as low as 110% of Medicare rateas based on the guidelines and limits on the plan for this patient.”

In other words, if the physician disagrees with MultiPlan’s reimbursement offer, MultiPlan reserves the right to cut the price even lower.

MultiPlan preys on physicians using these subtly forceful faxes, expecting physicians’ medical billing staff to not have time to fight through layers of bureaucratic tape. And according to a friend who works in medical billing, even if a staff member takes it upon themselves to complain about a low rate to MultiPlan, MultiPlan refuses to negotiate on the grounds that it is not the insurer.

One of the first articles I ever wrote was about private equity in healthcare (Private Equity Chases Ambulances, The American Prospect), so I was very excited to get to testify in front of the New Mexico state legislature this week on that very topic.

I wrote about 3700 words on the topic for my testimony, but I’ll spare you from the brunt of it. In short:

The wrong incentives

Private equity firms often present themselves as a solution to struggling providers to bring new investment into the system. However, private equity firms are structured to make a return on their investment as quickly as possible. The incentive is not for long-term community investment but for a quick stripping of the acquired asset to turn a profit within a few years. This often leaves practices and hospitals worse off than before, and it can leave patients with nowhere to turn.

The PE model incentivizes value extraction, rather than value creation. PE shops are not sticking around to make long-term bets about keeping communities healthy. Instead, they’re making money with the most extractive, quickest means possible.

Standard strategies include selling the real estate under which a practice sits — and then leasing the land back to the practice at an exorbitant rate (also known as sale-leaseback), extracting management fees from the practice, consolidating back-office functions, cutting staffing and labor hours, raising prices, and aggressively billing patients.

None of these strategies are intended to make the hospital or physician practice run more smoothly or efficiently, and none of them represent investment in the future of the practice — because again, the PE model is explicitly premised on not being around for the future, but making as much money as possible in the short term.

Investing in healthcare while underinvesting in providers

A major talking point by those in favor of PE acquisitions of hospitals is that it can rescue struggling assets and maintain patient access to care. But a growing body of evidence shows that the care provided by PE-owned hospitals is inferior to that provided by other hospitals. A JAMA study from 2023 found that Medicare beneficiaries admitted to private-equity owned hospitals experienced a 25% increase in hospital-acquired conditions compared to those treated at control hospitals, including a 27% increase in falls and a 37% increase in certain infections.

A common PE tactic is decreasing staffing (which I would speculate is behind the increases in falls and infections). This also makes things worse for providers: a 2024 survey of doctors by the Physicians Foundation found that over two-thirds of respondents said consolidation was impacting patient access in a negative way. Half of physicians reported that a merger or acquisition reduced their job satisfaction.

Hospital closures

Hospitals are regionally interconnected infrastructure. When a private equity-owned system accumulates heavy debt, it can be vulnerable to insolvency or forced asset sales that disrupt continuity of care. Private equity ownership strips health systems of their cash on hand (one study found that nursing homes’ cash on hand declines by an average of 38% after an acquisition) and of their capital assets (a 2024 study in JAMA found that two years after acquisition, 61% of the private equity-owned hospitals in the study had reduced capital assets compared to 15.5% of control hospitals). Because of the sale-leaseback model, nursing home lease payments go up by an average of 75% post-buyout.

Private equity-backed companies have been involved in 7 of the 8 largest bankruptcies in healthcare. Private equity is also behind 21% of all bankruptcies in healthcare in 2024.

Pushback

By my own estimation, many of the members of the legislature were at least receptive to this testimony. Many of them have heard themselves from providers, patients, and hospital leaders who feel like they’re being taken advantage of. The strongest pushback was in two categories:

1. I work for an advocacy organization that’s anti-PE (I do! I’ve been pretty open about that.)

2. Health systems are struggling and need investment — any investment.

The latter point is more legit. I did (and would continue) to argue that courting capital for which the incentive is essentially pumping and dumping hospitals is a bad idea. But many health systems are struggling, and PE can seem like an easy way out. I’ve been working on an article (for a long time) about alternate sources of capital, so if you have thoughts, let me know. In the meantime, I’ll leave you with an article about a Wyoming town that banded together to open a competitor after PE destroyed their original community hospital.

Now what?

Oregon is an instructive example. It has had a corporate practice of medicine law on the books since 1947, requiring that clinics be at least 51% owned by licensed medical providers. However, private equity acquirers were using management services organizations, or MSOs, to exercise operational control over professional clinical organizations, or PCs. MSOs are often used to streamline a practice’s administrative functions and can be useful — but private equity firms were leveraging MSOs to take charge of clinics.

This year, Oregon strengthened its corporate practice of medicine (CPOM) law by preventing MSOs from exercising operational control over PCs, or owning or controlling a PC with which the MSO has a contract. Notably, this does not ban private equity investment altogether. Investors are allowed to own up to 49% of a practice — but they cannot hold a controlling stake. This allows investment while preventing some of the more egregious harms.

There are other options that might help too, including state-based site-neutral payments, banning non-competes, and requiring PE firms (or other acquirers, for that matter) to provide assurances that they won’t, for example, raise prices or cut staff for a certain number of years. These are difficult options — but losing a hospital or practice to a consolidator with no incentive to care about the patients or providers, I would argue, is worse.

I keep writing about this (sorry!) but what’s happening with compounded drugs is crazy and isn’t being covered enough.

DTC companies are being propped up by GLP-1s

To recap: major DTC healthcare companies (think Thirty Madison, Hims, Ro) seem to be struggling to continue to justify their Covid-era valuations. These valuations were based on a future which has not come to pass; namely, the idea that people would continue to use virtual care startups for a large portion of their healthcare needs, rather than grab-and-go options for hair loss and erectile dysfunction.

The more successful of these companies pivoted early to GLP-1s, a category which includes weight loss injections like Ozempic and Wegovy, and which are both very popular and very expensive.

However, GLP-1s are largely still on-patent, meaning that the companies who own the patent (Novo Nordisk for Ozempic, Eli Lilly for Mounjaro) have the exclusive right to manufacture, distribute, sell, etc. those drugs. Ozempic will be on patent in the U.S. until 2032, although Novo Nordisk’s patents will expire sooner in other countries.

Setting aside the intricacies of the patent process (abuses of the patent system are common), this means that companies like Hims should not be able to sell Ozempic or Wegovy without a partnership or permission from companies like Novo Nordisk. And so Hims turned to compounding the drug through compounding pharmacies (the company also briefly had a partnership with Novo Nordisk which flamed out after Hims continued compounding on the side).

FDA begins enforcement…slowly

Compounding the drug was not illegal as long as GLP-1s were technically in shortage. But they are no longer in shortage as of spring 2025. And according to the newsletter GLP-1 Digest, companies like Novo Nordisk seem to be relying on the FDA to police the compounding. But the FDA hasn’t seemed particularly interested in or able to do so.

Then, this month, the FDA sent letters to compounders, warning them of specific infractions. At the same time, Dr. Marty Makary, who leads the FDA, wrote an op-ed in the New York Times calling out false advertising in the drug industry. This seemed like a crack-down!

But as STAT News pointed out, the content of the letters was far softer than the language that Makary used in his op-ed. While Makary talked about false advertising by drug companies — i.e. not showing full risk and side effect information, either in traditional pharma commercials, the Hims and Hers Super Bowl ad that included no side effect information at all, or in social media advertising, which often just has a link to more information — the letters pointed out very specific language issues that are, in many cases, on companies’ websites.

In other words, the FDA did not institute a broad crackdown but played up a very simple website wording issue that many companies will be able to alter in a few seconds without changing anything else about their advertising campaigns.

And, while some of the letters did go out to compounding pharmacies, they didn’t make any claims about compounding itself. Instead, the letters asked compounders to more clearly label their products as compounded. The letters indirectly opened the door to compounding industry pushback — before, compounders were breaking FDA regulations. Now, they can righteously point out that the FDA is trying to beat them down with some imprecise requirements. As STAT reported:

Many of the warning letters cite claims that say a compounded drug uses the same “active ingredient” as an FDA-approved product. “FDA says such statements are deceptive and misleading,” wrote Scott Brunner, CEO of the trade group Alliance for Pharmacy Compounding, in a LinkedIn post on Thursday. “Which is odd, because those particular statements happen to be true, as FDA has rather clearly established.”

Being an active ingredient of an FDA-approved drug, Brunner pointed out, is one of three criteria that allows for a drug to be compounded. The compounding trade group recommends its members, which include Hims & Hers, avoid invoking FDA-approved comparisons in their marketing. “But that’s to avoid the possibility of a trademark lawsuit from the drugmaker, not because such statements are inherently deceptive or illegal,” wrote Brunner.

This mess seems like it’s clearing a path for more compounding of on-patent drugs in the future. GLP-1s are no longer in shortage, but compounding pharmacies are compounding away without much consequence. The FDA tried to rein it in, but in so indirect and weak a fashion that the compounding industry essentially got a green light.

To me, this seems like the beginning of a whole new consideration for manufacturers of on-patent blockbuster drugs. Will they have to build excess capacity into their supply chains to prevent their new drugs from ever going into shortage, which would open the door for compounders to legally begin compounding? (This would probably be good.) Will compounders go after blockbuster drugs anyway? Once these compounding pharmacies have experience with producing compounded drugs in bulk (rather than the small-volume instances they were traditional used for), will they use that experience to produce other drugs in bulk?

One of my side interests is in pharmaceutical supply chains and domestic production of drugs. But in all my writings, I never considered that the path to having a more robust U.S. manufacturing base was the development of a blockbuster drug in shortage, incentivizing U.S.-based compounders to take off!

(It’s worth noting that one of the big concerns of largely Chinese-based pharmaceutical supply chains is quality control. Compounders still source their active ingredients (API) from abroad and Novo Nordisk in particular has made API quality a central feature of their campaign to get compounders to stop producing semaglutide. So, despite my janky meme, increased compounding wouldn’t necessarily lead to a more robust domestic manufacturing base — the biggest problem isn’t with U.S. fill and finish, it’s with reliable sources of active ingredients.)

I think the wave of compounding kicked off by GLP-1s and largely unpoliced by the FDA will have ongoing downstream effects on the pharmaceutical industry. They may make their supply chains more robust, keep drugs more closely held, or add manufacturing steps that are beyond the abilities of compounding pharmacies. They may lobby harder for future FDA commissioners to have the funding, manpower, and legislative/regulatory mandate to crack down on compounding. Compounders may stretch their luck and try bulk compounding of other expensive drugs.

But more broadly: isn’t it a problem that the FDA is so weak that it’s letting compounders run rampant over existing regulations?

This post is a little late, but for good reason — I spent the first part of this week in DC attending the 2025 Anti-Monopoly Summit. I’m a senior fellow at the American Economic Liberties Project, which hosted the event, and I was lucky to moderate a panel on healthcare.

You can watch the full conversation here (along with the other panels and keynotes).

My panelists included former Assistant Attorney General at the DOJ Antitrust Division Jonathan Kanter; orthopedic surgeon Dr. Adrienne Towsen; Executive Vice President at the SEIU Leslie Frane; and Congressman Pat Ryan (NY-18). First, they were a delight to moderate. Second, they all had very interesting things to say!

All panelists had direct experience with corporate consolidation affecting patients, providers, and workers.

As assistant attorney general, Kanter sued to block UHG’s merger with Change Healthcare (the lawsuit ultimately failed, and the acquisition went through, with real consequences for providers), and his DOJ tried to block UHG’s acquisition of Amedisys (the acquisition went through this year, after the DOJ leadership under the Trump administration proposed a weak settlement, which UHG accepted).

After he left the DOJ under the Trump administration, former AAG Kanter gave an interesting interview with Bob Herman of STAT News, expanding on his “platformization” concept of healthcare, which he spoke about in a 2024 speech:

We are at an inflection point. In technology markets, the world has coalesced around a few technology stacks. Incumbent technology firms seek to maintain their dominance in any number of ways across multiple markets. Once industries settle into such oligopolies, it can be hard to remedy the situation.

In health care markets, I foresee a not-so-distant future where a few integrated health care platform stacks will amass a generational hold over health care. It would be a private single payer without any of the oversight, impartiality, or scrutiny attendant to government health insurance programs.

Dr. Towsen spoke about her experience building an orthopedic surgery practice only to watch private equity acquire and strip it for parts. Leslie spoke about how consolidation removes worker power, leaving nurses and home healthcare workers without recourse.

And Congressman Ryan elaborated on a survey that he recently ran in his district about the effects his constituents were seeing from Optum acquisitions of practices in the area. He received over 1800 responses (and counting) describing harms ranging from poor care to incorrect billing.

I wrote a month ago about my return to policy world. This is why! There are real harms from consolidation and corporate power in our economy, and there’s a lot of energy from people everywhere wanting to fix it. More to come.

I’ll close this article with a particularly rousing call to action from former AAG Kanter: