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Breaking the Cycle of Reactive Benefits with Nolan Pearson · Break The Cycle

• Nolan Pearson (00:00): At the end of the day, you owe it to your business, you owe it to your employees, and you owe it to yourself to make the decision of what's best for the business overall, not just for somebody you like. Again, your obligations to the business, not to somebody else. And there is a better way out there. So explore it. Josh Schumacher (00:17): The employee benefits industry has been stuck in a cycle that keeps costs rising and plan members underserved, but there's a better way forward and it starts here. Welcome to Break the Cycle. (00:29): I'm here with Nolan Pearson, President and Chief Operating Officer of Apex Benefits Group. And we're going to talk a little bit today about what he's learned being in the buyer's seat and his transition to Apex benefits, what he's learned during that time, and lessons that we can take away as we think about breaking the cycle of benefits year after year. So Nolan, welcome. Thanks for being here. Nolan Pearson (00:51): Yeah, thanks for having me. All Josh Schumacher (00:53): Right. So to get us started, give the audience some context, I'd love to just dive into a little bit about how you ended up here. So your path, obviously being at Royal United Mortgage before coming here, but give us a little bit of your background and how you ended up in this role. Nolan Pearson (01:06): Yeah. So my degree coming out of college was accounting and finance. I spent most of my career early all accounting. I got the job at Royal United Mortgage in 2016 as their chief financial officer. That was really my first foray into benefits. I'd never really been exposed to that before. And over my nine years there, my job really changed. So for the first four or five years, I was just a CFO. So a lot of my focus was really just on the financial aspect of benefits, what it was doing to the bottom line. Based on our business model cost was very important to us, so I was kind of in the room for that reason. Then as I transitioned into both president and CFO, my perspective on it changed quite a bit. I went from just caring about the finances to really how does it impact the organization? (01:48): What does it do to support our business model? How do we do this to try to differentiate ourselves or at least be something that our employees enjoy and are proud to have as their benefits package? Josh Schumacher (01:58): Yeah. So it's a big transition. And then obviously another big transition to then move to someone who is in the benefit space. Can you talk to me a little bit about how that happened, how you ended up here at Apex? Nolan Pearson (02:09): Yeah, it's kind of interesting because I really hated this industry. My experience on the other side of the table, from what I experienced, it felt like a commodity that everybody was kind of doing the same thing. So it really wasn't something I was interested in. Of the companies that I talked to, nobody really did anything different. It was just the same thing over and over. One of the things I liked about Apex is the fact that we do have two separate companies that support just the benefits. We do have a pharmacy consulting company. We got a brand new company that does healthcare risk management. Nobody had really positioned those to me before. Nobody had anything like that. So for me, it kind of went from like, hey, a negative to, "Hey, this is the first time I've seen this. This is something different. This is something I think I wish I would've had as a buyer." So it got me excited about the opportunity. Josh Schumacher (02:52): Yeah. That's kind of a perfect transition to me asking, what about the process was frustrating? What about it felt ... I mean, was there things that felt good about the process of buying benefits, running that whole system with your broker, trying to make those decisions for your organization or what felt good, what felt bad? Nolan Pearson (03:11): When I first got into it, candidly, I didn't really know what I was doing. I was just looking at the financials, but you quickly learned that you put a lot of trust in your partner. So as you're learning the business, you're learning all the different things. It's nuanced how stop loss works, what impact your deductible has. All of the different variables that go into building a true benefits plan was very complex. So early in the process put a lot of trust in the partners. As I learned, things happen over the years. The biggest takeaway for me is just how reactive everything was. That was extremely frustrating because the way I run the rest of my business is very proactive. So to have this area of my business that I was learning, didn't really understand every variable. And every time we go to do something, it was reactive. (03:55): And we got hit with multiple things over time. And each time it happened, it was like, why didn't we know that? Was there something we could have done? I never really had the answer of, was there something we could have done differently? It was just, oh, that's unfortunate. Here's how we move forward. There was nothing, "Hey, we could have done this different." So I always felt like there was something going to happen at all points in time. Yeah. So the reactive piece was definitely the most important. Josh Schumacher (04:21): So when you have what feels like a reactive partner, can you talk to me a little bit about why you wouldn't just switch to a more proactive partner in the evaluation process? Did you not feel like that was an option? Nolan Pearson (04:32): Yeah, I think the biggest thing for me is about every company in the market tried to sell me at some point or another. And I'll tell you that there are great salesmen out there in our industry. There's money to be made in this industry, so it attracts top talent. And there were some amazing people. I actually had very good experiences, built relationships with several of them, but the reality is nobody really offered anything different. So they would come in, they'd say, "Hey, I can save you X percent on pharmacy." And that was really the pitch. And everybody can do the compliance, the blocking and tackling piece of it, but nobody really offered me anything different. And I think when you're looking at, are you willing to make a change? It is worth to make a change. So somebody has to offer you something that is actually worth making a change. (05:12): It's worth the work to go through. And really outside of somebody dropping the ball, which did happen with us at one point in time, nobody pitched us anything that was worth making a change. It was just, we can save you money on pharmacy, which somehow everybody says they can do that, but really everybody did the exact same thing. Josh Schumacher (05:29): Yeah, that's interesting. I want to go back to something you said about things would hit. So when you talk about things hitting, what do you mean by that? And what was that experience like? Nolan Pearson (05:40): So there was a couple scenarios that we had. One, we had an unfortunate situation where we had an employee pass away in a tragic accident, extremely awful situation. It happened early in the year, and then we get through the rest of the year. The following year, we get hit with another stop-loss claim. So while it was a terrible situation, we ended up having to really pay our stop-loss premium twice for something that happened a long time ago. So I always, in the back of my mind, I'm like, should we have known that there was something coming? Is there something we could have done to sped up? If it was paid three weeks sooner, could have saved us over six figures in that one year. So that was a huge one. The other is we had an unfortunate situation with a cancer patient. It was going to be a long-term diagnosis. (06:23): I was going to be on there for really as long as that employee was with the company. It was driving a lot of costs for the company, both for the stop loss. So driving a lot of increase year over year in our premiums. And with that situation, I always wondered, is there a way that we could have driven down the cost that would've been better for the employee, that would've been better for us and really the rest of our employees as well? And I was never really able to get an answer on, is there something we could have done different? Is what we were paying for that appropriate? Was the treatment appropriate? Were there other centers that they could have went to? Were they paying the appropriate price for the drugs that they were needing? I really never got clear answers on that. Josh Schumacher (07:00): And a phrase that I feel like I've heard in this industry quite a bit is the claims are just the claims. Would you say that's kind of the attitude that was presented to you when these high cost Nolan Pearson (07:07): Claims came in? Yeah. Well, that's unfortunate. We hope it's not ongoing, but that's just kind of, it is what it is. And again, that goes back to that kind of helpless feeling of when those situations come up, you need to be able to speak with conviction that, hey, yes, while this is an unfortunate situation, we know that the cost that we're paying is really what we should be paying. This is the appropriate place to get the treatment done. There's a lot of different angles that you can look at, but not having that peace of mind was always frustrating for me because it was always, what else is coming? What if there's another one? What is that going to do? And unfortunately, it does impact the entire company's benefits playing. Josh Schumacher (07:44): So you mentioned obviously the financial costs of having this reactive strategy to benefits six figures on certain claims. When you think about this and you think about what you learned sitting in that seat, are there other costs to having kind of a reactive strategy to this whole? Nolan Pearson (08:03): I think the biggest thing is the impact on your employees. It's substantial. Obviously right now in the economy, inflation's big, so doing everything you can to keep your cost reasonable. So you have a large cost go in that's going to impact your plan, whether it happens in that year or in future, that stuff does impact you. So that was a big priority for us is just keeping costs at a reasonable level for our employees. I think the other cost, depending on your role in the organization, obviously it impacts your net income. So everybody reports to somebody, so whether it's your CEO, your board of directors, there's a financial impact to that. And I remember being asked the question when we had that claim happen in January, how did you not know this was coming? And I'm like, "Well, how should I have known it was coming?" But it was a fair question. (08:48): And at the end of the day, it would've been great to be able to say, "Here's what we did." We did everything we could to make sure it didn't happen, but it was a learning experience and I think it impacted our bottom line. People start to doubt, are you asking the right questions? Do you have the right partner? And I also think depending on how you're compensated, it can impact your compensation and our other key executives in the organization as well. So the costs are material. Josh Schumacher (09:15): I think you really outlined some of the costs, both your people, your organization, yourself personally. And I think what's interesting is typically in our industry, I think the average CFO we probably see for maybe four meetings a year, a couple hours each. Was that your experience as well? And talk to me a little bit about that experience. I Nolan Pearson (09:38): Always said, I have eight hours a year. We're going to have four meetings. I have eight hours and really I don't have time to spend more than that. And from what I've talked to other people, I think that's similar to their experience. At the end of the day, I need somebody losing sleep for me. I need somebody bringing solutions. I wanted to know that there was somebody worrying about our plan and our costs outside of just me and bringing those solutions so that we maximize those eight hours. So really what I wanted was the peace of mind. So I don't know that there was money to be saved, but I would've really slept better at night knowing that I had somebody looking at somebody paying attention and they could tell me with certainty, "Hey, we've done everything we can to drive down your costs and you're doing the right thing," and actually was proactively trying to intervene on our behalf. Josh Schumacher (10:21): Why do you think CFOs, leaders, this seems like it's a very big issue that is causing you to lose sleep, causing more stress. Why do you think people accept it? You mentioned earlier that brokers aren't bringing something that feels worth the work to change. Do you think that's the biggest factor or why else do you think CFOs just and leaders accept that this is the way it is? Nolan Pearson (10:48): I think the reality is they haven't been shown that there's something different. When you have a broker for several years and even when things aren't going poorly and you just assume you're doing the right things and you're managing it appropriately, but then when you talk to the people in the industry and they come in and tell you that the same things that you're already hearing from your broker are what they're going to do, why would you change? So for me, the biggest thing was I wanted somebody to show me something different, something new, something that was actually innovative in our industry and there's all this data out there. What are we doing with the data to actually drive down costs? It's one thing to just report on it, but what are the things that you're doing with that data to proactively manage costs for us to ensure that the money that we're going out the door should have been spent and it was spent in the appropriate way? (11:35): Are there programs out there that exist that we don't know about? There are. I can tell you now that there are programs out there that I wish I would've known about a long time ago. Who's bringing those solutions to the table? Josh Schumacher (11:47): Yeah. So let's talk about that a little bit. I mean, I think you raised a good point that someone needs to bring solutions to the table to make it worth the work to change. You also mentioned that you hated this industry and now you're in it. So I mean, I think it's interesting, what sitting in your seat today do you look at and go, okay, this is something that a leader could talk to their broker about that brokers can bring to the table that you weren't aware of before and that they should be thinking Nolan Pearson (12:15): About? Yeah. I think the biggest thing specifically to the pharmacy area and the healthcare risk management, the reality is you have to have wellness, you have to have compliance. Those things are kind of a given. You have to have a relationship. And if your partner can't do that, you shouldn't do business with them. But then from there, it's how do you really differentiate between the people who can do that and are they bringing something new to the table? So pharmacy is a big one. So I think how are you driving pharmacy costs down? What are you doing long-term? When I was in the business, people said pharmacy was dirty. That was how it was phrased to me. And what I found is it's not really dirty, but it is very complex. So who do you have navigating that complex environment? And it's one of the highest rising costs in healthcare and it's only going to continue to go up over time. (13:01): So even if you're not having an issue now with pharmacy, it's coming. Everybody's experiencing significant increases in pharmacy. So I think one is how are you negotiating that contract? Who's doing the negotiating? Do you have pharmacists on staff that truly understand the industry, that understand the different PBMs? And then long-term, once the contract's in place, there's a little bit, I call it like whack-a-mole. They plug a hole here because of a contract and they find another way to earn money. And so did you actually save? So I think there's another part of it long-term of who's holding those PBMs accountable to abiding by their contract. I would love to say that they all just abide by the contracts, but unfortunately that's not true. So I think it's negotiating the upfront contract and then also long-term, making sure that they're abiding by that contract and holding them accountable. Josh Schumacher (13:49): Yeah. I think that's really critical. I was talking to one of our pharmacists the other day, and I think last year of all the contracts for all of our clients that they reviewed, in 0% of those contracts did the PBM actually stick to everything that they said they were going to do. So I think you make a good point that if you want to control that cost, you really need someone that's on top of it monitoring it. Nolan Pearson (14:12): And to me, who does the work matters? So when I was sold from the other side of the table, it was we have a person that negotiates this and we actually have a pharmacy company that does it. There's eight pharmacists on staff that make a big difference. And they're pharmacy consultants. They're not a person on staff. It's a business and that's what they do. So I think that's a big deal because we'll also be at the forefront of innovation going forward because we have a team of people doing that. Apex is one of our clients, but it's not our only client, and I think that's a big deal. And I think the same thing holds true for the healthcare risk management. One of the things I wonder, everybody says they have somebody looking at claims or normally it's a person, a nurse on staff. And again, who does the work matters and what is your process? (14:57): So is there an actual process that you go through on a monthly basis to monitor claims? And what is that process? And then who's doing the monitoring? So if you don't have a process, how are you going to know when to intervene? And then even if you have a process, if you don't have the right people looking that have clinical knowledge, we have a team of nurses and clinicians that do that. So I think who and what does that work? And then what programs are they bringing to the table? Are they out in the market trying to understand what options are out there and bringing solutions and actually doing something with the data? It's a big deal to have all of this data sitting there. And then how are you mining that data and driving an actual cost savings? Josh Schumacher (15:40): I mean, I think what's clear is that something needs to change with the process of how we're responding to claims. If everyone says they have someone on staff managing it, everyone says they have a clinician. Clearly some part of that process isn't working because you just said in the buyer's seat, they were coming to you and saying the claims are the claims. Sorry, you got hit with a million dollars. It is what it is. So sitting in your seat now, you think there is legitimately a better way to manage that process where CFOs, leaders are not going to be surprised by the claims that are coming, they're going to have actionable solutions. Nolan Pearson (16:15): Yeah. I think the big thing is there is a better way. There are processes that exist out there. There is stuff that you can do with the data. You have to build a process, but you can make significant improvements with the data and it takes a big investment. So Apex has invested a lot of money building both the pharmacy consulting and the healthcare risk management. So it takes an investment. And I think we've been at the forefront of investing in solutions and not just be very easy just to take the profit and run, but we've been investing in our ability to better support our clients. And again, trying to be on the forefront of how do you use this data to actually make a difference and save money for your clients? And that filters down to employees and everybody else. So how do you use the data? (17:02): And again, who is looking at it is crucial because there are things that happen that if you're not experienced, you're never going to know that they exist or there's an opportunity to do something different. Josh Schumacher (17:13): Yeah. So you spent quite a bit of time talking about the reactive versus proactive part of this process and how that frustrated you. What does it look like? Is it possible to be more proactive? Talk to me a little bit about things like timing. What makes your partnership with a broker? What would make it feel proactive to you? Nolan Pearson (17:32): I think the biggest thing is, are they bringing solutions to the table at the beginning? And then when you have the high cost claims, what are they doing to intervene on your behalf? Those would be the two biggest things. And there's a lot of questions that I wish I would've asked when I was in that seat. And really the goal is how do you differentiate between these brokers that are all telling you the same thing? I think I wanted to be a good consumer. I thought I was a good consumer. I've realized I probably had a lot of opportunity to get better, but I observed from other people, I asked other people questions, "Hey, what did you ask your broker?" And for me, I wish I would've asked, "Hey, when is the best time to make a benefits change?" I always thought it was a Q2, let me get through audit tax. (18:18): That was always a busy- Josh Schumacher (18:19): When in the year did you really start thinking about benefits? Probably- Q3? Nolan Pearson (18:24): Once our plan was in place, we weren't talking about it really in Q1. So Q2, Q3. What I found is really, if you're going to make a change, you're putting your new broker really in a tough spot. If you're going to make a change, start looking in Q1, you really need to make the change in Q2. If you're going to get the value out of that change, allow your new partner to come in, observe, learn your business, learn your benefits plan, investigate what current contracts you have in place, specifically important in pharmacy. Those contracts do take time to negotiate. So if there's opportunity to negotiate on the pharmacy, that's a big deal to get started early. Josh Schumacher (18:57): Yeah. So I want to go back really quickly just to what you said about, it's very important who you have looking at the data, both on the pharmacy side and on the medical claims side. I'm sure most people come to the table. Again, they say they have someone that's experienced, we have a clinician, we have a pharmacist, whatever it may be. What would you advise a CFO, a leader trying to make this decision, trying to evaluate between brokers on how to evaluate the credibility of that claim, whether they have the right experience, whether they have the right knowledge in the marketplace to actually make an impact? Nolan Pearson (19:30): I think it starts, you have to make sure whatever partner can do the blocking and tackling. And again, that's the compliance, that's 5,500 filings. All that stuff's incredibly important. Most people want a wellness plan, so you got to be able to accommodate all of those. Then I think it goes to how do you differentiate between somebody who says, "Hey, I have a pharmacist and they can negotiate your deal." I wish I would've said, "What's their experience? How many pharmacists do you have on staff? Do you sell your product to anybody else? The fact that we're a separate company is a big deal." What level of experience do they have negotiating with PBMs? Are they PBM agnostic or do they have a specific incentive to go from one PBM or the other? Josh Schumacher (20:10): Yeah. Nolan Pearson (20:11): Are they Josh Schumacher (20:11): Acting in your best interest Nolan Pearson (20:12): With Josh Schumacher (20:12): Everything? Nolan Pearson (20:13): Yep. And the same thing really on the healthcare risk management. I would want to know who is managing that claims review process? Do they have a process? What's their experience? How long have they been doing it? What solutions have they found? What savings have they found other clients in the past? For me, it was, I don't need a guarantee that you can save me money, but I need you to be looking. So either save me money or give me the peace of mind that you looked and that there wasn't an opportunity to save money or do something different. Josh Schumacher (20:40): Yeah. So Nolan, you hated this industry. I'm sure there was a tipping point as you were evaluating, "Hey, do I step into this role that kind of swayed you one way or the other?" Can you talk to me a little bit about what you saw that made you go, "I'm going to dive into this thing that I hate." Nolan Pearson (20:59): Yeah. So I think there was two big things for me. As I learned more about the company, I think the fact that there are three companies, all servicing Apex clients was a differentiator for me. You had a pharmacy consulting company, InnovativeRx Strategies, and you had a healthcare risk management company, Kinetic Health that we're servicing nationally. So our pharmacy company has clients nationwide, so I really had not had somebody offer me something like that. And just a list of clients that we had gave it a level of credibility that I had not experienced before. And then with the healthcare risk management, nobody had really pitched me anything similar to that. And then as I'm learning about it and I'm finding out that there are other brokerages and even analytics platforms out there that are nationally coming to us and saying, "Hey, what you do is better than what we can do. (21:48): We want you to be part of it. " And kind of seeking us out and saying, "Hey, what you've built is really special and we want that. " That, again, gave it a level of credibility that I hadn't experienced before. So I think those are the two main tipping points of what was like, "Hey, nobody else has these things. We can be different." And that made it an easy decision for me. Josh Schumacher (22:07): Nolan, what are a few things you would've done differently if you knew what you knew now? Nolan Pearson (22:12): I think the biggest thing is asking more questions about who would manage the relationship long-term, what that process would look like, who all's going to be in the room and what their role is. Second thing would be from a pharmacy perspective, who's negotiating the contract for us? What is their experience doing it? What is their ongoing review process after the initial contract is put in place? And then on the healthcare risk management, I think who's reviewing the claims? What is your claims management process? What experience do they have driving savings for other customers? I didn't know those things existed, so I didn't know to ask those questions. So I tell everybody evaluating other brokers, ask those questions and see what type of answers you get. Josh Schumacher (22:52): Nolan, what would you say to someone who sat in your shoes, CFO, leader, someone responsible for benefits who is kind of going through the motions, accepting that claims are the claims, accepting that, I mean, we get a 10% increase year after year, and that just is what it is. What would you say to someone like that? Nolan Pearson (23:10): I would say I've been in those shoes. Again, there's a lot of great people in this industry, a lot of people that I really like, but at the end of the day, if you ask those questions and they can't answer it appropriately, if they can't give you the answer that's best for your business, you have to make a move. I mean, at the end of the day, you owe it to your business, you owe it to your employees, and you owe it to yourself to make the decision of what's best for the business overall, not just for somebody you like. Again, your obligations to the business, not to somebody else, and there is a better way out there, so explore it. And if you ask those questions and you don't get an effective answer from somebody else, you can stay. But once you find there's a better way, you owe it to yourself and the company to make a move. Josh Schumacher (23:49): To a degree, as we kind of come to a close here, I think there's a lot that we covered, but to a degree, it feels like CFOs, leaders, this is kind of a core piece of your job that is in someone else's hands. And so maybe give me two or three questions you think every leader should be asking their broker to make sure that, "Hey, this major part of my responsibilities is in the right hands." Nolan Pearson (24:13): Yeah. I think the big thing is who's going to be running the relationship going forward? That's a big one. You don't want the person selling you to disappear. So who's going to be running that? What is your strategy to approaching the pharmacy negotiation and then the ongoing review? And again, what is the claims review process? What are you doing to use all of the data to drive an actionable cost reduction? Josh Schumacher (24:35): Yeah. I think if you're going to spend eight hours a year on something, you need a partner that's bringing some pretty serious solutions to the table to make sure that you have what you need to make that decision well and to implement the right strategies and improve those outcomes that we Nolan Pearson (24:49): Talked about. Yeah, absolutely. Again, I didn't ever needed a guarantee that you could save me money, but I wanted somebody looking. I wanted somebody losing sleep over me. I wanted somebody out in the industry paying attention to new trends, bringing new solutions to the table, being a true consultant versus just a broker. Again, I value partnerships. So what are you bringing to the table as a partner that helps me drive my business forward so that I can go to either my CEO, my board of directors, whoever I report to and say with conviction that we have the right partner, that we're doing everything we can to drive down. It was what? A top two or three expense for us. We're doing everything we can to drive down those costs and really do what's best for our employees and our company. Josh Schumacher (25:29): Yeah. And having sat on the side of the table feeling like those options weren't out there and now sitting where you sit today, would you tell a CFO, tell a leader, "There are options out there, you should be exploring them. There are ways to impact this. " Nolan Pearson (25:46): Yeah, absolutely. I think the biggest thing is talk to people, ask the right questions. Again, you can ask the same questions as everybody else, you're probably going to get the same results. So I would just tweak how you ask the questions a little bit, dig a little deeper, talk to other brokers in the industry. And again, we'd love to talk to you because we believe we have the best solution out there. Josh Schumacher (26:04): Yeah. Well, Nolan, thanks for your time. Appreciate the conversation. Nolan Pearson (26:07): Thanks for having me. Josh Schumacher (26:09): Thanks for joining us for this episode. For more on how to break free from the cycle of rising costs and painful renewals, subscribe wherever you get your podcasts.