I’m not a fancy venture capitalist. I don’t have much cash to my name. I’m a doctor who started late — med school at 27, four years of psychiatry residency, a two-year child psychiatry fellowship. I then compounded the economic foolishness by trying to build businesses while juggling student loans. One risk of building a business is that you can sell it and someone can (allegedly) just not pay you. That’s happened to me, and it’s in active litigation. It’s left me restless, with a lot of time to sit around and notice things.
Here’s what I noticed: pharmaceutical and device companies will only keep creating miracles if they make a hell of a lot of money doing it. Doctors need to get in the middle of that process and get paid like the valuable members of the system they are, instead of watching all the money go to pharmacy benefit managers and other conglomerates.
Cut the doctors in. That’s the argument. The rest is the math.
Full disclosure, before the math: I’m a C-level exec at Radial and Neurolief, and an advisor to companies in health tech and life sciences. I’m arguing “my own book.” Feel free to discount my opinions accordingly.
Take a pill with a wholesale acquisition cost of $100. The pill itself costs pennies; total cost of goods is $1 to $10. The wholesaler takes $2 to $4. The pharmacy benefit manager takes a “rebate” of $25 to $50 in exchange for a better formulary tier and a lower co-pay. PBM and group purchasing fees eat another $3 to $5. Then there’s co-pay assistance — the manufacturer buying down the price at the register so the customer doesn’t walk away. It doesn’t make the drug cheaper for the health plan the customer is also funding through premiums; it just feels like it does. Add the salespeople and the TV ads, and it costs the manufacturer $50 to $70 just to get the drug into the medicine cabinet.
The profit is still tremendous: roughly $30 on every $100 of list price. 30% margins is a pretty good business.
You know who makes none of it? The doctors prescribing the pills. I know it sounds crazy, because we all know doctors are on the take, but really, we’re being plied with praise, pamphlets, and the occasional two-thousand-dollar speaking gig — while generating massive profits for the drug companies, the PBMs, the pharmacies, and the insurers. Everyone but ourselves. We are a free distribution channel.
Spravato was the first of the “in-clinic medications” in psychiatry — my old clinic was the first to dispense it in Brooklyn. In buy-and-bill, the practice contracts with a specialty distributor, purchases and holds the inventory with its own money, administers the drug on site, monitors the patient on site, and bills the patient’s medical benefit rather than the pharmacy benefit.
The billing is a thicket. Medicare bundles the drug, the visit, and the two hours of observation into single codes (G2082 and G2083, tiered by dose). Commercial plans typically require an S code instead — S0013, esketamine per milligram — plus separate billing for the clinical time: an E/M visit with prolonged-service or staff-observation add-ons. And there’s a hard ceiling: a Medically Unlikely Edit caps the prolonged-service code at four units, so the whole scheme stops working past two hours.
Now the squeeze. Drug prices go up every year. Physician reimbursement, against inflation, goes down every year. So the doctor buys an increasingly expensive drug and gets paid a shrinking amount to administer it. The alternative is to skip the inventory risk entirely: order from a pharmacy — often owned by the PBM, which is owned by the insurer — bill your standard rate, and let them work out the math on the back end. UnitedHealth’s Optum employs about 10% of American physicians and owns OptumRx and specialty pharmacies like Genoa, which handles most of the Spravato business. United negotiates with itself, then with itself, then with itself again, to divvy up the money.
The independent physician gets squeezed either way.
Yes, I know about oncology. Oncologists have bought and billed infusion chemotherapy for decades — that’s where the permanent J codes come from. Medicare pays average sales price plus 6%.
Six percent of a $500 drug is $30; of a $15,000 drug, $900. You can see how a thoughtful physician, reviewing the evidence, might conclude that the more expensive drug is, on reflection, clinically superior. Congress noticed. Your premiums noticed. “Buy-and-bill” became a phrase you say at a health policy conference if you want people to look at you with disdain.
The psychedelic version is different — not because of our inherent virtue, but because these drugs come with guardrails: Risk Evaluation and Mitigation Strategies. Spravato’s REMS requires monitored, in-clinic dispensing. I can’t infuse a patient with extra ketamine to make more money. The dose is the dose, the observation window is the observation window, and the certified clinic is accountable and audited for both. Compare that to the rebate maze above and ask yourself which incentives you’d prefer: tiny-pill rebates to the tune of billions, or physicians incentivized to provide treatment that’s more likely to get patients to remission.
The pipeline drugs behind Spravato — psilocybin, LSD, MDMA — will almost all require longer monitoring than we can currently bill, and none of them will go through a retail pharmacy. You can’t roll up to your local CVS and get handed a bottle of psilocybin with a sticker that says “may cause ego-dissolution.” These treatments are in-clinic by design. The clinic is the distribution channel. Those clinics need rooms — with cameras, IT infrastructure, furniture comfortable enough for a full day of treatment — and whoever pays for the rooms owns the economics.
There are two candidates: physicians, or the conglomerates already acquiring us at a rate of about one in ten.
For the first time in my career, the drug can’t get to the patient without us. That’s leverage. Pharma needs certified clinics the way it used to need a pharmacy’s shelf space. At long last, we are the scarce resource.
Doctors are terrible at business — I should know, I’ve been pretty terrible at it myself. We can stay terrible, and Optum and its colleagues will happily handle the details and pocket the dollars without us.
Or we can get good at business while we still have the leverage. I’ve made my choice; you’re reading it.
This essay exists so you make yours.
If not for ourselves, then for our patients. I’d bet they’d prefer the set and setting of a clinic owned and operated by physicians over the set and setting you’d expect from the companies that brought you “prior authorization is not a guarantee of payment.”
P.S. This is urgent in a way with a deadline attached. The FDA is considering how psychedelics get regulated before any of them officially have been, and there’s an open comment period coming up on September 14th.
The submit link? It’s in green on the top right!
Editor’s note: the original version of this was twice as long and twice as detailed and my wonderful wife told me it was boring and unreadable. I asked her to edit it and she declines. Thus, to placate her, I had Fable 5 cut half of it. The above article is the result of that collaboration between man, wife, and machine. I’m gonna drop the un-Fable-edited version in a subsequent subscriber-only post and you can feel free to compare and agree with my wife.
Thanks for reading. Now, back to the Fairy Boat Rides.
Sponsors include:
Definium Therapeutics, BrainsWay, Salma Health, Neurolief, MDHub, Axsome, Universal Brain & Radial
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