General Catalyst's Holly Maloney sits down with Judi Health co-founder and CEO AJ Loiacono to discuss the discovery that one drug had 600 different prices in a single month, why he stopped trying to fix the industry from outside and built his own company instead, and how Judi Health is making healthcare transparent so Americans can get the care they need at the right price.
This interview has been edited and condensed. Watch the full video below.
Holly Maloney: You've spent your career trying to get every American the drugs they need at the lowest possible price. Start with your family history and how it brought you here.
AJ Loiacono: My grandfather, father, and uncle were all pharmacists. The family expected me to be one too, and I thought it was the worst job possible, which I say with the highest respect. I did everything I could to step away from the family business, but life pulls you in slowly. I started out consulting on supply chain systems for pharmaceutical manufacturers, some of the most boring work in the world, and over time it pulled me deeper into pharma, then onto the payer side, claims processing, and eventually running a pharmacy benefit manager. My father may always have known I'd come back to honor his career.
Holly Maloney: What does it mean to build Judi in the industry your family worked in for so long?
AJ Loiacono: For most of my life I assumed drug pricing was efficient and transparent. I always say a market is efficient when buyers and sellers freely communicate on price, and if you want a new television you can find six ways to buy the same model within about 1% price difference. I falsely assumed prescription drugs worked the same way.
Then, about eight years into my career, a friend asked me to look at a claim file from a Pharmacy Benefit Manager (PBM). I didn't even know what a PBM was. I looked at it and said, your file's corrupted. They asked why. I said it looks like drug prices are changing every hour of every day in every pharmacy for every drug, and that's a complete lie. Sit with that last word, lie. You can't have 600 different prices for a branded drug in a month. I asked for another file, and it was the same pattern. It wasn't an anomaly, it was a pattern of abuse. If you don't know what something costs, it's very hard to say what's fair.
For the first 20 years of this century most people had flat copays, so they never felt it. You paid $10 whether the drug was $5 or $500. Coinsurance and deductibles changed that, and people started noticing. Seeing that abuse drove me to leave manufacturing and start a company to audit PBM workflows for large employers. I did it for eight years and became increasingly depressed, because nobody wanted to change.
Holly Maloney: Your consulting work sounds like a great gig. What made you want to own more of the solution?
AJ Loiacono: My first company was straight consulting, a bench of about 30 engineers, bootstrapped on my credit card. It gave me a comfortable life and I thought that was the goal. Then a partner at Accenture, whose projects I kept subcontracting on, offered to buy the business. I walked into their New York office thrilled, and the first question was, what's your plan to get from 30 engineers to 300? I said I didn't have one. He pushed back from the table and said, "This is a lifestyle business," with such disdain. I'm the son of a pharmacist and a public school teacher, and I'd never been taught that level of ambition. I didn't sell to Accenture, but that partner awoke something in me.
Holly Maloney: How many engineers does Judi have today?
AJ Loiacono: About 1,500 employees and 400 engineers. We hire roughly 30 every two weeks.
Holly Maloney: What was the pivotal lesson from your second company?
AJ Loiacono: It came in two parts. First, you can start with a noble purpose and still get stuck. We'd tell PBMs, we noticed this problem, wouldn't you like to fix it? And they'd say no. You'd think we had leverage, but the industry is so consolidated around three entities—CVS, Cigna, and United—that a Fortune 500 client wants all three bidding on its plan. If a PBM no-bid us in retaliation, it would damage our business. So we became complicit in the very problem we set out to solve.
The second part came from my board. They asked how we get from a $250 million business to a billion. I came back and said we should sell our core procurement and audit business. I'd already found a buyer at Gallagher, at around $65 to $70 million. My pitch was simple: if you can't fix the problem, become the problem. Become a PBM. The board thought I was insane and asked me to leave the room.
Holly Maloney: You call this the Netflix moment.
AJ Loiacono: You have to be willing to disrupt yourself, because someone else will. Netflix told its board it wanted to sunset a profitable DVD business for streaming, won that argument, then years later said it would become a world-class studio, and won again. The whole industry followed. I actually lost my version of that argument, and I hold no ill will, because they gave me every chance to win it. The lesson is that a great idea isn't enough. If you can't build conviction, you lose. I believed we needed to fix how drugs are priced, because that creates enduring social change. Nobody should be taken advantage of in the process of getting medication, and it happens hundreds of thousands of times a day in this country. That conviction led me to found Capital Rx, now Judi Health.
Holly Maloney: The pharmaceutical supply chain was at the top of my list when I was refining our health assurance thesis in 2019. The deeper I went into who profits at each step from manufacturer to pharmacy counter, the harder the question got: I knew it had to change, but could it actually change within an investment horizon? I'd never met the right team until a founder said, "You have to meet AJ." I cold-reached out, we scheduled 30 minutes and talked for 90, and I knew right away this was the team.
Right in the middle of diligence I lived the problem. I'd just welcomed my second daughter, who needed a medication. We filled it at a Rite Aid, and ten days later needed a refill, but Rite Aid had closed, so I went to the CVS a mile away. The same prescription cost 40% more. I have great coverage, so it didn't hurt us, but most people can't absorb that.
AJ Loiacono: At my old company, we tracked how patients react at the register. Confront someone with a $75 copay and one in five walk away. At $120, one in three Americans don't pick up their prescription, because they have to weigh the grocery bill, the heating bill, the car payment. You saw a 40% difference. We've seen 2,000% differences in pricing, and they come from what I call false classification. You can take a generic oncology drug that's been off patent for ten years, magically reclassify it as a brand, and charge a plan $2,000 or $3,000 for a $200 drug. Care is in the name of our industry, so who becomes a healthcare executive and allows this?
Holly Maloney: At Judi's core is a conviction that high drug costs come not from discovering and manufacturing the drug, but from what happens between the manufacturer and the counter. Explain that.
AJ Loiacono: For 40 years the manufacturers controlled the supply chain, and everyone downstream was a price taker. Around the turn of the century the PBM rose, and a once-fragmented market consolidated into three companies: CVS Caremark, Express Scripts (now part of Cigna), and Catamaran (bought by Optum and UnitedHealthcare). By 2017, they had 80–85% of purchasing power against roughly 40 major manufacturers.
Back in the 1980s and 1990s the PBM charged a flat fee, maybe $2 a script. In this century, they realized they could make far more by being part of the transaction: owning pharmacies, acting as a group purchasing organization, taking a cut of inflation, controlling rebates, and running spread pricing so every customer pays a different price. That's vertical integration, and it later extended into the physician side and medical insurance.
The engine is the rebate. Think of buying a chair for $200 and the maker gives you 10% back, so your net is $180. The PBMs said, what if we ask for 40%, and to get it we'll exclude your competitors from the formulary entirely? It worked so well they kept raising the ask, and by the time a drug's patent expired the rebate could be 60% to 70%. To fund those rebates, manufacturers raise prices, at a velocity they never used to. When I entered the industry, US drug spend was around $120 billion. This year it's over a trillion, drug inflation of 7% to 12% a year against a consumer price index of 2% to 3%. On top of the escalating price and the opacity, there's intentional variability, because confusion makes it hard for anyone to say what a fair price even is.
Holly Maloney: How would you describe what you're building at Judi to my five-year-old daughter, Quinn?
AJ Loiacono: Very simply, we make sure you and your family, and any family in America, can get the care and medication you need at the appropriate price. People think there's no such thing as good care at a reasonable price in the US. That's not true. It's the invisible rent seekers, the people who care nothing about the patient, who make it seem that way.
Holly Maloney: Why is what you're building so critical to broader healthcare transformation, as you move from pharmacy into medical?
AJ Loiacono: The core principle is that we do not make money on drug spend. My original business plan said we had to administer a claim 65% to 70% cheaper than our competitors, and the only way to do that is a modern claims system built on transparency and efficiency. When we started, we didn't even know it was possible. There have only been three or four claims processing systems at scale in US history, and companies with billions of dollars have failed trying.
And it was never just about prescriptions. There are two invisible electronic workflows around every patient. One is the electronic health record, the clinical side that tracks the patient and creates the claim. The other is the administrative layer, the adjudication: eligibility, plan design, copay, network, who's billed and reimbursed. Those systems are antiquated and separate, and that creates member and provider abrasion. Judi Health became our quest to be the operating system that powers that administrative side.
Holly Maloney: You rebranded to Judi and announced a unified claims vision, pharmacy, and medical in one system. What were the unexpected challenges, starting with the board?
AJ Loiacono: When we raised our Series C, where we first met, I had four slides on unified claim processing, which is excessive when space is precious. One board member took great exception. He said, you're a pharmacy benefit company, do you know how hard medical and unified claims would be? I said yes, but it's critical, and this is our Netflix moment. He gave me one slide. I put in two.
In the US, any employer with more than about 500 employees typically self-insures, meaning it pays its own medical claims instead of buying coverage from a carrier. We were big enough to self-insure ourselves, so I decided we would be our own first customer. About three years ago we quietly started processing our own medical claims, and we didn't tell anyone. Things worked. We're network agnostic, with great carrier and Blues partners, because our business is administration, not the network. Then we built out everything around the claim: TPA functions, benefit administration, eligibility, payments, payment integrity, navigation. Our thesis is that every time another party touches a claim, it takes money from the patient and the plan. Thirty vendors touching a claim is thirty rent seekers, and most people don't realize how many sub-vendors sit behind a single contract. So "zero dependencies" became our thesis. The moment you pass a claim to another system it's already wrong, because claims are paid, reversed, and recoded in seconds, and each downstream vendor appends its own changes. Almost every claim in the US is wrong in some way. "Close enough" is the rallying cry, and the only time anyone cares is when they're audited or litigated. Put every workflow on one system and there are no gaps in eligibility, financials, records, or experience.
During our last raise, the head of a large investment bank stopped my presentation to tell me she'd just had a child. She got a call from the provider saying she owed X, a call the next day from her carrier saying she owed Y, and then a third company saying the price was now Z. She said, I have a PhD from Stanford and I don't understand what's going on. How does the average American have a chance?
Holly Maloney: That confusion is why so many people avoid care, and why medical costs are a leading cause of bankruptcy.
AJ Loiacono: Exactly. You don't even know which price is right, or who's advocating for you. These are conflicts of interest that have gone unchecked for the better part of 30 years, and that's what we've been given the privilege to fix.
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