Medicare’s $6B Savings on Costly Drugs & Musk’s Unhinged Image Chatbot

0:00Tuesday on NBC, Jimmy Fallon and Bozma St John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere Tuesday on NBC. Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Kyle Heggie. Today, why Mickey Mouse committing unspeakable acts is blowing up your Twitter feed.

0:40And why your favorite influencer's follower account might be going down soon. Today is Friday, August 16th. Let's ride.

0:52Trouble is brewing in the land of the sweet onion chicken teriyaki. According to the New York Post, Subway held what was described as an emergency meeting yesterday with franchisees at its sub shops to strategize how to reverse falling sales and win back market share. The company pushed back on the idea that this was an emergency meeting, but maybe it should have been. Subway franchisees told The Post that sales in recent weeks are down 10 % from the previous year, while heavy discounts and promotions are eating into profits. Big nationwide TV ads featuring Steph Curry and Charles Barkley do not appear to be moving the needle, nor do new menu items like$3 hot dipper snacks.

1:32Kyle, what is your plan to fix Subway? Well, I just got to say one, if Steph Curry can't save your company, it might, it might be over for you. I could fix this company in one day guaranteed. The answer is$5 foot long, bring it back. And that's all you need to do. The problem is there, they are offering menu items for$11,$12, but they're sending out all these promotions for$5,$6,$7, and nobody is making money. Yeah, if the sweet onion, chicken teriyaki, Steph Curry, or a$5 foot long can't save you, it might just be RIP to Subway. It might be, but there are so many Subway locations. They have more than 20 locations across the U.S., which is more than any other food chain.

2:13Meanwhile, they sold themselves to a private equity firm for$9 billion recently. They have these interest payments on debt coming up, and so they can't really afford to have falling sales like they are now. So I kind of see this as an emergency meeting because they have to turn things around. I just don't know what they're going to do. I can't imagine being a subway franchisee and getting a text from private equity at 3 a.m. Like, get to the store. We need to fix this company. Let's take a word from our sponsor now, Beehive. Neil, there's no better feeling than telling a friend about a great restaurant, TV show, song, and have them absolutely loving it all because of your recommendation.

2:48It's truly one of the best feelings in the world. Friends come to me all the time wanting to know where to get the best food in various cities. And I got to say, I give them pretty solid recs. Just go to the nearest subway. You do. And I'll do you one better. Think about all the times your friends give tips to their friends based on the very same recommendation you gave them. I mean, you're talking about an exponential amount of people you can reach. You're right. It's almost like my influence extends to the far reaches of the world. Such power. Neil, are you good? Yeah. Sorry. What were you saying?

3:19My point is that's what Beehive's referral program is like. When you have such a great newsletter that you want your readers to share, Beehive can generate a super easy link that gives them credit for sharing it to their friends and colleagues. This incentive could be a discount, a free product, or merchandise. It is up to you. Sounds like an airtight strategy to grow your subscribers. If you are looking for an easy way to build a newsletter and spread the good word, visit beehive.com slash brew. That's B-E-E-H-I-I-V dot com slash brew and get a 30-day free trial plus 20 % off three months with code brew.

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4:37Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EpGliss. Before starting EpGliss, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EpGliss and visit epgliss.lily.com or call 1-800-Lily-RX or 1-800-545-5979. Dearest boomers, some of your prescription drugs are about to get cheaper. In a historic announcement yesterday, the Biden administration released the new lower prices Medicare will pay for 10 prescription drugs, including popular blood thinners and arthritis and diabetes drugs.

5:10Medicare is the government's health insurance program for older people, providing coverage for more than 67 million elderly and disabled Americans. The reason costs are down is for the first time in its nearly 60-year history, Medicare was allowed to negotiate drug prices with manufacturers, something that until now only private insurers were permitted to do. But that changed when the Democrats' Inflation Reduction Act was passed two years ago, this week, actually, which aimed to lower drug prices by giving Medicare a seat at the negotiating table. According to the Biden administration, the drug discounts range between 38 percent and 79 percent on a medications list price.

5:50But it's hard to know exactly how much of a deal Medicare is getting because no one actually pays the list price for a drug. There are always discounts and rebates involved. Still, the new prices should save both Medicare and consumers billions of dollars. Medicare spent$50 billion covering the drugs last year, and taxpayers are projected to save$6 billion on the new prices. For older Americans, they could save as much as$1.5 billion in out-of-pocket costs for medications. Kyle, a landmark day for drug prices. What was the view from the pharma industry? Yes, it is a great day to be a boomer. I mean, I'll go straight to the source.

6:25Chris Borner, the CEO of Bristol-Myers Squibb, said, quote, now that we have seen the final price, we're increasingly confident in our ability to navigate the impact of the IRA. However, I want to continue to emphasize that we firmly oppose government price setting under this new law. And so it is very interesting. I think the pharma company spent millions of dollars lobbying to defeat this. It seems like they're convinced that negotiation is not part of the free market, but lobbying is, which seems a little bit interesting. And unfortunately, I think the pharma industry doesn't have the best reputation.

6:58So everything they say to the government about drug prices, I think most people are like, OK, you're just trying to talk up your own book. However, there is fear that because they are making less money from these drugs, it could hurt innovation. It could hit new or hurt new drug development as well. What I found really interesting is most Americans, including senior citizens, obviously a very key voting bloc in this upcoming election, they don't actually know about this law. It said only 48 percent of voters ages 65 and older are aware that Medicaid Medicare now has the power to negotiate price.

7:32So I think we're going to see a lot of the Biden administration talking about this law and making sure seniors know what they've delivered for them. Right. So, I mean, this was a part of the Inflation Reduction Act. And I think when most Americans think about that, if they think about it at all, which I don't think they do, they think about these hundreds of billions of dollars in subsidies to clean energy programs. That was the main facet that has been talked up for the past couple of years in the Inflation Reduction Act. But it also included actual inflation reduction measures, lowering prices, which includes this prescription drug negotiating scheme, as well as a price cap for$35 on out-of-pocket insulin costs.

8:12So this was a big part of the IRA that was, you know, one of the biggest legislative accomplishments of the Biden administration that really no one is talking about. But they just came out with these numbers. So I'm sure you will hear them talk about it more. Meanwhile, on the pharma industry side, you said like they they filed lawsuit after lawsuit to try to get this blocked. Now that it has come through the pipe, what you heard from them kind of every single one over the course of their earnings statements the past couple of weeks, that they these price reductions were not as bad as feared. So maybe Medicare just sucks at negotiating.

8:46But they seem like they're not going to lose that much profit or revenue from it. They said they're grumbling about it. They're like, we don't want this to happen. We don't want the government setting price caps because that will hinder drug development, that we have to spend a lot of money taking risks. But in the end, it doesn't seem like they're losing that much money from what they've agreed to before for selling these drugs. Yeah, and obviously health care in America is a very complex system. So I understand, you know, changing any little bit of it could have second order effects that maybe we just can't anticipate.

9:14But as you mentioned, this is going to save the federal government about$6 billion in savings,$1.5 billion reduction in out-of-pocket costs for seniors. So there is a lot of savings here, and we'll see how it affects the pharma industry going forward. Although it does seem like they were like, this is the worst thing ever, passes, and they're like, OK, we're fine. We're fine. Everyone cool down. So we'll have to see how it plays out. But, yes, a big day for senior citizens. Let's turn now to the stock market, where we've seen some high volatility over the past few weeks, but I'm so glad to announce that we're back to the glory days, a.k.a.

9:48stock goes up. At least this is the case for Walmart, where the giant retailer reported a successful Q2. Revenue grew 4.8 percent, up to$169 billion. And adjusted earnings also beat estimates at 67 cents per share, a 9.8 percent increase year over year. Walmart and other large retailers are kind of sometimes looked at for proxies on how inflation is affecting the economy and consumer spending. Walmart noted that grocery prices jumped 1.1 percent compared to a year ago, while dining out is up 4.1 percent year over year. And it's this delta between groceries and eating out that drove a ton of success for the retailer, where groceries accounted for roughly 60 percent of Walmart's U.S.

10:32sales. The company also upped its guidance for earnings growth from 6 % to 9%. Neil, it seems like it's a pretty good day to be Walmart. What's your take on the news? Walmart is killing it. I mean, as we teased on the show yesterday, when those inflation numbers came out, the stock market kind of shrugged at those. And we're looking at Walmart earnings and retail sales data for July that came out yesterday. And both of those passed with flying colors. Walmart is crushing it. So many people are spending at Walmart. And then the retail sales data also came in great. People spending jumped 1 % last month.

11:06So both of those figures showed an economy and a consumer that is fine, is good. It's not amazing because, as Walmart showed, people are not spending so much on those discretionary purchases. They're not buying those want-to-have items. They're buying those need-to-have items. But luckily for Walmart, 60 % of its sales are groceries, which you need food. So Walmart is in a great position and economists look to Walmart earnings as this bellwether for the economy, for consumer spending, because 90 percent of the U.S. population lives within 10 miles of a Walmart store. So people are going to shop there or they're not going to shop there.

11:42And what they do at Walmart speaks a lot about the economy. And we got a pretty good grade. And I'll say I think Walmart has done an amazing job of getting shoppers across all income levels. And they've done an amazing job. one of the analysts was like, hey, this is not your father's Walmart from 10 to 15 years ago. They have Sam's Club, Walmart Plus. Retail media is a huge business for Walmart. They have their international brands. They have a private label. They have just done a great job of allowing any income people to shop at their store. And I think you understand that Walmart is so much more than just the in-store experience.

12:17They have a very diversified business and you're seeing a payoff for them long term. Yeah, but you say their revenue was like$169 billion? Yeah, they made $169 billion to score. They're doing pretty good. But now that all the retailers have basically reported earnings at this point, and what have we learned about where people are shopping? So I would say people are pulling back on travel. We saw a lot of the airlines say people are not traveling as much as they expected, and they're not buying big home purchases. Home Depot reported earlier this week, and in a complete 180 from Walmart, they were like, people are not spending.

12:51We're seeing a weakened consumer. They lowered their guidance for the rest of the year. So they are seeing so people are not buying stuff for their houses. That seemed to be like a covid thing 2020 through 2022. But they are spending on these need to have items, which is what Walmart sells. Walmart did also say that they are buying this one particular item, this one particular discretionary item that is definitely not a need to have. But they sold like hotcakes last quarter. Pool noodles. They said people are buying pool noodles by the dozen. They said combining all the pool noodles that Walmart sold last quarter, which if you place them back to back, they would stretch 30 ,000 football fields.

13:31There's always money in the pool noodles. Well, if you've been on Twitter or X lately, you might have seen images ranging from the bizarre Barack Obama doing cocaine to the disturbing like a crazed Mickey Mouse doing 9-11 flooding the platform. Those are the product of Grok, the chatbot from Elon Musk's XAI, that got new capabilities to create images from text prompts. Grok is not the first AI chatbot to be able to produce images from text. Those have been around for years. But what makes Grok different is that it basically ignores all of the standard guardrails that other tech companies like OpenAI and Google have put in place.

14:10Those companies don't let you create images of public figures like politicians or celebrities. They block depictions of real-world violence, disrespect to religious figures, and images of copyrighted characters. Well, Grok does not seem to care about any of that, save pornography, which it does ban. But none of this seems to be a problem for Grok's creator, Elon Musk, who is happy to let his image generator run free without any rules of the road. He wrote, Grok is the most fun AI in the world and seemed to relish these surreal images being posted. Of course, many critics don't find this funny at all and point to the growing problem of AI deepfakes, sexualized images of real people, and harassment that Grok could supercharge ahead of the election.

14:53Yeah, I just have to say there could be any headline about Elon Musk at this point, any headline, and I would believe it. He is in the news all the time, and it seems like each one is more absurd. And to me, this is just a difference between you could do something and you should do something. And yeah, we can have an AI that does all this, but should we? Like, is this actually helping humanity? And on the business side of things, Twitter is an ad platform, and they've been pushing advertisers to get back in the platform. I don't think Nike wants to see their ad next to Mickey Mouse carrying a rifle.

15:25Like, the platform is, I think, getting polluted by these images, which I saw all day yesterday flooding the timeline. What is also interesting is you've mentioned they've banned pornography. So they do have some rules in place. It just seems like they need to expand them more to have more copyright protections, have some deep fake protections. So this seems like a big mess and hopefully it gets cleaned up soon. Yeah, I'm not sure whether Elon Musk is going to do that, though. I think he'll have to be forced to do it. And that could come from Europe, where he's already facing investigations from the EU, from the UK over content moderation policies on the platform.

16:05I just think this is the AI that he envisions. It's very open. You can do what you want with it. We are not going to put any rules of the road. If you look at what happened with OpenAI and Google, when they released their image generation platforms a couple years ago, there was a lot of outcry about what was seen on that and the potential for deepfakes. They responded very quickly. Remember, Google pulled Gemini when it was made fun of for all those historically inaccurate images. They experienced a lot of shame and embarrassment, went back to the table, tried to fix what they were producing. OpenAI did all of these guardrails.

16:41They now have a watermark on an AI-generated image. So you know that ChatGPT produced it. Elon Musk does not seem like this is in his DNA. He doesn't want any of this. So he might be compelled to by the EU or the UK, which is investigating him under these new AI laws that have been rolled out. Or he might be sued by these companies whose IP Grok is stealing. I mean, you can make Minnie Mouse and Mickey Mouse, which are copyrighted characters that Disney is very litigious about. So if you could keep making Disney characters, Disney is going to come after you. So I don't think what we're seeing from Grok now will be the case in a week to two weeks now.

17:21But it is kind of crazy to see these images proliferate on platforms. It seems like it was in the early days of AI, the Wild West. Now we're seeing it back in 2024. Yeah, I know we already talked about the subway emergency meeting, but I'm sure the Disney lawyers had an emergency meeting yesterday as well. Up next, is the Clippers' new arena the coolest one ever built? I'm Christian McCaffrey, pro running back, and Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year, and I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies.

17:57Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

18:27so no one forgets mom's 60th. And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. We've all been there. You're scrolling online. You see a random product that seems too good to be true. You check the website. You see glowing reviews everywhere. And so you decide to purchase. Two weeks later, you're out$140. The candle you thought you love does not in fact smell anything like beach wood. The wick is already broken off and you're realizing there's no way those online reviews were real. Well, I have some great news for you.

19:06The era of fake reviews is now over as the FTC Wednesday voted unanimously to ban marketers from using fake reviews and other misleading practices to promote products or services. The FTC's rule also forbids companies from paying for reviews to falsely boost or denigrate a product and it bans influencers from exaggerating their own influence by, say, buying bots that boost up their follower count. Although I can confirm all 50 of my followers are real people. Neil, some interesting news coming out of the FTC, but is this actually enforceable? First of all, how much are you paying for a candle?

19:42$140? Look, the reviews got me. They said it was the best candle ever. You said the era of the fake review is over. I am certainly not bullish about it. this is the most whack-a-mole thing that you could ever think of. The FTC is trying to get ahead of it by basically getting the power of fines. So that's what it thinks will do the trick. It thinks that it can fine these businesses that buy and sell fake reviews$50 ,000 per fake review, and that will be enough of a disincentive to root out this billion-dollar fake review industry, but a lot of critics of what the FTC is doing, and again, it has limited power to do anything about this, is that it's not going after the platforms itself.

20:28So Amazon, Facebook, all these, Yelp, all these review sites where these things are posted have liability about what is posted on there due to this law called Section 230. The FTC is recognizing the limits of what that law allows them to do. So they can go after the platforms. They can go after the middlemen, the brokers of the fake review business, but they can't really go after the platforms itself. That will be largely left to self-policing. I think Amazon and Google have every incentive to get rid of fake reviews because it's just damaging their own platform. But critics of this law say this doesn't really have so much teeth besides these financial penalties and that fake reviews are just going to continue going.

21:12And I just don't see any end to this. Yeah, I think you're right. I think unless you are going after platforms, it's probably not going to be a big change. But I do think they might have some incentive, as you said, to change. But I think the hope for the FTC is maybe this is a little chilling effect and people think twice about doing it. But again, at scale, there's so many influencers. There's so many fake like fake review websites, fake review bots that it's really hard to completely change this. But maybe this will have a little bit of a chilling effect and people think twice. I mean, they say up to 40 % of online reviews are fabricated or otherwise not genuine.

21:49And that could only be supercharged by AI and chat GPT because you could produce so many fake reviews, spam websites with just the click of a button. You don't actually have to write them anymore. So this economy is absolutely bustling right now, the fake review economy. And I know the FCC is trying to get ahead of it, which they probably should because this is a problem. I mean, sure, you buy a candle and you get a bad product. Okay, that's fine. You're out$140. But say you look at a review for a lawyer or a doctor and those are fake reviews which have been found to happen. Those have serious real-world consequences.

22:26Yeah, very bigger, more large impacts if you have the wrong doctor than you get a wrong candle. I have been assured that our podcast reviews are real for this show. They absolutely are. We haven't paid anybody. Okay, you might remember that earlier this week, Starbucks swiped Chipotle CEO Brian Nickel to help dig itself out of a sales crisis. And we just learned how they did it. By throwing live golf level money at him, Nickel is being awarded a compensation plan of cash and stock that is potentially worth more than$110 million this year. It's one of the largest hiring packages in U.S. corporate history and four times larger than his predecessor, Laxman Narasimhan, received when he was hired just over a year ago.

23:07Nickel's package includes a$10 million cash bonus up front, $75 million in equity grants to make up for shares he had to give up from leaving Chipotle, and other potential stock and bonus awards. If he hits performance targets, his first-year pay package could be worth as much as$117 million, making him one of the highest-paid execs not just in the food industry, but anywhere in the business world. And Starbucks thinks he's more than worth it. Nickel engineered an epic turnaround at Chipotle after coming on board in 2018. And he'll need to do the same at Starbucks where sales have fallen for two straight quarters.

23:43Kyle, what do you make of this super max contract for someone who's been called the LeBron James, Lionel Messi and Tom Brady of the restaurant industry? I mean, that's some incredible comparisons. And I do feel like this guy has LeBron level power. It felt like the decision all over again. And what's interesting when I hear about these large CEO pay packages and you're like, there's no way someone could be worth$100 million to your business. Well, after the announcement, shares in Starbucks were 25%, which added$21.4 billion to their market cap. So they've already recouped this money in a day, which is pretty remarkable.