Pharmacy Cost Confusion

What is going on with the pharmaceutical industry? Sometimes I feel like they are taunting all of us. I have been writing about the abuses the industry has been imposing on our healthcare system (see related posts here, here and here). There is a lot of subterfuge and non-transparency surrounding costs and the vultures are circling.

Pharmacy Benefit Managers (PBMs) are responsible for negotiating costs on behalf of employers. Negotiated discounts are spread over the employers’ drug spending and broken down by class: generic, preferred brand, and non-preferred brand. Some PBMs use tiers. Tier 1 is the most cost-effective drug in the diagnostic category, tier 2 is for “preferred” alternatives, and tier 3 is for “non-preferred” drugs. “Preferred” is based upon whether the PBM receives a rebate from the manufacturer for drugs dispensed. Discounts are also spread based on where the drugs are dispensed: retail, mail, or in the physician’s office. Within these broad categories are caveats, exceptions, and other practices which makes drug pricing difficult to navigate, even for seasoned professionals like me.

Lately OneRX, Blink Health, and GoodRX (three technology solutions) are attempting to capitalize on the turmoil. Using these tools, a patient can get costs that are significantly below the retail cost and even below the costs associated with the PBM who is connected to the patient’s health plan. I take two generic meds and was shocked to see that my cost using one of these smartphone apps was less than half the cost through my employer plan’s mail order benefit. I have a high-deductible plan so this cost was out of my pocket.

Employers are finding this tough to understand. How is this possible? Here are two reasons: 1) discounts are spread over the entire pharmacy spectrum and certain drugs are cherry picked by the transparency applications, and 2) rebates are significant and the application pricing reflects costs net of the rebate.

So why not take advantage of this pricing anomaly? Two good reasons: 1) drugs purchased outside the employer plan do not count toward deductibles or out-of-pocket maximums and 2) medical management including scanning for drug interactions and building complete medical records are an important oversight function of the health plan which would be overridden by purchasing medications outside the plan.

As patients figure this out, they are becoming angry and feel cheated. As PBMs figure this out, they will change their contracts with pharmacies and drug manufacturers so that these pricing inconsistencies are eliminated. They better do it quickly. Anger by consumers often turns into legislative action which may or may not improve the system. The pendulum continues to swing.

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