Are Drugs Cheaper Using Cash?

This past weekend, a far-reaching exposé was published by the New York Times and ProPublica highlighting how, in many instances, individual members can save money paying cash when compared to using their insurance for their generic prescriptions. While this is not a new issue, the investigation reviewed the top one hundred prescribed medications, finding that 40% of the time cash seemed to be a better deal than insurance. And it’s especially pronounced with generics.

There is no doubt this troubling reality highlights the opacity of the pharmacy pricing business and paints a troubling reality for consumers. But let’s also provide some context here…

Employer pharmacy contracts behave essentially as purchasing coalitions on behalf of their membership, perhaps no different than Costco is for household supplies and food. It’s probably not that uncommon to see your local supermarket running sales on highly consumed products like select cereals or yogurt (at even lower prices than Costco) just to get you in the door – even if in the aggregate, your bill will be 30% higher on your average basket of items.

Generic drugs reflect 80% of all drugs dispensed but account for less than 30% of an employer’s prescription plan costs. The contracts intermediated by employers are largely targeting big-ticket items (brand and specialty drugs) in trying to strike the best deal overall for their members – even if they will get repeatedly outpriced on the lower-cost drugs as pricing apps, drugstores and generic manufacturers try to gain market share by publicizing cheaper alternatives to the health plan.

But it’s not as black-and-white as calling employer plans and PBMs the bad guys and these other consumer-facing vendors the good guys. They have an incentive model as well – largely to drive other purchases or gain market share in some other vertical – that’s encouraging their low-cost generic approach.

Perhaps the only solution is to completely carve out low-end Rx (and medical services, for that matter) from insurance entirely. After all, these are products that most people don’t need to “insure” in the traditional sense since their consumption won’t bankrupt most households. But of course, that gets us back to the larger question of “what is the primary utility of medical insurance and can we align the various stakeholders to reform its current construct?” And unfortunately, those are the harder questions that our country lacks the fortitude to directly confront.

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