How Can Discount Drug Apps Offer Such Big Savings on Prescription Medications?

Paying a fair price for healthcare, including prescription medications, often seems needlessly difficult.

Sometimes the differences in cost are so startling that it’s hard to understand.

Fortunately, companies such as GoodRx and Mark Cuban's Cost Plus Drug Company are starting to undercut CVS and Walgreens on prices for prescription drugs. Occasionally by exponential amounts.

How, exactly, are they able to lower their prices that far in those instances?

That's what a listener of the Clark Howard Podcast recently asked.

How Some Drug Apps Offer Significant Discounts on Prescription Meds

How can certain drug companies offer prescription medications for so much less money?

That's what a listener wondered on the March 8 podcast episode.

Asked Therese in Michigan: "I spent almost 50 years working in the medical field yet I just don't understand how GoodRx and other discount drug apps are able to give such significant savings on prescription medications.

"To answer this, it would help to know the basics on how drug companies value their medications and sell them to pharmacies. I've tried to research this myself, only to give up. It's a head shaker! Do you have the answers?"

You may notice that the big price differences don’t involve brand-name drugs. GoodRx and Cost Plus Drugs aren’t as helpful in those instances.

Why?

It comes down to three words. If you're in favor of fair pricing over back-room deals that line other people's pockets, you may even consider them dirty: pharmacy benefit managers, or PBMs.

PBMs are the secret players behind a lot of the biggest profit-chasing drugs. They act as “middlemen” between pharmacies, insurance companies and drug manufacturers.

These PBMs negotiate discounts and rebates. Many big employers also hire PBMs to manage prescription benefits for their employees.

“What’s happening behind the curtain? There are all kinds of dirty kickbacks going on where, wink wink, nod nod, the manufacturer sells the drugs through the pharmacy benefits manager at a much higher price and then gives the PBMs kickbacks that should be illegal.

“That’s why people with a traditional prescription plan from work can end up paying much [more] for a prescription than if they just paid cash [at the pharmacy] or used one of the apps like GoodRx or its competitors.”

In other words, the PBMs are earning profits that come directly out of your wallet. Sidestep the PBMs and you’re able to offer much fairer pricing.

Cuban’s company, for example, adds a 15% markup on the wholesale price in addition to a $5 shipping fee and a $3 pharmacy labor charge.

However, it’s hard to get a drug manufacturer to sell a brand-name medication to a company such as Cost Plus Drugs. It can cost hundreds of millions of dollars — or more — to develop a successful drug. And most of the time, research and development fails. So these manufacturers count on the small percentage of the drugs they develop that work and gain approval to be giant profit centers.

CVS, Walgreens Use Outdated Pricing System, Clark Says

PBMs are a deep, complicated rabbit hole. But that’s not the only obstacle that consumers face when trying to limit the amount they pay for prescription drugs.

Buying through your workplace health insurance plan? Traditional pharmacies such as CVS and Walgreens can charge as much at 100 times the amount than you'd pay if you went to a discount drug company, Clark says.

“CVS and Walgreens have a system for pricing generic [medications] that has nothing to do with what they paid for them,” Clark says. “They price based on a theoretical discount from the brand name that nobody writes or dispenses anymore.

“So the brand-name drug may be a [zillion dollars]. The generic may be pennies. But they’re charging it based on a discount from what the brand name was.”

How Do I Save on Prescription Medications?

Many people don't realize you can comparison shop prescription drugs.

Even if you find PBMs confusing and don’t fully understand how the drug business prices its products, you can always compare prices. If you can get the same medication at one place for significantly cheaper, you should.

Need help figuring out where to look?

“If you are a Consumer Reports subscriber and you take a number of different drugs, they have a recent writeup showing based on the drugs that you are taking whether you will save money with this pharmacy or this one or this one. And they rate different discount pharmacies and give you what your overall costs will be.”

Team Clark put together a list of 10 ways to save on prescription drugs.

In addition to checking the prices on GoodRx and Cost Plus Drugs, you can search for discount programs for brand-name medications, consider paying cash instead of going through insurance (it may be cheaper), look for places to get free prescriptions or even shop out of the country.

Take a lot of different medications? There are subscription services where you pay a monthly fee to get amazing costs on drugs.

“And in those cases, you might find that the CVS or Walgreens retail price could be 500 times or more the cost of going through a monthly subscription program,” Clark says. “And yes, I do pick on CVS and Walgreens all the time.”

Final Thoughts

How do drug apps offer big discounts sometimes, especially for generic medications?

These discount companies often exclude third-party PBMs that ratchet up the price and streamline the number of entities sharing the profits.

Competition, and the right for consumers to comparison shop, is offering some hope that many medications will continue to become more affordable over time.

ExploreThis article was originally published on Clark.com

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