Concerns over prescription drug prices have grown into a big political issue, with nearly one in four Americans saying it's difficult to afford their medications, according to a March 2019 poll by the Kaiser Family Foundation. Pharmacies technically set their own prices for generic drugs, but there are other players involved that complicate the process. Here's how the system works and what customers can do to save money. Americans are having a tough time paying for medications despite bipartisan efforts to drive down prescription drug prices. Nearly 1 in 4 Americans say it’s difficult to afford their medications, according to a March 2019 poll by the Kaiser Family Foundation. This comes as pharmacies raked in a record $465 billion from prescriptions.

Revenue from US retail pharmacies reached a record 400 and 65 billion dollars in 2020. The United States. Pays more for drugs in any other country. Drug prices are totally irrational, something that should cost two dollars often cost 300 dollars. Because of the complicated relationship between insurance companies and pharmacies and coverage. Millions of people get their prescription drugs from pharmacies like CVS. Walgreens, and Write aid. I like to describe it as if the pharmacist really. It's the most accessible healthcare professional. It's the last provider that most patients see before going home.

Those in the industry say maintaining a dynamic pharmaceutical delivery system helps the consumer save money. Patients have a wide array of choices on West Pharmacy they like to go to. They're likely going to go to the pharmacy. That gives them the best experience and the lowest cost for their medications. But nearly one in four Americans say it's difficult to afford their medications. According to a March 2019 poll by the Kaiser Family Foundation, I'll do whatever it takes to help a consumer find a fair price. They're profiting from what is fundamentally a broken system. It is fundamentally the problem we have. So how did the system of delivering prescription drugs become so complicated? Why do pharmacies exist and how can consumers best save money? 

The business of pharmacy throughout the 1800 S was primarily selling medications compounding drugs onitee for their patients, but new technology and mass manufacturing forced them to pivot, pushing them closer to the drugstore model we know today. Pharmacists moved their laboratories and equipment to the back of the shop, leaving space to sell other items such as candy and tobacco products. This ushered in what is called the soda fountain era of pharmacies. If you see a lot of pictures of pharmacies from the late 1800 S early the 1900 S, these are beautiful pharmacies. They have elaborate soda fountains. They've got marble counters once you get into about the 1920 S 1930 S. This whole front end of the pharmacy stuff that happened in the pharmacy, which was not related to compiling and not related to dispensing, really took off and became what pharmacies did for not only the majority of their revenue and saless, but the vast majority. 

When Prohibition went into effect in 1919, sale and consumption of alcohol for quote medicinal purposes was allowed, creating a legal loophole that many physicians and pharmacists exploited. Front of the store activities were the main business for pharmacies in this era, with less than one percent of pharmacies in the 1930 S making more than half of their sales and dispensing. Soda fountains also replaced the local bar as a place to socialize. Pharmacists use some of their chemistry knowledge to create fun flavorings for new soft drinks such as root beer. Dr Pepper, and Coca-cola. While they could still technically prescribe medication during this time, it was considered unethical to give out drugs without a physician's recommendation. 
Often referred to as the Licktick and PO era.

The 1950 saw another shift in pharmacy practices. A clear legal distinction was drawn between pharmacists and physicians role in dispensing medication with the passage of the Durham Humphrey Amendments in 1951, that is the first federal law that said. This is a prescription and this is an OTC product. There was some distinction for controlled substances before that, but really before Durham Humphrey there was nothing legally in most cases that would stop a pharmacist from giving a patient something without a prescription. Physicians, however, continued to dispense medication through the 1980 s. Around that time there was a spike in the use of third party insurance plans for prescriptions. Physicians by and large got out of dispensing the types of medications that you would get through the pharmacy, partially because the process of setting up the systems that you need to dispense and maintaining those and all the regulations and then go along with it are just so onerous that it no longer makes sense for your average position to dispense. 

This retail model for pharmacies is a lucrative business. Major drugstores such as CVS and Walgreens make the majority of their money from their pharmacy. For retailers, the pharmacies are really a traffic driver, so if you think about CVS and Walgreens in particular, you walk through their whole store to get to the pharmacy in those cases, and that may mean that you pick up things like toothpaste or shampoo when you're going to or from the pharmacy counter. So it's not only a way to drive traffic, it's really a way to drive sales. Cvs recently reported its second quarter earnings, and if you even look at its quarterly sales or its annual sales, you'll see that the pharmacy drives the most revenue of its three different categories. Cvs, which held the largest share of the prescription drug market in 2020, generated more than 72 billion dollars in total revenue in the second quarter of 2021, with 24.7 billion dollars of that from its retail, pharmacy and long-term care businesses, and 38.3 billion dollars from its pharmacy benefit management services, which we'll get to in a minute. 

Walgreens has the second larges share of the market. It generated 28.7 billion dollars in US sales during its fiscal third quarter of 2021. 21.7 billion of it was from US Dispensing Services. In principle, the way pharmacies make money should be simple, buy a product and bulk at a low price and then sell it at a higher price. That's still a competitive rate. However, insurance negotiations make it more complex reason my promise is overcharge is they want to charge a price that they would make money on for any given third- party pair that's going to contract with them. Retail Pharmciacy set the list price of a prescription above the amount they expect to get from any insurance company. That's because an insurance company will never reimburse a pharmacy more than they will charge a cash paying customer. So if the prescription price if the pharmacy is 20 dollars and the insurance company pays ten dollars, the uninsured patient would be forced to pay 20 dollars. 

If the pharmacy lowered their price to let's say five dollars, the insurance company would only pay them the five dollars because that's what's often called the usual and customary price. 

So pharmacies always set a list price that is far above what they expect to get from an insurance company. People who are uninsured don't have the benefit of insurance end up paying the highest list undiscounted price for their prescriptions. 

There are also organizations called Pharmacy Benefit Managers or PBS that influence pricing. Pbs are hired by health insurance companies to serve as an intermediary between the insurers and other parts of the system. An insurance company basically says. Well, bring in an intermediary whose specialty it is to be able to negotiate what type of prescription plans or drug costs or coverage would be best for the insurer that middle person access the go-between. But PBS are controversial within the industry, they play multiple roles in the system. 

So they're also in many cases operating pharmacies and many of the pharmacies feel aggrieved because they are now competing with the entity that they're also negotiating with for payment, and they perceive that to be negative, there should be negotiations between the PBS and the pharmacies, and the pharmacies should be able to say. Look, we'll only accept this price and the PBS say yes or no, but it's take it or leave it. The top three PBS. CBS health's Care Mark, signgmas. Express Scripts, and United Health Groups optimrx processed about 77 percent of all prescription claims in 2020. According to Drug Channels Institute. All of these businesses also have a pharmacy division, so CBS, through their care Markrk Branch decides why joe's Pharmacy or suzie's Pharmacy or Walgreens will get paid. 

So yeah, it's a conflict of interest. Express Scripts, their mail order group. They are one of the largest pharmacies. They also decide what retail pharmacies get paid and isn't it interesting that a lot of times they'll try to steer patients from a retail pharmacy into their Mailover pharmacy? That's not a coincidence. When asked for comment. CBS Health told CNBC its model simplifies healthcare for customers and its PBM Health clients. Prescription drug cost increases to just three percent in 2020. Express Scripts PBM said its broad networks give patients a range of choices for where and how to fill their medications, saving nearly 45 billion dollars in 2020. Optimrx declined to comment. 

My name is Greg Los. I work with the Pharmaceutical Care Management Association, that is the trade association representing america's pharmacy benefit managers. We don't think that is a conflict of interest and we think that there is choice for patients to go to any pharmacy of their choosing. They're likely going to go to the pharmacy that gives them the best experience and the lowest cost for their medications. You need some kind of entity to manage to be an intermediary in this system. I think the question is, are the pbm's incentives aligned with their clients and are they aligned with driving the lowest cost for the system and the lowest cost of the patients. 

Pharmacies themselves are not heavily regulated when it comes to setting generic drug prices. Federal regulation on actual drug prices as long as there is no antitrust issue have been very weak. Pharmacies have been generally left to set prices at whatever they want. Once third- party payers such as PBS came into the picture in the 1960 S, pharmacies lost some control over pricing. It's at that point where pharmacists, instead of setting a price and having a person walk in and ready to pay the price or not all of a sudden you have this negotiation with a pharmacy benefit manager and it's totally different than what the pharmacist is used to and their margins on product starts to fallax fairly steeply. A lot of people don't know there is a prescription drug supply and payment chain and within that chain there are five or six actors.

State legislators have been focusing on regulating pharmacy benefit managers rather than pharmacies themselves. 42 states have introduced at least one law aimed at regulating PBS. The Supreme Court issued a unanimous decision in December 2020 regarding states rights when it comes to regulating PBS. The ruling said that the states had a right to require PBS to reimburse pharmacies for drugs at a rate that is higher or equal to the wholesale cost the pharmacies paid for them. There's also been regulations considered at the federal level. The US Senate Finance Committee convened a hearing in February 2019 to question representatives of the major PBS about rising drug costs. In September 2019. Democratic Congressman Frank Palllone introduced the Elijah Ecommings Lower Drug Costs Now Act.

The House passed the bill in December of that year, but it died in the Senate. In July 2020, former President Donald Trump signed four executive orders that aimed to lower the high cost of prescription drugs. The Biden administration agreed to push the effective date of one of the more high-profile orders to January 1, 2023, rather than habit go into effect in 2022. Congress tends to be sympathetic, but they have not taken much action, and as a result, drug prices keep going up. 
There are ways for consumers to still save money on generic drugs, but it requires some work. A Consumer Reports Secret Shopper survey from 2018 found that there was a huge difference between the cost of five commonly prescribed generic drugs at different retailers. They found that prices at the independent retailers and big box stores were much lower than those at large chain pharmacies. 

One of the lessons from that is to call around, go online and find a better pricing, but the independences often will have more competitive pricing, especially for generic drugs. There are also various store coupons and other vouchers that can bring down costs. One way is with something called a discount card. Discount cards are backed by PBS and provide patients with a discount on the pharmciacy's retail price. There are three primary types of discount cards, cards created by a PBM itself, cards through a retailer such as sam's Club or Amazon, and independent brand such as Good RX. Here's how they work. A PBM creates a network of participating pharmacies that will accept the card and then negotiate with each pharmacy to offer a discount to customers. The pharmacies agree to pay an administrative fee to the PBM when the card is used. The discount card vendors such as goodrx form agreements with the PBS to receive a portion of that fee. We work actually with every major PBM and we work with pretty much every major pharmacy as well to kind of play that role of an intermediary and ultimately give the consumer the best option for them, which again may often not be their insurance. 

Goodrx collected more than 400 and 88 million dollars in fees from its discount card programs in 2020. Good RX has just taken the discount card model and. Found a way to scale it in a way that no one else has scaled both in terms of marketing to consumers and in terms of accessing the network rates of multiple pbs at the same time, one of the reasons good RX has grown so quickly Is that it gives the uninsured people or people who have maybe insurance that isn't as good for them an opportunity to get access to some network or discounted rates operated by pharmacy benefit managers and insurance companies.

Because Good X is a marketplace and we get billions of prices into our system, we can often find better prices by not using necessarily the insurance that you have, but by finding a better price by simply looking at all these other different ways that consumers can save. Most of the people using discount cards actually have some kind of health insurance plan, but when a discount card is used, the customers bypassing their health insurance to use a pbm's insurance network instead. The fact that we have so many people. 

Bypassing their insurance and using another insurance plan. Shows there's a problem in how. Generic drugs are priced to the consumers who have insurance even Medicare or commercial insurance. If. Pharmacies receive less money from the customer for a medication and also have to pay a fee of the PBS. How do they benefit from discount cards? What the discount card VEN will tell you or tell the pharmacies is well, if it wasn't for this card, there would be zero dollars of revenue. The patient wouldn't fill the prescription cost, the price is too high. By using the discount card, the patient could fill that prescription. I'll do whatever it takes to help a consumer find a fair price, not just for prescriptions but for care as well. You know, seeing a doctor, etc. It's broken and so we can try and point fingers and manufacturers or PBS or anyone. The. Reality is is they're doing what our system designed and if we don't like it, we should come up with a better way. But until then. Good or X is going to be focused on helping consumers navigate this crazy system. Navigate all these complicated terms that people don't understand just to simply use those same market forces that they use in every other way that they purchase something in healthcare. I have mixed feelings about Good RX. I applaud them. Once they've done. I applaud the value they bring to consumers. On the other hand, they're profiting from what is fundamentally a broken system. 

They can't change the system, so I understand that. But it is fundamentally a deep problem. We have. Pharmacies serve a vital role in the healthcare system. A study from July 2020 found that people on Medicare visit their pharmacist more than their physician. What I like to describe it as is the pharmacist really being the point of contact in the medical hold. It's the most access healthcare professional. It's the last provider that most patients see before going home, so demand and expectations tend to be high when it comes to the delivery of pharmacy services, a physician is trained to diagnose to take care of the patient. In that way, a pharmacist is indeed the drug professional.

We know the ins and outs of drugs in various specialties and it's very difficult sometimes for a single person to understand all of the disease, states, all of the metigations, all of the nuances, all of the insurance information, all of the PBM information regarding managing that patient. The two can't really exist without each other. 

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