Tuesday, August 17, 2021

Why GoodRx—Not Amazon—May Be the True PBM Disrupter

The generic prescription market is being disrupted—but not by the big, bad spaceman from Seattle.

Instead, consider how GoodRx is affecting patients, payers, and PBMs.

Below I summarize the latest financial results for GoodRx’s discount card business. We estimate that the company accounted for $4.1 billion in U.S. prescription revenues for 2021. That’s about six times its 2016 figure.

GoodRx and its discount card competitors profit by incentivizing people to bypass their own insurance plans. Meanwhile, our crazy pharmacy pricing system deters pharmacies from pursuing consumer-driven pricing and PBMs from undercutting their own clients.

Consequently, discount cards could become the force that upends PBMs’ pharmacy benefit economics, plan sponsors’ decisions, and the entire generic market. Should PBMs continue to profit from discount cards’ rapid growth…while ignoring the risk that this growth could undermine the value of their benefit management services?

Read on and see what you think.


Here are the relevant materials from GoodRx’s Q2 earnings announcement: As always, I encourage you to review the original source material for yourself.

You may find it useful to review my two previous articles about GoodRx and its business model:
I place GoodRx within the broader context of patient-paid prescriptions in Section 4.3. of DCI’s 2021 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.


In the second quarter of 2021, GoodRx collected $144.9 million in fees from its discount card programs. This amount is referred to as “Prescription Transactions revenues” in its financial statements.

That figure was $134.1 million in the preceding quarter and $109.5 million in the second quarter of 2020. GoodRx also earned $14.3 million in subscription fees from its GoodRx Gold and Kroger Rx Savings Club programs, and $17.4 million from telehealth and manufacturers’ services.

Very impressive. Let’s dig into GoodRx’s prescription transaction revenue to measure the company’s scope within the pharmacy industry’s economics.

GoodRx’s May 2021 investor presentation provides the following helpful graphic to explain its business model:

[Click to Enlarge]

This chart highlights an often misunderstood aspect of GoodRx’s business. The prescriptions available via GoodRx (or any other discount card) are not considered cash-pay, because the claims are adjudicated by a PBM. The PBM collects a per-prescription fee from the pharmacy whenever a consumer uses a discount program there. The PBM shares a portion of this fee with the discount card vendor that directed the patient to the pharmacy.

The yellow “Revenue” box corresponds to the $144.9 million figure reported on its 2021:Q2 financial statements. Note that GoodRx’s fees exclude any amounts that PBMs earned from these prescriptions. The “Full Retail Price” bar represents pharmacies’ inflated usual & customary (U&C) cash price, and the “Consumer Pays Discounted Price” bar reflects a PBM’s network rate.


In its financial filings, GoodRx has sometimes disclosed the approximate total undiscounted U&C value of these prescriptions. It recently reported that the average discount from U&C prices was 79% for 2020, implying that the (bogus) “full retail price” for prescriptions through its platform was more than $16 billion in 2020.

That figure is irrelevant. The most important figures:
  • The consumer’s actual out-of-pocket retail spending on prescriptions, which GoodRx refers to as Gross Merchandise Volume (GMV). This equates to pharmacies’ prescription revenues and is labeled “Consumer Pays Discounted Price” in the slide above.
  • The share of those revenues that GoodRx collects in fees, which is labeled “GoodRx Takes Portion of PBM Fee” in the slide above.
Footnote 1 on the slide tells us that GoodRx earned 14.4% of the total amount that consumers spent at pharmacies (GMV) in 2019. Based on the company’s earlier financial filings, we estimate that its fees for those periods were about 14%. Last week’s financial filing revealed that GoodRx’s fees have grown, to reach 15% to 16% of total retail prescription value.

The chart below uses these data to summarize GoodRx’s impressive growth, as measured by estimated retail prescription revenues and GoodRx’s reported prescription transaction fees. The 2021 figures reflect our projections for the rest of this year.

[Click to Enlarge]

We estimate that for 2021, the total discounted retail value of prescriptions using GoodRx programs will be about $4.1 billion—a massive increase from the less than $700 million in 2016. The 2021 figure will equate to nearly 1.5% of total U.S. pharmacy prescription revenues for traditional (non-specialty) drugs.



GoodRx is leading the discount card gold rush. The market includes:
  • Independent card brands, such as GoodRx and Blink Health. These vendors workbehind-the-scenes with multiple PBMs.
  • PBM-developed cards, such as America’s Pharmacy (MedImpact), Inside Rx (Express Scripts), and Optum Perks (UnitedHealth Group’s OptumRx).
  • Retail-branded programs, including Kroger Rx Savings Club (in partnership with GoodRx), the Amazon Prime prescription savings benefit (which utilizes Express Scripts’ Inside Rx program), and Walmart+ (backed by MedImpact’s America’s Pharmacy program).
I’m not aware of any public data on the overall utilization of discount cards. But if we assume that GoodRx has 50% of the current market, then discount cards may already be handling more than 3% of all traditional drug prescriptions.

These cards are riding an unfortunate benefit design trend: The patient is becoming the payer.

Prescription costs are increasingly shifted to consumers through deductibles and coinsurance. More than one-third of people with a High Deductible Health Plan (HDHP) have coinsurance for generic prescriptions. And people who take primarily generic drugs often see little chance of hitting their deductible, which averages $4,500 for a family. That’s why an astonishing three-quarters of GoodRx users in 2020 reported coverage with commercial, Medicare Part D, or Medicaid insurance.

The pharmacy industry’s unfortunate pricing strategy for patient-paid prescriptions means that consumers get overcharged. There are also wide and persistent variations in cash prices for common, high-volume generics.

This has created two opportunities for discount cards:

1. Patients who must cover the costs of their drugs shop for better deals and cheaper prescriptions.

The pharmacy industry has consistently retreated from true price competition on prescriptions. Way back in 2006, Walmart started retail pharmacy competition with its $4 generic programs. As far as I know, it marked the first time that the price of a prescription was advertised directly to the consumer. The program was widely imitated by other retail chains.

Many pharmacies, however, have discontinued or narrowed their programs. Any volume gains could not overcome the profit hit from abandoning bogus U&C pricing models. Even mighty Amazon could only bring itself to launch a teensy experiment with cash-pay prescriptions without spoiling its small, PBM-reimbursed pharmacy business.

2. PBMs can hide behind discount cards to undermine the network rates offered to their own clients.

Ironically, any individual PBM is also trapped by its existing relationships with plan sponsor clients.

Discount cards succeed by enabling people to arbitrage network pharmacy rates across PBMs. As I noted in a previous article, benefit designs and network rates can differ among PBMs. This difference can allow a patient to reduce their out-of-pocket expenses by accessing the rates of another PBM—or maybe even another network from their own plan’s PBM—by using a discount card.

Unlike many of its discount card peers, GoodRx partners with multiple PBMs, including Express Scripts, OptumRx, MedImpact, and Navitus. These PBMs compete on the GoodRx platform to acquire prescriptions.

If an individual PBM’s cash rate was easy to find, then plan sponsors would demand that rate. However, GoodRx effectively anonymizes the identity of the PBM offering a discount for any prescription. That’s how a PBM can get away with offering a lower rate to an individual cash-paying customer via a discount card than the rate offered to a large health plan client. GoodRx therefore buries any potential PBM-payer conflict.

I didn’t fully appreciate this angle in my previous post about these conflicts. It also suggests that PBMs have surprisingly few incentives to minimize their own disruption risks.


In recent years, many people have been obsessed with the notion that Amazon will destroy the pharmacy and PBM industries. (I’d love never again to see the goofy photoshop of Jeff Bezos wearing a white coat and stethoscope.) However, it seems increasingly clear that Amazon is not poised to fundamentally disrupt the existing drug channel.

Instead, watch out for discount cards. They are leading the consumerization of retail prescriptions—but not necessarily of the pharmacy and PBM industries. The cards are growing so quickly that they undermine the premise of pharmacy benefit management. Someone—consumers, their employers, and/or the government—paid insurance premiums for a pharmacy benefit managed by a PBM. Yet our system’s weird pricing math can still make it worthwhile for people to bypass their plan’s out-of-pocket costs and PBM network rates in favor of a different PBM’s rates.

Don’t misunderstand me. GoodRx saves money for consumers by profiting from a broken pharmacy pricing system. But the company may end up creating much more danger for PBMs than it ever intended.

UPDATE: The second chart has been updated to clarify what happens to the portion of the PBMs' fee that is not paid to GoodRx.

No comments:

Post a Comment