The rise of discount card pricing within pharmacy benefit plans is a positive development. Patients get access to market prices that can be lower than their PBM’s contracted rate. All out-of-pocket spending with a discount card counts toward a patient's deductibles, and all prescription activity gets captured.
However, I suspect few people understand that placing discount cards within the pharmacy benefit enables a PBM to monetize a new fee stream from the card vendor. Below, I walk through this booming business and highlight some of the conflicts and contradictions underneath the coconuts.
As always, I encourage you to review the original source material for yourself:
- GoodRx Q3 2022 Earnings Presentation (See page 10.)
I place discount cards within the broader context of patient-paid prescriptions in Section 4.3. of DCI’s 2022 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
As I have argued in previous articles, GoodRx and its discount card competitors profit by incentivizing people to bypass their own plan’s out-of-pocket costs and PBM network rates in favor of a different PBM’s rates. This arbitrage reflects multiple factors, including legacy PBM contracted rates that don’t reflect current market pricing, variations between the network pharmacy reimbursements paid by different PBMs, and differences among the rates that a PBM offers to its various clients.
In addition, when used outside of a prescription benefit, a patient’s out-of-pocket costs do not apply to annual insurance deductibles. Yes, plans may allow patients to submit documentation to get this spending counted. But I doubt many people attempt to scale paperwork mountain to cover a relatively small portion of their deductible.
PBMs have recognized that discount cards undermine the perceived value of pharmacy benefit management. Why pay thousands for “insurance” when better prices are available to anyone with a smartphone?
Consequently, PBMs are now incorporating discount cards’ pricing into pharmacy benefit plans.
Giving patients access to lower discount card pricing sounds great. Patients can lower their out-of-pocket costs by accessing the network rates of another PBM—or the rates that their plan’s current PBM offers to other plans. What’s more, covered prescriptions get automatically counted toward the patient's deductible. The PBM and plan sponsor also have a complete claims record for each beneficiary, rather than having prescription activity occur outside the benefit.
The latest news: GoodRx announced that starting in 2023, it will become Express Scripts’ exclusive partner in the PBM's Price Assure program. GoodRx will integrate its pricing into the Express Scripts commercial pharmacy benefit for generic medications. Beneficiaries will automatically get the lowest out-of-pocket cost by comparing the GoodRx price with the price from their Express Script PBM plan. All spending will be applied to any deductible.
Here is how Trevor Bezdek, GoodRx co-founder and co-CEO, described the company’s new arrangement with Express Scripts:
“[W]e are especially excited about is a new collaboration with Express Scripts to support them in their mission to make prescription medicines more affordable for their members. Under this innovative program, eligible Express group members will automatically access GoodRx prices as part of their pharmacy benefit. This means an eligible Express Scripts member will have seamless access to GoodRx prices for eligible generic medication in instances where that price is lower than their benefit price. Importantly, this keeps visibility of the eligible members GoodRx claims within the pharmacy benefit, and it enables out-of-pocket claims account order members deductible. [sic]”Express Scripts is retiring its Right Price program, which integrates prescription discount card market pricing into the insured benefit via Express Scripts’ mail pharmacy and Amazon Pharmacy.
FOLLOW THE DOLLARS (IF YOU CAN)
As with all things in our crazy drug channel, novel developments inevitably create new financial flows.
To understand what’s happening, recall that discount cards are another form of spread pricing. That’s because the PBM collects a per-prescription fee from the pharmacy whenever a patient uses a discount card program. This fee reflects a spread over the net prescription reimbursement that the pharmacy earns. The PBM then shares a portion of this spread with the discount card vendor that directed the patient to the pharmacy.
I explain and illustrate this transaction flow in The GoodRx-Kroger Blowup: Spread Pricing, Pharmacy Margins, and the Future of Discount Cards.
However, there will be an additional transaction flow back to Express Scripts when GoodRx is utilized within the prescription benefit.
Jailendra Singh, an analyst at Truist Securities, spoke with GoodRx management. He reported that they told him the following:
“Within the Express Scripts partnership, GDRX would earn an admin fee whenever a consumer uses a cash pay price that is lower than his or her benefit price with Express Scripts. As Express Scripts would be acting as a distribution partner, GDRX would pay a marketing fee to Express Scripts in return for helping the company acquire MACs cheaply.” (emphasis added)Neither company would confirm these financial details directly with me.
The chart below illustrates the flow of products and money when a patient uses a discount card to pay the full cost of their generic drug prescription, within their third-party insurance plan. It is adapted from my chart showing the key channel flows within the entire U.S. pharmaceutical distribution, payment, and reimbursement system. In this illustration, PBM #1 provides the discounted rate to GoodRx, and PBM #2 is Express Scripts.
[Click to Enlarge]
Here’s my translation of how it will work:
- The consumer compares their out-of-pocket cost using the discount card with their out-of-pocket cost using their plan’s benefit. According to IQVIA, nearly two-thirds of patients with commercial insurance or Medicare Part D paid the same or less when comparing a discount card to their insurance.
The patient may discover a lower price, because GoodRx aggregates the network rates and receives payments from multiple PBMs. Consequently, a patient whose plan uses Express Scripts (PBM #2 above) may find that their out-of-pocket expenses are lower when accessing the rates of PBM #1—or possibly another network rate offered by Express Scripts.
- GoodRx compensates Express Scripts. As with all discount card transactions, the pharmacy pays a fee to PBM #1, whose rate is being used for the transaction. PBM #1 then shares a portion with GoodRx. GoodRx has reported that it earns about 15% of the patient’s total retail prescription cost.
When GoodRx is offered within the pharmacy benefit, its will make a payment back to Express Scripts (PBM #2 above) whenever the patient’s out-of-pocket cost with the discount card is lower than their out-of-pocket cost via the Express Script-managed benefit plan.
The complex and opaque financial flows between and among PBMs and discount card vendors continue to flummox me—and should concern pharmacies and plan sponsors.
That's because adding an external discount card into the benefit can allow a PBM to monetize a new fee stream. I doubt many plan sponsors’ contracts contemplate this type of fee, so any discount card-to-PBM funds are fully retained by the PBM.
This complex arrangement raises some intriguing questions:
- How much does GoodRx compensate Express Scripts whenever its discount card is used by a beneficiary of a plan managed by Express Scripts?
- Does Express Scripts ever earn more from the fee paid by GoodRx compared with its earnings from processing a claim for its plan sponsor client?
- How often is the GoodRx out-of-pocket cost based on an Express Scripts rate, i.e., how often does PBM #1 = PBM #2? Does GoodRx still pay a fee if its prescription price is based on an Express Scripts network rate?
- How often will a member’s out-of-pocket cost be higher under their Express Scripts-managed benefit plan compared with a GoodRx discount card program?
- Under what circumstances—and for what type of prescriptions—would Express Scripts and/or its plan sponsor client set patients’ out-of-pocket costs higher than the cost using the GoodRx discount card?
- If the GoodRx rates are lower, why doesn’t Express Scripts offer those rates to its members and plan sponsors within the plan design?
I'm sure you can dream up even more questions.
- How (if at all) do discount card transactions affect Express Script’s contractual performance for its client?
As I noted in my first article on GoodRx, we should commend the company for helping to lower out-of-pocket costs for consumers. But we should also question whether placing discount cards within PBMs’ benefit plans perpetuate our broken drug pricing model for generic prescriptions.