Revenue from U.S. retail
pharmacies reached a record $465 billion in 2020. The United States pays more for
drugs than any other country Drug prices are totally
irrational, something that should cost $2 often cost $300
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 Rite Aid. I like to describe it as is the
pharmacist really being 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 which pharmacy they'd 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 1800s was primarily selling medications
compounding drugs on site for their patients. But new
technology and mass manufacturing forced them to
pivot, pushing them closer to the drugstore model we know
today. Pharmacists move 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 1800s, early 1900s, these are beautiful
pharmacies. They have elaborate soda fountains. They've got
marble counters. Once you get into about the 1920s 1930s this
whole front end of the pharmacy stuff that happened in the
pharmacy, which was not related to company not related to
dispensing really took off and became what pharmacies did for
not only the majority of their revenue and sales, 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 1% of pharmacies in the 1930s, 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 "Lick,
Stick and Poor Era," the 1950s 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 during 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 1980s. 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 that go along with it are just so
onerous that it no longer makes sense for your average physician
to dispense. This retail model for pharmacies
is a lucrative business. Major drug stores 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 most 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 in total revenue in the second quarter of
2021, with $38 billion of that from its pharmacy services. Walgreens has the second largest
share of the market. It generated $28.7 billion in US
sales during its fiscal third quarter of 2021. $21.7 billion
of it was from its us pharmacy business. In principle, the way
pharmacies make money should be simple: Buy a product in bulk at
a low price and then sell it at a higher price that's still a
competitor rate, but insurance negotiations make it a little
more complicated The reason why pharmacies
overcharge is that is they want to charge a price that they will
make money on for any given third party payer that's going
to contract with them. The retail pharmacies 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 at
the pharmacy is $20, and the insurance company pays $10, the
uninsured patient would be forced to pay $20. If the
pharmacy lowered their price to let's say, $5, the insurance
company would only pay them the $5 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 PBMs. That influence pricing
PBMs 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 we'll bring in an intermediary whose specialty 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 acts as the go between. But PBMs 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 PBMs and the pharmacies and the pharmacies
should be able to say, look, we'll only accept this price.
And the PBMs say yes or no, but it's take it or leave it. The top three pbms CVS health
caremark, Cigna's Express Scripts and UnitedHealth Groups
OptumRx processed about 77% of all prescription claims in 2020.
According to drug channels Institute, all of these
businesses also have a pharmacy division. So CVS through their caremark
branch decides what Joe's pharmacy or Susie'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 mail order pharmacy, that's not a coincidence. When asked for comment, CVS
health told CNBC, its model simplifies health care for
customers and its PBM held clients prescription drug cost
increases to just 3% 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 in
2020. OptimRx declined to comment. My name is Greg Lopes, 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 a 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 PBMs 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
PBMs came into the picture in the 1960s pharmacies lost some
control over pricing. It's at that point where
pharmacists instead of setting a price and having a person walk
in agree 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 fall 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. If you look at it
really closely, PBMs are the only ones driving the cost of
drugs down. 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 PBMs. The Supreme Court issued a unanimous
decision in December 2020 regarding states rights when it
comes to regulating pbms. The ruling said The states had a
right to require PBMs to reimburse pharmacies for drugs
at a rate that is higher or equal to the wholesale costs 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 PBMs about rising drug costs. In September 2019, Democratic
Congressman Frank pologne introduced the Elijah E.
Cummings 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 for executive orders that
aim to lower the high cost of prescription drugs, the bind
administration agreed to push the effective date of one of the
more high profile orders to January 1, 2023 rather than have
it 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
independents 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 pbms and provide patients with a discount on the
pharmacies 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 brands
such as GoodRx. 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
PBMs 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 $488
million in fees from its discount card programs in 2020. GoodRx 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 PBMs
at the same time. One of the reasons GoodRx has
grown so quickly, is that it gives the uninsured people, or
people will 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 GoodRx 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 customer is
bypassing their health insurance to use a PBMs insurance network
instead. The fact that we have so many
people bypassing their insurance and using another insurance plan
shows there's a problem and 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 to the PBMs, how do
they benefit from discount cards? What the discount card vendors
will tell you or tell the pharmacies is well if it wasn't
for this card, there would be $0 of revenue, the patient wouldn't
fill the prescription because 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 at
manufacturers or PBMs, 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,
GoodRx 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 the same market forces that
they use in every other way that they purchase something in
healthcare. I have mixed feelings about
GoodRx, I applaud them for what 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 health care 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
home. It's the most accessible 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 medications, 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.
