The prescription drug business is gargantuan in size with the American consumer spending more than 330 billion dollars per year on medications. That staggering price tag is anything but transparent, however. It would be nice if things were simple, but drug prices are not based on a cut and dry schedule of costs. Numerous factors influence the cost of prescription drugs, and those factors are anything but straightforward.
The Prescription Supply Chain
A prescription drug’s cost begins with a list price set by the pharmaceutical company. While the criteria for each medication’s list price is complex and often tied to research and development, it is ultimately based on what the pharmaceutical company thinks consumers will tolerate.
Wholesalers and WAC
Wholesalers purchase medications directly from the pharmaceutical company for the list price, with some slight variation. What wholesalers actually pay is called wholesale acquisition cost (WAC). Wholesalers turn around and sell medications to retailers at a markup from the list price. The cost that pharmacies pay is known as the pharmacy WAC, which is a negotiated price based on the WAC.
This might seem like a fairly straightforward pipeline, but when private insurance companies and entities like Medicare or Medicaid get involved, drug prices become increasingly convoluted. This is where a PBM comes into play.
PBMs and pharmacy rebates
PBM stands for pharmacy benefit manager. PBMs are responsible for negotiating medication prices between insurance companies and pharmacies. Their goal isn’t necessarily to lower prices for the consumer, but instead to establish which drugs are listed on their insurance company’s formulary, or the medications that the company will cover. To that effect, PBMs advocate on behalf of the insurance company to set consumer prices. PBMs will sometime use rebate coupons to pass savings on to customers with the secondary goal of boosting certain drugs’ placement on the formulary.
An Obtuse Process
The end result is a fluid, often arbitrary cash price at point of sale. This bottom line price is often eclipsed by insurance co-pays and deductibles, with the consumer never truly seeing the raw cost of their medications. A number of legislators and companies such as RxThat, have made it their mandate to shed light on drug pricing and supply healthcare price transparency to patients and the general public. At this time, it helps to visit a medical provider that can help break down your treatment options, give you choices, and help link you to available discounts and rebates.Previous Post Next Post