Normally, I don't like to answer my own questions. However, the PBS NewsHour recently had an excellent report that answers the question. The quotes below are from the transcript of that report.
The discount cards are from companies called "Pharmacy Benefit Managers" (PBMs).
PBMs are designed to help health plans and insurers manage prescription drugs.
In the late ’60s, early ’70s, PBMs started in giving plastic drug cards to consumers so they could go to the pharmacy, they didn’t have a trail of paper, it made it easier to get prescription drugs. Through the years though, they have gotten more and more power.
- Insurance plans, drug makers, and pharmacies have little choice but to go through the PBMs.
Rutgers Law School professor Michael Carrier is an expert on the pharmaceutical industry. He explains that PBMs act as middlemen between the insurance plans, drug makers and pharmacies. He says most consumers have no idea there’s a PBM, not an insurance company, managing their prescription drug plans.
‘If you want our patients in this particular network to be able to come to your pharmacy, these are the terms. Take ’em or leave ’em.’
ALEX AZAR [Secretary of Health and Human Services]:
We’ve had several drug companies come in who are- want to execute substantial material reductions in their drug prices. They are finding hurdles from pharmacy benefit managers and distributors where they might say, “Well, if you decreased your list price, I will take you off formulary, compared to your competitor who will have a higher list price where I will make more money.” I find that unconscionable.
- There is little competition between PBMs.
There are three main PBMs that take up 85% of the market. You have Express Scripts, you have CVS Caremark, and you have OptumRX.
- PBMs force consumers to pay the full copay for every drug, even those that are cheaper than the copay. These tend to be older drugs, off patent and often with several generic manufacturers. Furthermore, the PBM keeps almost all of the extra charge (called a "clawback").
Jacobson showed us a recent transaction for the diabetes drug Metformin. It cost him [a pharmacist] $1.61 to acquire the prescribed amount of the drug. He says, if the patient paid out of pocket, he would have sold it to them for $4.00. His profit would have been $2.39. But the patient used an insurance plan, and there was a middleman- the PBM. It told Jacobson to charge a $10.84 copay it let him keep $1.93. And it took $8.91 for itself.
So you could sell it to them for four dollars. Instead they paid a ten dollar and four cent copay.
- PBMs force pharmacists into contracts that control costs.
Jacobson says he’s never really sure how much money he’ll be reimbursed by the PBM- an amount that’s been steadily decreasing over the years. He says sometimes, he actually loses money on a sale.
I’m ultimately getting paid nine dollars and six cents. Now this particular drug actually cost me sixty dollars and change.
I lost 50 dollars on that prescription.
- The contracts also include "gag clauses" that prevent the pharmacist from disclosing information to the consumer.
But until recently, Jacobson couldn’t bring this up unless the customer asked. He says that’s because many of his contracts with the PBMs contained provisions- that prohibited him from pointing out that they could get their prescription cheaper if they didn’t go through their insurance plan. Pharmacists call them “gag clauses.”
- PBMs -- not the insurance companies -- decide which drugs go on a formulary, and they get paid directly by the drug manufacturers for it.
In addition to managing business involving consumers, pharmacies and insurance plan, PBMs also broker deals between drug makers and insurance plans. For instance, they help decide which drugs will be covered by the plan. The list of covered drugs is called a “formulary.” In a bid to get a drug on a plan’s formulary, drug companies sometimes pay pharmacy benefit managers. The payments are known in the business as “rebates” and they can total millions of dollars.
Michael Carrier says because these business deals are secret, it’s not clear how much of the payment is being used to reduce patients’ costs. And how much is being pocketed by the PBMs and insurers themselves.
Carrier also says this system could be inflating drug prices. Because drug makers have the incentive to increase the price of the drug in order to afford the payment to the PBM.
By increasing the price of the drug, the manufacturer has more leeway to give a big rebate to the PBM, the PBM is happy, the drug is covered on the formulary. Unfortunately for all of us, drug prices go up.
The report also notes that Secretary of H&HS Alex Azar is looking to outlaw clawbacks and rebates to PBMs.
A prudent consumer could save money by the following:
(1) Bring all of your prescriptions to a pharmacy.
(2) Ask the clerk/pharmacist for a quote for the cash price (i.e. no insurance or PBM involved) of each prescription, without filling any prescriptions.
(3) Have them fill only the prescriptions that are cheaper than your deductible.
(4) Go to a different pharmacy chain with the remaining prescriptions, and fill them with your insurance.