There are many companies in the United States that advertise a plan to consumers, promising to lower their costs for prescription drugs. These plans go by several names such as "pharmacy discount card", "prescription benefit plan", or some combination of the words drug/pharmacy/prescription and benefit/discount/savings.

How exactly do these work? In other words, why would they lower the drug costs to the consumer, yet still make money for the company?

I'm talking about third-party solutions that are separate from the consumer's health insurance. Obviously in the latter case, the insurance company makes money by forcing consumers into a formulary.

  • 1
    Possibly the same way insurance companies do: negotiate volume discounts with drug manufacturers on a formulary. Or they may be scams.
    – RonJohn
    Commented Jul 29, 2018 at 23:42

5 Answers 5


Over the years, I've had a couple of expensive prescriptions that were not included in my insurance company's formulary. That meant zero reimbursement and my having to pay the full ticket. On both occasions, I searched the web and found a number of "pharmacy discount cards" that promised savings of 20-30-40% etc. These cards often directed you to well known drug stores such as CVS, WalMart, Walgreens, etc.

For every one of the 7 to 8 cards that I tried, the final price was no better than the best price that I could obtain by persistently negotiating a cash price. Some of them advertised specific prices at say WalMart and when you called WalMart, they said that the price was invalid. While I have no proof, I suspect that some of these so called cards are merely guiders of traffic to these stores, established by the stores themselves.

My experience is by no means conclusive. It's a finite sample of chasing after 2 RXs at different times. What you need and the best price available may indeed be better and you'll only find that out by chasing down some of these "deals". .

In the end, I found a reputable Canadian pharmacy that some friends were using. The cash price was 1/3 of the best price that I could obtain in the U.S.

EDIT: One thing that I forgot to mention is that some drug companies offer discount cards for their own medications. These are given to the physician to dispense to patients or can applied for at their web site. These are legitimate and will save you a chunk of change, unlike the ones that I described above.

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    "persistently negotiating a cash price" Please explain. (I didn't think that American pharmacies were Mexican outdoor markets.)
    – RonJohn
    Commented Jul 30, 2018 at 1:18
  • 2
    No, they are indoor "Mexican markets" (g). Healthcare in the US is a multi-tiered system, with the same provider charging different prices for the same services. You can negotiate with anyone. All you have to say is "I have no insurance." Some will not yield. Some will. Try it, you might like it :->) Commented Jul 30, 2018 at 1:22

There are a number of ways these can offer benefits for the pharmaceutical companies involved.

  • Some of these programs cover copays/deductibles. For example, I'm on Stelara, and the manufacturer will pay up to $20k/year of my costs. Why? It's $10k/shot, and probably costs $10/shot in materials, so by paying a couple thousand dollars they can make $40k in revenue off my insurance. (I might forgo treatment or pick a cheaper option if I had to pay that out of pocket.)
  • They're generally limited to one manufacturer's medications. The actual marginal per-unit manufacturing costs of drugs are quite low compared to their price (which is intended to make up the massive R&D and marketing costs), so while a drug may cost $1k/pill at retail, it's likely still making money at $50/pill. By offering what seems like a whopping discount, they still get to recoup some costs. As a bonus, if you get better insurance next year, you're on the med already.
  • They're not actually giving that much of a discount. My insurance company generally manages to negotiate 30-50% off the retail price of my medications... so a "discount" card that knocks half the price off is actually just bringing it down to the more realistic price most people are paying anyways.
  • It insulates them (somewhat) from public relations issues around people being unable to afford their critical meds.

Health insurers do not negotiate with drug manufacturers. There is a separate middle man for drugs called a Pharmacy Benefits Manager (PBM). Without looking further, I suspect what you're looking at is a program available through CVS or some other large pharmacy that also owns a PBM; some insurers also own PBMs (Cigna recently acquired Express Scripts). CVS is just allowing access to it's Caremark PBM directly with the goal of increasing it's sales volume to achieve increased volume discounts from the manufacturer or wholesaler. There is also a slight discount even relative to what a health insurance plan that uses Caremark as it's PBM would achieve at the retail level due to the vertical integration and the removal from any fees charged to the insurer for access to the PBM.

Additionally, though it doesn't look like this is what you're bumping in to, many specific drugs have direct to consumer discounts available. Those exist really to sell to someone who wouldn't or couldn't otherwise buy and appease what could otherwise become very bad PR.


There are a lot of products like pharmacy discount cards out there, including for other, non-drug medical services. In addition to the information in the other answers, discount arrangements involve companies steering individual people towards specific medical groups by negotiating lower rates than the "sticker price" of medical care. They take on the overhead of negotiating and marketing products, but don't actually take on financial risk because they aren't indemnifying people against anything-- the service is exactly the same whether you use it or not.

There is particular room for such products when dealing with pharmaceuticals. They can be expensive for consumers to buy, way beyond cost of production and in many cases R&D (the companies do reliably turn impressive profits), and for new drugs there is generally little to no market pressure pushing prices down. Many indemnity insurers are unwilling or unable to adopt the financial risk of paying for some drugs, and even when they are high deductibles and/or unfavorable coinsurance rates may leave people exposed to a lot of the cost.

So some consumers in some cases can get a real benefit where the cost of the discount program (to them) is attractive while the "lost" revenue to the drug manufacturer is absorbable, with a margin left over for the discount negotiator (when it's truly an independent group, which is not always the case).

The discount provider gets money either by direct membership costs or as a payment from the health care companies or insurers (think something along the lines of carve-out services or a supermarket loyalty program for that latter case).

Health care providers expect to make money from increased volume of people coming to them for services, attracted by the discount. They can also net lower expenses by not having to chase down remaining balances that people can't or won't pay, and don't have to deal with turning people away without providing care (which could, in turn, precipitate additional high-cost use of medical services due to unmanaged conditions).

And, (slightly more than) a quibble: insurance companies don't make money on pharmacy plans by "forcing consumers into a formulary". They do it the same way that health insurance overall does: by spreading risk among a population and charging an actuarially derived fee for access to the risk pool. PBMs and restrictive formularies do help limit downside risk, though.

  • yes, insurance companies aren't "forcing consumers into a formulary". But they surely do make money by creating restrictive formularies to limit their risk (costs). While it may be cost effective, it can also be problematic for the patient who doesn't respond to Tier 1 and Tier 2 drugs and must therefore experience a prolonged recovery. This is particularly egregious when a patient is denied treatment via a higher Tier medication (no insurance coverage) and has the choice of suffering or paying the full ticket out of pocket. Commented Jul 30, 2018 at 20:09
  • @BobBaerker I largely agree, but it's not really different from any other element of the coverage contract. It covers what it covers and not anything else. That's not to say that insurers don't get up to some despicable things with carefully constructed formularies (and other techniques, like the thankfully-now-illegal post-hoc recission), but generically insurance companies all make money by assuming a set estimated range of financial risk for a population. That's what the business is.
    – Upper_Case
    Commented Jul 30, 2018 at 21:02
  • True but the question and my reply are about the need for "pharmacy discount cards" because of lack of coverage whether it be from having no insurance or the insurance company not including a medication in the formulary. You have wandered off into how an insurance company makes money. Commented Jul 31, 2018 at 0:24
  • The question is "how do pharmacy benefit cards work?", not "why might they be necessary or valuable?". In addition to non-coverage, some pharmacy discount cards also apply when drugs are covered by insurance, but still expensive. And then your comment is about how insurance companies make money via control of downside risk with formularies and not covering some things in their contracts. Perhaps I read into your comment intent that wasn't there, but how insurers make money seems to me to be inseparable from the issues that you raise.
    – Upper_Case
    Commented Jul 31, 2018 at 0:44

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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.”

  1. 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.

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