Cash-pay pharmacies have received a lot of media attention lately as more patients—both with and without insurance — use them. One reason why cash-pay pharmacies have grown in number and popularity is that insured patients have found cash-pay pharmacies may offer lower prices for common, generic medications than their in-network pharmacy copay.
While this may help some patients pay less at the pharmacy counter, ultimately, cash-pay pharmacies are not the silver bullet solution to our current pharmacy system. These pharmacies typically only address the 20% of drug spending related to generic medications, and they may also introduce more care fragmentation into a system where patients would benefit from more coordination.
Cash-pay pharmacies lower generic drug costs by minimizing the mark-ups charged by several pharmacy supply chain players. When a prescription drug moves from manufacturer to patient, manufacturers, wholesalers, and pharmacies all mark up the price of the drug to cover their expenses and add some extra profit for their bottom line.
In addition, when a pharmacy benefit manager (PBM) is involved, they may also mark up the cost by charging the patient (or the patient's health plan) more than what they reimbursed the pharmacy for the medication.
By circumventing the insurance system, cash-pay pharmacies typically have a simpler pricing model. Many use a cash-plus pricing system, meaning that they sell medications for the price they pay to acquire the drug, plus a standard pharmacy dispensing fee. This often results in a price that's actually lower than the patient's copay via their pharmacy benefit at a traditional pharmacy.
However, cash-pay pharmacies do little to address rising patient costs for brand and specialty medications. Cash-pay pharmacies don't typically dispense more expensive branded and specialty medications. Considering that 60% of Medicare Part D's spending in 2019 was attributed to 250 top-selling, brand name drugs with one manufacturer and no generic or biosimilar competitors, this greatly limits the ability of cash-pay pharmacies to impact overall drug spend.
Some cash-pay pharmacies have said they will explore providing discounts for branded drugs, as well, but the model is unproven in this area. To cover brand drugs, cash-pay pharmacies would need to negotiate with drug manufacturers — one of the main functions of PBMs.
Negotiating with manufacturers is not a simple task. Cash-pay pharmacies lack the scale of the largest PBMs, which means they have less negotiating power to drive down prices. They also don't have the same tools as PBMs to drive the steepest discounts, such as formulary placement or utilization management strategies. The sheer number of manufacturers would also make negotiations difficult for a small or even mid-size cash-pay pharmacy.
Manufacturers may be willing to give discounts to make their drug competitive at the cash-pay pharmacy as an alternative to negotiating the steep discounts needed to get on formulary with a PBM. However, such discounts might undercut their negotiating strategy with PBMs, which in turn could push manufacturers away from working with cash-pay pharmacies.
Cash-pay pharmacies — especially mail order cash-pay pharmacies — may also exacerbate challenges with care fragmentation for patients with many prescriptions. Since cash pharmacies typically only dispense a limited list of medications, patients taking multiple prescriptions may still have to use other pharmacies for prescriptions for brand or specialty drugs.
Considering that the average Medicare Part D beneficiary had 54 prescriptions in 2018, it's safe to assume they would benefit from having one pharmacy that can sync up refills and look across all their medications to make sure there aren't contraindications for new drugs, rather than dividing their prescriptions between cash-pay and traditional pharmacies.
Ultimately, the biggest value that cash-pay pharmacies may provide in addressing the drug cost challenges is shining a light onto how the pharmacy system works — or doesn't work — for patients.
This is already leading to short-term changes across the pharmacy benefit space. As employers and patients see third-party, out-of-network pharmacies offering better deals than what is "negotiated" through their health insurance plans, employers have begun demanding inclusion of cash-pay pharmacies in their plans. PBMs have been responding with their own cash-pay offerings or partnerships.
The long-term impact is hazier. Here are three questions we're watching to help us understand whether cash-pay pharmacies will lead to any longer-term solutions in the pharmacy system.
Given rising list prices and increasing rates of drug consumption, many health plan leaders and employers are seeking ways to lower drug costs for their plans. Some stakeholders theorize that increasing patient cost-sharing for medications will lower drug costs, thus lowering overall healthcare costs. The reality is more complex. More patient financial responsibility has been shown to decrease medication utilization, which in many cases increases medical costs down the line.
In this mythbuster, we walk through three reasons why the myth that higher copays for medications lowers total cost of care is wrong — and provide next steps for stakeholders to shape the future of drug benefit design.
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