If you need access to cheap prescription drugs and you do not have a prescription plan for your health insurance, one option is to use a coupon program. There are a small handful of them out there, Good Rx being the most popular. The thing is that you don’t pay for the coupon company’s service. It’s free. So, exactly how do these companies make money?
Though their business models may differ, they all make money through some sort of arrangement with a pharmacy benefit manager (PBM). A PBM is a company that administers prescription drug programs on behalf of pharmaceutical companies, pharmacies, and healthcare providers. Using a coupon is like accessing a secret prescription drug plan similar to the plan some health insurance policies offer.
If you want to know exactly how Good Rx makes money, you can look at their SEC filing from 2020. In that filing, they detail almost everything you need to know about their business plan. Below is a brief explanation of their business plan.
What Pharmacies Charge
Prescription drug coupon programs are only profitable because of how our crazy system is set up. It starts with what pharmacies charge. Unlike an online Canadian pharmacy, like Canada Pharmacy, for example. U.S. brick-and-mortar pharmacies utilize tiered pricing. They charge one price for insured customers and another for uninsured. Those in the latter group are charged more.
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Pharmacies do this because they have no say in insured patient pricing. PBMs negotiate drug prices for each of the plans they administer. If a pharmacy wants to be on a PBMs network, it has to accept their pricing for insured patients. And because reimbursements for insured payments are not as high as pharmacies want them to be, they charge uninsured customers more to make up the difference. This explains why Canadian drugs ordered online are so much cheaper.
PBMs and Coupon Programs
Now, because there are so many people out there who are either completely uninsured or do not have prescription plans with their health insurance, PBMs have created programs through which pharmacies can access those patients. They negotiate cash prices with pharmacies that choose to participate, then publish those prices on their network. They are the same prices you see advertised by coupon programs.
When you buy your prescription and present a coupon, the pharmacy files the equivalent of an insurance claim with the PBM. Good Rx takes a portion of your payment as its fee; the pharmacy keeps the rest. Note that the price you pay is still higher than what an insured patient would pay, but lower than someone who doesn’t use a coupon. Yet you still might pay less by ordering online from a company like Canada Pharmacy.
Why Pharmacies Would Do It
You might wonder why pharmacies would agree to such a deal with the understanding that they will earn less money than they would charging their highest cash price. The answer is encapsulated in a single word: competition. Pharmacies want as many uninsured customers buying from them as possible. There will always be those unwilling to use coupon programs and pay higher prices. But in order to get their share of those customers looking for discount prices, they sign on to coupon programs.
PBMs are fine with that because they get paid via rebates from pharmaceutical companies. Their rebates are based on the volume of drugs their programs sell. Discounted cash prices do not harm them at all. They still get the same rebates. It all works out because the payment aspect of our healthcare system is so convoluted. It is amazing but true.