Understanding Your Drug Costs: Follow the Pill

Summary

This video explains the complex journey of prescription drug pricing, revealing how factors like drug manufacturers, wholesalers, insurance, and Pharmacy Benefit Managers (PBMs) determine the cost. It starts with the manufacturer's list price, which is then marked up by wholesalers and influenced by PBMs negotiating rebates. Insurance companies use PBMs to manage drug tiers, which determine how much patients pay. The script highlights the intricate relationships between employers, insurers, and PBMs, showing how the system is structured to manage costs, with most of the control resting in the hands of insurance companies and PBMs, rather than the drug manufacturers.

Takeaways

• 😀 The pricing of prescription drugs is complex, involving multiple players like manufacturers, wholesalers, PBMs, insurers, and employers.
• 😀 Drug manufacturers set a list price, but this price is often not what consumers or pharmacies pay.
• 😀 Three major wholesalers control 90% of the market and buy drugs at discounted prices before selling them to pharmacies.
• 😀 PBMs (Pharmacy Benefits Managers) negotiate rebates from manufacturers to reduce costs, but the amount of rebate retained can vary.
• 😀 Your insurance company determines how much you pay for a prescription by placing drugs on different tiers, based on negotiations and rebates.
• 😀 The higher the tier a drug is placed on, the more you pay out-of-pocket, regardless of the drug's list price.
• 😀 Insurance companies, employers, and PBMs work together to decide the final cost of a drug, and this varies between employers and insurance plans.
• 😀 The rebate system enables different employers and insurance plans to negotiate different prices for the same drug.
• 😀 At the pharmacy, you pay your portion of the cost, while PBMs reimburse the pharmacy using a complex calculation.
• 😀 The actual cost of a prescription drug involves many hidden negotiations, and the list price is almost never the final price paid by anyone in the system.

Q & A

What are the primary factors that determine the cost of a prescription?

The cost of a prescription is determined by several factors, including the drug manufacturer's list price, negotiations by wholesalers and pharmacy benefits managers (PBMs), insurance coverage, and copay tiers set by the insurance company.

What role do wholesalers play in the pricing of prescription drugs?

Wholesalers buy drugs from manufacturers and then mark up the price before selling them to pharmacies. They control 90% of the market and can negotiate discounts with manufacturers.

How do pharmacy benefits managers (PBMs) influence prescription drug costs?

PBMs negotiate rebates from drug manufacturers, and these rebates can significantly lower the cost of medications for insurance companies. The PBMs' decisions on how to use these rebates, such as passing them to employers or keeping them, can affect the final cost for consumers.

Why might two people pay different amounts for the same prescription?

Two people may pay different amounts for the same prescription because the cost is influenced by their individual insurance plans, copay tiers, and the rebates negotiated by their PBM.

What is the role of insurance companies in determining prescription costs?

Insurance companies work with PBMs to negotiate rebates and determine which drugs are covered under specific plans. They set copay tiers, which affect how much the consumer has to pay out-of-pocket for prescriptions.

What are the different copay tiers and how do they affect prescription costs?

Copay tiers are categories set by insurance companies that determine the amount a consumer pays for a prescription. Higher tiers generally mean higher out-of-pocket costs for the consumer, regardless of the drug's list price.

How do PBMs and insurance companies work together to affect drug pricing?

PBMs and insurance companies collaborate to determine the final prescription price by negotiating rebates, deciding on copay tiers, and calculating reimbursements to pharmacies. PBMs may also retain a portion of the rebates as profit.

What is the significance of the drug manufacturer's list price in prescription costs?

The drug manufacturer's list price is the starting point for determining drug costs, but it is often not the price paid by consumers or pharmacies. The final cost is influenced more by negotiated rebates and insurance coverage.

What happens when a drug moves from one copay tier to another?

When a drug moves to a different copay tier, the amount a consumer pays for the drug may change. A shift to a higher tier typically results in a higher cost for the consumer, which can be frustrating if it happens unexpectedly.

How does the pharmacy get reimbursed for a prescription filled?

The pharmacy is reimbursed by the PBM using a complex calculation based on the negotiated price. The PBM then charges the insurance company a cost plus a fee.