Generic Drug Prices: The Greatest Public Health Crisis No One is Talking About

Geoffrey Chaiken
Mar 29 · 4 min read

Why medications that were designed to be affordable are becoming unaffordable

The generic medication market was created to offer access and affordability to life-saving medications that millions of Americans need. So why are so many people overpaying for a product that was designed to be inexpensive? Lack of price transparency, difficult script mobility and deceptive patient communication all contribute to consumers not being able to afford a necessity as vital and basic as food and water.

Why medications that are cheap to make aren’t cheap to buy

When a branded drug’s patent expires, other manufacturers can jump in and begin manufacturing it, too. That’s how generics are born. When the equivalent formula of a brand drug starts to be produced by a generic manufacturer, the price drops. As more manufacturers begin to make the drug, this added competition in the market causes the price to continuously decrease.

These cheaper drugs should mean lower prices for consumers at the pharmacy counter, but that’s not how it’s working. Purchasers of the drug, such as wholesalers and pharmacies, should be able to pass along these lower costs to consumers in the form of lower prices, but middlemen in the supply chain step in and mark up prices along the way to take in huge profits.

This opaque system leaves consumers in the dark about how much they’ll pay, makes it difficult to compare prices between pharmacies and misleads them about whether or not they’re getting the best value.

Lack of transparency and script mobility

The pharmacy is the only place in retail where the consumer doesn’t know the price of the product before they get to the counter and where three different people will pay three different prices for the same product at the same store at the same time.

This lack of transparency is compounded by the fact that the medication transaction is unusual: it requires a permission slip in the form of a prescription from a doctor. When a patient gets their prescription and goes to the pharmacy counter only to find out their medication will cost them $150, they can’t easily find other prices for that same medication without going through the significant effort of sending that prescription, along with their insurance information, to another pharmacy where they only have a 50/50 chance the price will be lower. So they give up and either overpay, or go without their medication.

Transferring a prescription isn’t impossible, but the process is intentionally time-consuming, cumbersome and tries to prevent consumers from taking control over their medication spending.

Deceptive patient communication

When you hear the word “copay,” you assume that it means that you are paying a portion of the prescription price and someone else is paying the rest (e.g. your insurance company), and thus you are getting a deal. The reality is that over a quarter of the time, your “copay” for generic drugs is a “you-pay.” In other words, there is no money coming from your insurance company to cover any part of your Rx cost. You are paying 100% of the price of the drug.

Here’s an example. When you pay your “copay” of $40 to the pharmacy, the pharmacy collects $40, but might only keep $9. They must remit $31 back to the PBM in the form of a “clawback” that may or may not be shared with the insurance company. The misleading nature of the term “copay” further discourages patients from shopping for medications.

Market forces

The result of this complete lack of transparency, high switching costs and deceptive patient communication is that the big box pharmacies are able to charge cash-paying patients or those who have not yet met their deductible on average more than $109 for medications that they purchase for less than $16 — a 6x markup for a commodity. If consumers paid a 6x markup for white bread, there would be riots.

Fixing a rigged system

Confused? The middlemen in the drug supply chain hope so. The less the public understands about why they pay the prices they do — and where the profits end up — the more middlemen can continue to reduce the affordability of generic medications and increase their profits, to the tune of more than $15.2 billion combined PBM EBITDA in 2017.

By cutting out the “clawback” and providing the patient with direct access to the negotiated rate plus a small markup, Blink is actually able to reimburse the pharmacy at a higher rate than what it would get from a PBM. Going back to our original example, Blink can reimburse a pharmacy $10 vs. $9, and save the patient money by charging them only $11 instead of their $40 “you-pay.”

The lack of affordable generic drugs is a public health crisis that needs to be addressed before millions of Americans who rely on affordable generic drugs are forced to go without. By providing transparency and easier script mobility, Blink is bringing back market forces to the generic drug market to ensure that patients, not middlemen, benefit from generic medications.

Geoffrey Chaiken

Written by

CEO and co-founder of Blink Health, on a mission to bring transparency to the prescription drug industry and make medications affordable for all Americans