Criminology 101: These Drug Prices are Criminal
CJ 1011 Syllabus
Fall 2021
Course Title/Credits: Criminology 101, 3 credits
Course Description: Did your medication cost suddenly increase again? Are you tired of losing money? Then this course is for you! It’s time to take a deep dive into the world of pharmacy and discover why we are paying truly criminal prices for our medications. This course provides students with the fundamental knowledge and skills needed to understand drug pricing and educate the public about these dangerous criminals (prices) and how to avoid them. During this course, students will learn about how pharmacy benefit managers (PBMs), drug manufacturers, retail pharmacies, and insurance companies operate and inter-relate. Students will participate in meaningful discussion and be challenged to think critically about how this broken system can be fixed and how these criminal prices can be brought to justice. Final grades are based on in-class participation. Welcome to criminology 101.
Course Terminology:
- PBM = Pharmacy Benefit Manager — companies that manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers.¹
- NADAC = The National Average Drug Acquisition Cost — The approximate price chain and independent pharmacies pay for medications. Determined by averaging the acquisition costs of drugs in the United States.²
- MAC = Maximum Allowable Cost — A payer/PBM generated list of costs for medications that includes the maximum amount that a plan will pay for generic drugs.³
- WAC = Wholesale Acquisition Cost — An estimate of the manufacturer’s list price for a drug to wholesalers or direct purchasers. WAC does not include discounts or rebates.⁴
- NDC = National Drug Code — A unique 10-digit or 11-digit, 3-segment number, used as a universal product identifier for human drugs in the United States. The 3 segments of the NDC identify: the labeler, the product, and the commercial package size.⁵
- U&C = Usual and Customary — The retail price charged to the general public for a prescription drug.⁶
- Insurance company = third-party payer, health plan — An entity that pays medical claims on behalf of the insured.⁷
- Pharmacy = retail pharmacy, chain pharmacy, chains
Lesson #1: Case Study Example
Learning objectives:
- Explain why drug prices at pharmacies are inflated and why patients are overpaying
- Compare the percent markup from NADAC between chain pharmacies and Blueberry Pharmacy
- Understand how PBMs, insurance companies, drug manufacturers, discount coupon programs, and pharmacies are related
- Describe how Blueberry Pharmacy’s business model offers transparent, fair pricing that puts the patient first
Suspect #77446732: Omeprazole 20 mg capsule
Case File: A commonly used medication for GERD (gastroesophageal reflux disease). The NADAC for a 30-day supply is $1.13.
Incriminating Evidence: For a 30-day supply:
- CVS Price = $67, a 5,825.53% markup
- Rite Aid Price = $122, a 10,689.78% markup
- Giant Eagle Price = $69, a 6,002.41% markup
- Walgreens Price = $71, a 6,179.3% markup
- Blueberry Pharmacy = $10.97, an 870.2% markup
Background
In the United States, medication prices are set by the drug manufacturers. However, we often see prices that greatly exceed the cost to create and manufacture a medication. This may be attributed to something called a PBM. PBMs are defined as “advocates in the health care system, working to lower prescription drug costs for patients and payers across the country.”, but this is not always the case.⁸ PBMs do indeed negotiate with drug manufacturers to lower costs for medications; however, we do not always see these savings reflected at our local pharmacies. PBMs are contracted by health plans with the purpose of managing their formulary and saving money. PBMs complete this job by getting manufacturers to lower their prices through rebates. In return for lowering their prices, PBMs can offer a spot on their contracted health plan’s formulary. Being on formulary means that the insurance company will pay for a portion of that specific medication for their insured members, the insured members will buy this medication over others to save money, and the manufacturer will make money due to the increase in customers buying their medication. The rebates the PBM receives should be shared with health plans to help them lower premiums and out-of-pocket costs for their members as well as with contracted pharmacies to reimburse them for dispensing the medication. Seems like a good plan, right?
Here’s the problem. PBMs can choose to favor high-priced medications for the formulary because they’ll get a larger rebate (rebate is a set % from the drug’s list price). The rebate is not required to be publicly disclosed. This causes a few issues: the manufacturers continue to raise their prices so they are chosen by the PBM for placement in the formulary, the PBM shares some of the rebate with insurer client (unknown if they are sharing enough because the rebate price is unknown), premiums and out-of-pocket costs go up, and members may pay more for both insurance and their medications. Furthermore, pharmacies are reimbursed for dispensing based on the MAC (maximum allowable cost). PBMs create a MAC list for medications that reflects the maximum amount that a health plan will pay for generic medications. PBMs get to choose the numbers for this list and which medications are on the list. PBMs have complete control over both of these decisions and do not have to explain the reasoning for exclusion/inclusion criteria. On top of that autonomous power, the PBM can keep the MAC list number hidden from pharmacies until after a sale is made, allowing PBMs the opportunity to “spread price” and increase revenue. Spread pricing occurs when the PBMs charge the health plan more than what they reimburse the pharmacy based on the MAC, and then they pocket the difference.3 Seems like a bad plan, right?
Case Investigation
The purpose of this short investigative project was to compare big chain pharmacies to the NADAC to discover how much these pharmacies (with PBM and insurance contracts) are inflating their list prices. We also compared these chains and the NADAC to our prices here at Blueberry Pharmacy.
Methods
A list of the 20 most prescribed medications in the U.S. in 2021 was obtained.⁹ List prices for these medications at various chain pharmacies were acquired from GoodRx.com (prices obtained Aug. 23, 2021).¹⁰ Blueberry Pharmacy prices were obtained from the price checker on our website (prices obtained Aug. 23, 2021).¹¹ NADAC per unit data (accessed Aug 23, 2021) was obtained as well and multiplied by 30 to get the price equivalence of a 30-day supply.¹² All prices were based on a 30-day supply. Price data was compiled into an excel sheet for analysis of % markup. % markup from the NADAC was calculated individually for each of the 20 medications at each of the chains and Blueberry Pharmacy using the equation [(Chain store price — 30-day NADAC) / (30-day NADAC)] * 100. From these numbers, average overall % markup for each chain, average overall % markup for all chains together for each medication, and average overall % markup for Blueberry Pharmacy were calculated.
Two medications, albuterol 6.7g/90 mcg and fluticasone propionate 16g/50mcg, were excluded from all analysis, due to non-standardized NADACs based on NDC instead of strength. For average percent markup for each pharmacy calculations, acetaminophen 325 mg tablet and hydrocodone:acetaminophen 10/325 mg tablet were excluded due to pricing being unavailable at Blueberry Pharmacy. Overall, 18 medications were included for average % markup for medications for each pharmacy, and a total of 16 medications were included for average % markup overall. A total of 5 pharmacies were included in analysis (CVS, Rite Aid, Giant Eagle, Walgreens, and Blueberry)
Results
The average % markup was 3,357.47% at CVS, 5,616.83% at Rite Aid, 3,165.39% at Giant Eagle, 3,818.82% at Walgreens, and 918.39% at Blueberry Pharmacy.
Comparing across all chains, the medication with the highest average % markup was amlodipine, with an average markup of 11,372.28%. To put this in perspective, the NADAC price for a 30-day supply of amlodipine 10 mg tablets is $0.47, while the average price from the chain pharmacies was $54, with the highest price listed as $60 at Rite Aid. Below are the average % markups for each medication, in order of highest to lowest.
Discussion
From our findings, we can see that Rite Aid has the highest U&C list prices and average % markup overall. Behind it follows Walgreens, CVS, and Giant Eagle. These high U&C list prices are inflated for a reason. Pharmacy’s make money through reimbursement from third-party payers. Third-party payers contract with PBMs as middlemen to reimburse pharmacies on their behalf. Pharmacies are reimbursed based on the MAC for medications. If the pharmacy sets a U&C price for a medication that is below the MAC that is set, they will make no money because reimbursement cannot exceed the U&C price. Unfortunately, as mentioned previously, the MACs are hidden from pharmacies. Consequently, pharmacies create U&C prices that are so high that it is guaranteed they’ll get reimbursed at MAC.
Why do these chains choose to work with insurance and PBMs if it means the possibility of less profit? The answer lies in preferred networks. Pharmacies contract with third-party payers because they reimburse them for their dispensing services. That is how pharmacies make money. Pharmacies work with PBMs because the PBMs work on behalf of the third-party payer. Therefore, pharmacies are contracted to both insurance companies and PBMs, leaving them with two options: become a preferred network or remain non-preferred. PBMs, on behalf of the health plan, ask pharmacies to be reimbursed at a lower rate than normal in order to become “preferred”. Once preferred, members of the health plan will be directed to get their prescriptions filled at these pharmacies because their copays will be lowered. Non-preferred pharmacies within the health plan network cannot offer these lower copays, and therefore may theoretically lose business. The option comes down to 1) become preferred and risk lowering your reimbursement for the sake of keeping or increasing volume or 2) remain non-preferred and risk losing your business to the preferred networks. Although insured customers have lower copays now, the pharmacy U&C list price remains high, so they are guaranteed to exceed the MAC and be reimbursed.
Cash paying customers, however, still face these outrageous U&C prices. Unless they use a coupon company, such as GoodRx. GoodRx offers coupons to get medications at a price below U&C if you are uninsured. These discounts are possible because GoodRx is PBM-backed, meaning they are partnered with multiple PBMs. PBMs profit because they charge a per-prescription fee from the pharmacy when a GoodRx discount is used. GoodRx profits because the PBM shares a portion of the fee with them in return for their service of directing customers to the PBM’s contract. Overall, non-insured patients may be paying less than insured patients, but both are probably paying too much. Insured patients pay too much for insurance and non-insured patients pay too much because they either pay cash U&C prices or they pay GoodRx falsely low prices. Because the U&C prices are arbitrarily set and inflated for the purpose of the pharmacy making a profit, these GoodRx discounts look incredibly low, even though the real price should be even lower. So, who wins here? Certainly not the pharmacies nor the patients. Sounds like the middlemen (PBMs and GoodRx) benefit the most.
The vicious cycle of overpaying and being deceived by discounts that only continue to fuel those creating the high prices will never end unless we cut out the middlemen. This is the solution we at Blueberry Pharmacy have adopted and based our business model on. Blueberry Pharmacy is not contracted with insurance, but rather operates as a cost-plus pharmacy that offers transparent and fair pricing for generic medications. Instead of relying on insurance and PBMs’ reimbursement rates to make a profit, Blueberry prices are based on the drug acquisition cost plus fees for dispensing. Non-members pay a $10 cost-plus based on the national average cost to dispense a prescription ($10.93), and members pay a $3 cost-plus fee with a $60 annual fee.¹³ For example, if a drug’s acquisition cost is $0.75, a non-member pays $10.75, and a member pays $3.75. The patient saves money and is paying for a fairly priced medication, and the pharmacy makes money from the dispensing fee. Everyone benefits and the overpaying cycle is over.
Reviewing the Evidence:
Learning objective #1) Explain why drug prices at chain pharmacies are inflated and why patients are overpaying
- U&C list prices are inflated at nearly all other retail pharmacies due to the need for them to exceed the predicted MAC that PBMs set. This ensures the pharmacy will be reimbursed something. Patients who pay cash are overpaying because they are paying the inflated U&C price. Non-insured patients using GoodRx are overpaying because their discounts are falsely low and perpetuate the markup of prices and PBM profiting. Insured patients are overpaying because they have to pay for monthly insurance premiums as well as copays.
Learning objective #2) Compare the percent markup from NADAC between chain pharmacies and Blueberry Pharmacy
- The average % markup for medications at CVS, Rite Aid, Giant Eagle, Walgreens, and Blueberry were 3,357.47%, 5,616.83%, 3,165.39%, 3,818.82%, 918.39%, respectively. The medication with the highest average % markup was amlodipine besylate 10 mg tablet, with a % markup of 11,372.28%. Overall, Rite Aid, on average, had the highest U&C list prices and Blueberry Pharmacy (non-members) had the lowest.
Learning objective #3) Understand how PBMs, insurance companies, drug manufacturers, discount coupon programs, and pharmacies are related
- Health plans hire PBMs to negotiate drug prices with manufacturers and manage their formulary plan. Manufacturers then raise their prices to offset the larger rebate given to the PBMs/health plans and to increase profit. PBMs “share” some of the rebate with the health plan to help lower premiums. Health plan + PBMs contract pharmacies. The Health plan pays the PBM for their services and to reimburse the pharmacy on their behalf. The PBM reimburses the pharmacy for dispensing, based on a hidden MAC. Pharmacies raise their U&C prices to guarantee profit from the MAC. Pharmacies join preferred networks within the PBM + insurance contract to gain business, but risk lower reimbursements. Patients pay the pharmacy for medications and the health plan for insurance coverage.
Learning objective #4) Describe how Blueberry Pharmacy’s business model offers transparent, fair pricing that puts the patient first
- Blueberry Pharmacy removes the middlemen to offer truly fair and transparent pricing to our patients. With our cost-plus model, pricing is based on drug acquisition cost plus a dispensing fee ($10 for non-members and $3 for members on 30 day supplies). Insurance, PBMs, and discount coupon companies are not involved.
Conclusions
In conclusion, the United States’ current medication payment system does not work to benefit the patients, nor the retail pharmacies. In this current system, PBMs hide rebates and prices from the public, allowing them to monopolize and virtually control every piece of the drug payment system. If we continue to use coupon companies backed by PBMs, and if pharmacies and health plans continue to contract with middlemen PBMs, we will never see true pricing for our medications. It is criminal for a 30-day supply of pantoprazole sodium 40 mg tablets to be priced at $151 at Rite Aid, when the true acquisition cost for this supply is only $1.88. It is time to hold the middlemen accountable for allowing criminal drug prices to exist and request absolute transparency. As seen with our model at Blueberry Pharmacy, it is possible to offer affordable medication prices AND high-quality care to patients without involving insurance, PBMs, or discount coupon companies. Just ask our former suspect, omeprazole, who once cost an average of $82.25 with an average markup of 7274.25%, but now has reformed its criminal ways to cost just $10.97 at Blueberry Pharmacy.
*Data available upon request*
References
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- National Average Drug Acquisition Cost. Wikipedia. https://en.wikipedia.org/wiki/National_Average_Drug_Acquisition_Cost. Updated 2020 Aug 8 (accessed 2021 Aug 30).
- The Need for Legislation Regarding “Maximum Allowable Cost” (MAC) Reimbursement. National Community Pharmacists Association. http://www.ncpa.co/pdf/leg/mac-one-pager.pdf (accessed 2021 Aug 30).
- Mattingly J. Understanding drug pricing. https://www.uspharmacist.com/article/understanding-drug-pricing. 2012 June 20 (accessed 2021 Aug 30).
- Anderson LA. National drug codes explained. Drugs.com. https://www.drugs.com/ndc.html. 2020 Oct 1 (accessed 20221 Aug 30).
- Usual and customary price definition. Law insider. https://www.lawinsider.com/dictionary/usual-and-customary-price (accessed 2021 Aug 30).
- Third-party payer. Bankrate. https://www.bankrate.com/glossary/t/third-party-payer/ (accessed 2021 Aug 30).
- The Value of PBMs. Pharmaceutical Care Management Association. https://www.pcmanet.org/the-value-of-pbms/ (accessed 2021 Aug 27).
- The Top 300 of 2021. ClinCalc. https://clincalc.com/DrugStats/Top300Drugs.aspx (accessed 2021 Aug 23).
- GoodRx. https://www.goodrx.com/ (accessed 2021 Aug 23).
- Some of our transparent prices. Blueberry Pharmacy. https://price.blueberrypharmacy.com/ (accessed 2021 Aug 23).
- NADAC (National Average Drug Acquisition Cost) 2021. CMS. https://data.medicaid.gov/dataset/d5eaf378-dcef-5779-83de-acdd8347d68e (accessed 2021 Aug 23).
- Michos, L. (n.d.). 2020 NCPA Digest. https://ncpa.org/sites/default/files/2020-10/2020-Digest.pdf (accessed 2021 Aug 27).
