Ah, the conundrum of drug pricing. We know you want to price your drugs well for the patient, while protecting your margins. But it can sometimes feel like payers and discount cards have all the control, so what’s the point? Is it even possible to maximize reimbursement and keep your patients’ costs from skyrocketing? Yes, but it takes some work.
First, let’s review some basics of drug pricing. The nuances of cash, what cash pricing really means for your pharmacy business and how each of the different benefit designs impact your bottom line.
Benefit designs 101
1. Actual cash paying customers.
Though these customers seem to be dwindling by the day, the good news with true cash payers is you keep 100% of the margin. But wait. If nobody really pays cash, why is it so important? Great question! Because your cash (U&C) price also impacts your PBM reimbursement.
2. Traditional insurance (the PBM).
This leads us to the traditional insurance route that goes through the PBM. Up until recently when discount cards really started taking off, this is how most patients would pay for their prescriptions. And the reimbursement path was relatively straightforward, following the formulas outlined below, with most contracts paying the lesser of the three.
Average Wholesale Price (AWP), minus a fixed percentage, plus a dispensing fee
Maximum Allowable Cost (MAC), plus a dispensing fee
U&C (cash) price
And then, along came the disruptor.
3. The new PBM or the new cash? It’s a little bit of both: the discount card.
As consumers search for the best price for their medications, discount cards offer the ability to shop for the best price, just as they do with other consumer goods. Great for the consumer but terrible for the pharmacy, thanks to huge fees eating your margins. (See part I of this blog series for more info on why discount cards are so detrimental to pharmacy bottom lines)
How do you protect your pharmacy’s margins?
Option 1: You can make the decision to not take discount cards. It’s a bold move in today’s climate, but it is ultimately your choice whether or not you choose to accept them. However, due the popularity of these cards among consumers, this is likely to result in a loss of customers to competitors that do accept discount cards.
Option 2: You can align with “pharmacy-friendly” discount cards. While these discount cards have lower fees (hence the pharmacy-friendly designation), unfortunately their discounts are usually not as favorable as more popular discount cards. As a result, consumer adoption is low, and you end up right back where you started.
Option 3: You could spend a whole lot of time and effort trying to optimize drug prices on your own. One of your staff members could spend hours calling all the pharmacies in your region and comparing prices. Factor in the number of drugs in your inventory and that you would need to do this daily – I’m exhausted just writing it. Not to mention you need so much more data than just the prices of your competitors in order to get to an optimized drug price! (More on that in a minute.) Is this achievable? Possibly. Is it scalable? Doubtful. Is there a strong ROI? Definitely not, especially if you end up spending 100+ hours/week to cover the time or end up paying a full-time salary to someone.
Option 4: (spoiler alert: this is the one!) You can leverage technology to bring together multiple data points and find the right price for each drug – a unique price that maximizes overall reimbursement based on a combination of data points. So, what are a few of the important data points when considering how to best price each drug?
Drug Pricing Data Points to Consider:
- Local market pricing data
What is the average price of the drug in your immediate geographical area
- Discount card dispensing data
How many patients are using discount cards on this drug? What percentage of the total fill amount? High or low discount card volume? What’s the average fee charged?
- PBM reimbursement data
What do PBM reimbursements look like on this drug? Are there times when you left money on the table because the cash price was too low and the PBM would have reimbursed you at a higher rate if not for the low cash price?
- Patient behavioral data
How popular is this drug at your pharmacy? What does the reimbursement mix look like – cash vs. insurance vs. discount card?
And remember – this analysis and combination of data must be completed for each drug! Every day. With some medications, you will want to price to optimize PBM reimbursement. With others, you will want to price to optimize discount card reimbursement. In both cases, you may be leaving a small amount of money on the table, but the overall margin gain is positive. And therefore, simple price comparisons won’t be enough. The cash price drives reimbursement, but to protect your margins you must go beyond the cash price and dig into the data.
To sum it all up, the secret sauce to effective drug pricing is automation. For each drug you dispense, you must be able to understand and compile various data points to maximize good for you and good for your patients.