Exploring Human Potential

The Story Behind The Pharma Savings Coupon.

Posted on | October 2, 2017 | No Comments

Mike Magee

As I’ve said before, complexity is the friend of the Medical Industrial Complex. Whether hospital, insurer, organized medicine, pharmaceutical or government agency, profitability, market advantage and career advancement can be found in the cracks of the deliberately Byzantine network.

For those intent on regulating or managing the American system as it is, just understanding and unraveling the opaque morass can be a full time job.

Consider the case of US pharmaceuticals and coupon cards. Before I go there, here are a few supply chains facts you need to know.

1. Quantity: There are roughly 4 1/2 billion prescriptions filled each year with about 90% of them fulfilled with generic drugs.

2. Consumption: Just under 50% of American residents have filled 1 prescription in the past 30 days, and 10% of the population takes 5 or more different prescription drugs.

3. Construction: Most of the raw materials for products of US-based drug multi-nationals are made overseas by a $46 billion dollar manufacturing conclave .

4. Distribution: Once the company produces an individual drug, it does not go to a pharmacy outlet directly. Instead it is shipped to a U.S. distributor. 85% of all drugs consumed by Americans go through one of three giant distributors – AmerisourceBergen, Cardinal Health, and McKesson – which received $378 billion for their services in 2015.

5. Retail: Most Americans get their prescriptions filled at one of the 60,000 pharmacies, either in person or by mail order. 38,000 (63%) of the outlets are part of retail chains, and 22,000 (37%) are independents. All told, the retail pharmacies collect about $365 billion in revenue a year. Chains dominate with just 15 (including CVS, Walgreens, Walmart and Express Scripts) controlling 74% of all retail income. They collect 62% of this in person and 38% by mail order.

6. Who Pays?: Americans pay for their drugs through a confusing partnership mix and match designed by varied insurance companies. This requires negotiating deductibles, coinsurance and copays. For the total paid out, 42% comes from private plans, 30% from Medicare (Part B and D), 10% from Medicaid, and 14% from individual themselves.

7. Cost Control: Insurers use Pharmacy Benefit Managers to hold down their costs.  PBMs are big business and of the biggest three one is owned by the pharmacy chain mega-giant CVS (CVS Caremark), a second by insurer UnitedHealth Group (UnitedHealthOptum), and a third geared toward mail order (Express Scripts). Together these three control 72% of the PBM market.

As the Martin Skreli’s of the world increasingly stuck their fingers in the eyes of vulnerable Americans, Big Pharma looked for strategies to counter the bad PR. One strategy was to offer coupons to offset the cost of their brand name drugs. But usually, the offer was extended on products that already had a low cost generic substitute available on the market.

Generics in general are about 80% cheaper across the board than brand name counterparts. But when it comes to coupons, the critical thing you need to understand is that payment for the prescription is a team effort. You pay but so does your insurer. And often, coupons play one off the other. For example, if a coupon allows you to get a 30 day supply of a brand name drug for $4, when a generic costs you $10, few opt for the generic. But behind the scenes, two things are happening. First, the drug company has a free hand to raise the brand drug’s overall price because patients aren’t complaining. Why should they? Their cost is fixed at $4. But insurers often pay a percentage of the total cost, so their paying a premium. Plus the overall cost of the generic was much lower to begin with.

“Who cares?” you might ask. “It’s just the insurer.” True, but eventually that cost will be recovered in your premiums. Estimates are that off-patent brands that use coupons to compete with generics increase their sales by over 60%. And these coupons add several billion dollars in extra spending a year to our health care system.

This kind of manipulation and greed within the cracks of our uniquely entrepreneurial health care system are part of the reason why increasing numbers of Americans are saying enough is enough, and flirting with single payer simplicity and transparency.

By the way, Medicare bans the use of drug coupons.


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