There are many factors that go into the cost of prescription drugs, both in terms of the actual cost and the amount that a patient pays. Like most products people buy, an ever-changing market impacts the price of drugs over time.

Setting the list price of medications

When a manufacturer sets their list price for a drug, they consider multiple things:

  • What was the total research investment to develop that drug?
  • How unique is the drug? Is it the only drug available that’s been clinical proven to treat a specific condition? Or is it one of many medications that could be used?
  • Is there a current patent on the drug that prevents other companies from manufacturing the same medication?

If there are many similar drugs available, chances are a new drug will be priced similarly to competitors. But a new drug that involved a large research investment may be listed at a much higher price.

Determining the cost to the plan sponsor

Pharmacy benefits managers work with manufacturers, wholesalers, and insurance companies (or self-insured companies in our case) to include drugs in the formulary of covered medications. For that effort, the PBM receives a rebate from the manufacturer that essentially lowers the total cost of the drug, which is known as the net price.

Some PBMs pass the full rebate on to the plan sponsor by only charging the new lower cost for the medication. Other PBMs take part of the rebate as income and pass on some of the savings to the employer or plan sponsor.

Understanding what the patient pays

When a patient fills a prescription, they can pay anything from a fixed co-pay amount to the full list price of the medication. If they don’t have insurance coverage at all, they may be charged the full list price but be able to reduce the amount through discounts or rebates from manufacturer. If they have insurance coverage and the drug is included in their formulary, they’ll typically pay a set co-pay amount. If the drug isn’t included in the formulary, they may pay the net price as an out-of-pocket expense but still be eligible for manufacturer discounts or rebates.

Many drugs have either generic options or lower-cost alternatives that have been clinically proven to be effective. In those cases, a prescription drug plan may require the patient to start with a lower-cost drug before moving to a higher-cost option. Or the plan may allow the higher-cost option but pass the difference in cost on to the patient.

We know that prescription drug pricing can be confusing for both employers and their employees. At MaxCare, we value true transparency and operate as a pass-through PBM. We sit down with our clients and walk them through every step of the process for how drugs are priced and show them our rebate contracts to help them understand what they’re paying.

Contact us today to talk about how we can help you understand and manage prescription costs for your self-insured plan.