NCPA - National Center for Policy Analysis

Overpaying For Drug Plan Prescriptions

September 12, 2002

More than 200 million Americans now get their prescriptions filled through so-called pharmacy benefit managers (PBMs), which offer negotiated discounts on drugs. But increasingly, patients in these programs are paying more in co-payments for certain medicines than the drug actually costs their health plans.

  • PBMs generally work by negotiating discounts of between 10 percent and 20 percent with tens of thousands of pharmacies -- then pass on some of those savings to clients, like employers who buy the plans for their workers.
  • The consumer pays a small co-payment -- say $5 or $10 -- for a prescription, and the employer gets billed by the health plan for the rest.
  • But the aggressive plans sometimes end up paying prices on generic drugs below the standard co-payments -- and either pocket the difference themselves or allow the pharmacies to keep it.
  • The phenomenon comes not only amid rising co-payments and even faster-rising retail drug prices, but also amid turmoil in the drug industry as a growing number of drugs face generic competitors.

The practice usually occurs with common generics, such as prescription-strength ibuprofen, the antibiotic amoxicillin and the popular painkiller acetaminophen with codeine.

While it's difficult to know how much more consumers spend, one PBM estimates consumers may pay 7 percent more in co-payments than they would if they were allowed to pay lower discount prices.

One Massachusetts man sued his drug card program over the practice. According to Stuart Rossman, director of litigation at the National Consumer Law Center, which aided him in his case, "When you pay a co-pay, you assume it's two people paying. If I'm going to put $4 into the health plan's pocket, at least let me know what's happening."

Source: Barbara Martinez, "That $5 Drug is a Lousy Deal," Wall Street Journal, September 12, 2002.

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