In this hypothetical example, the Pharmacy's acquisition cost is 1.9 cents. Then what can be the Wholesaler acquisition cost? And what is the percentage of profit of the wholesaler? And in that case what is the cost of goods (manufacturing cost of the pill) for the drug manufacturer? If the drug manufacturer's profit is so less, how would they pay the admin fees and rebates to the IDNs, GPOs and PBMs? Your numerical examples are good to understand the scenario you explained, but raised these questions to me. Appreciate if you can explain or point out where my understanding went wrong.
Great video. I used to think that the patient’s script cost could vary by pharmacy because the PBM has different MACs with different pharmacies. But even if a PBMs has different MACs with different pharmacies, that wouldn’t be why the patients out of pocket spend could vary, right? I work in health insurance and am looking at the PBM addendum for one of health plans I work with. For any generic drugs, the plan pays pays 16.90% of AWP. If that is the agreed upon price paid by the plan, why could the patient’s coinsurance vary, assuming they go to an in-network pharmacy? I don’t see separate AWP discounted prices for each in-network pharmacy on here, and I think that would be needed.
I see in the appendix that “discounts are based on the actually NDC-11 dispensed on the fill rate”. Does that mean the plan isn’t technically paying the discounted AWP price?
Great question. There are different dispensing fees at different pharmacies that end up changing the total cost… that difference is also reflected in the coinsurance.
A transparent PBM passes all negotiated ingredient costs and fees with the pharmacy to their client. If the NADAC price is two cents and the reimbursement or cost to the employer client of the PBM is $.48 per their agreement who is the real villain here? It isn’t as simple as the good Doc has explained here. Now if your talking about a PBM that has a “spread pricing model” those entities should be held more accountable...
Dr. Bricker - thanks for putting this up and the great links. You have done an excellent job of showing us what "is" for this example (which is of course just a sample of how much of the system works). My question, as always, is the "why" of the starting information? How is it that the original AWP to NADAC is allowed to be what it is? Why shouldn't we have a sort of "value added" transparency at each level for every pill bottle label produced and slapped on the bottle (or box)? This would show that true starting point (which isn't actually the "true" cost of production of the Pharma company making the pill either) NADAC figure, and how each intermediary (Pharmacy, PBM) adds on to it to arrive at the final number, the difference at each level being compared or evaluated as the "value added" by that intermediary entity. Oh, and of course we have to get rebates factored into the whole thing as well. The basic question simply is, what good is the AWP (the full AWP) if the employer plan/insurer is paying, typically, only 20% of it? This is worse than Medicare inpatient where the national ratio (excluding Maryland, of course) of Billed Charges to Medicare Allowed is 450-500%. How can we ever expect to properly measure the true "cost" of medical care/products if the initial ruler we are told to "measure" that cost is so out of whack with reality?
Thanks for the video! Brings to light the fact that these PBMs increase the cost of drugs in the US!
Thank you for watching.
Great job. I have been studying pharmaceutical supply chain over the past few months and your video was very helpful.
Super! Thank you for watching and for your feedback.
In this hypothetical example, the Pharmacy's acquisition cost is 1.9 cents. Then what can be the Wholesaler acquisition cost? And what is the percentage of profit of the wholesaler? And in that case what is the cost of goods (manufacturing cost of the pill) for the drug manufacturer? If the drug manufacturer's profit is so less, how would they pay the admin fees and rebates to the IDNs, GPOs and PBMs? Your numerical examples are good to understand the scenario you explained, but raised these questions to me. Appreciate if you can explain or point out where my understanding went wrong.
Great video. I used to think that the patient’s script cost could vary by pharmacy because the PBM has different MACs with different pharmacies. But even if a PBMs has different MACs with different pharmacies, that wouldn’t be why the patients out of pocket spend could vary, right?
I work in health insurance and am looking at the PBM addendum for one of health plans I work with. For any generic drugs, the plan pays pays 16.90% of AWP. If that is the agreed upon price paid by the plan, why could the patient’s coinsurance vary, assuming they go to an in-network pharmacy? I don’t see separate AWP discounted prices for each in-network pharmacy on here, and I think that would be needed.
I see in the appendix that “discounts are based on the actually NDC-11 dispensed on the fill rate”. Does that mean the plan isn’t technically paying the discounted AWP price?
Great question. There are different dispensing fees at different pharmacies that end up changing the total cost… that difference is also reflected in the coinsurance.
A transparent PBM passes all negotiated ingredient costs and fees with the pharmacy to their client. If the NADAC price is two cents and the reimbursement or cost to the employer client of the PBM is $.48 per their agreement who is the real villain here? It isn’t as simple as the good Doc has explained here. Now if your talking about a PBM that has a “spread pricing model” those entities should be held more accountable...
Thank you for watching and for the comment.
Dr. Bricker - thanks for putting this up and the great links. You have done an excellent job of showing us what "is" for this example (which is of course just a sample of how much of the system works). My question, as always, is the "why" of the starting information? How is it that the original AWP to NADAC is allowed to be what it is? Why shouldn't we have a sort of "value added" transparency at each level for every pill bottle label produced and slapped on the bottle (or box)? This would show that true starting point (which isn't actually the "true" cost of production of the Pharma company making the pill either) NADAC figure, and how each intermediary (Pharmacy, PBM) adds on to it to arrive at the final number, the difference at each level being compared or evaluated as the "value added" by that intermediary entity. Oh, and of course we have to get rebates factored into the whole thing as well. The basic question simply is, what good is the AWP (the full AWP) if the employer plan/insurer is paying, typically, only 20% of it? This is worse than Medicare inpatient where the national ratio (excluding Maryland, of course) of Billed Charges to Medicare Allowed is 450-500%. How can we ever expect to properly measure the true "cost" of medical care/products if the initial ruler we are told to "measure" that cost is so out of whack with reality?
Thanks so much for the detailed comment. Yes, AWP is highly counterproductive.
How did you calculate that pbm gets .23 cents and pharmacy gets .25?
Hypothetical for illustration purposes. I also don’t know the MAC.
Thank you for watching.