Encore! EP356: PBMs React to GoodRx, Mark Cuban, and Amazon Pharmacy, With Ge Bai, PhD, CPA

This show was one of the most popular episodes in 2022. So, here it is again for your listening pleasure.

How Spread Pricing Lets PBMs Profit—and Why GoodRx and Amazon Pharmacy Are Forcing a Change

The so-called Big Three pharmacy benefit managers—Express Scripts (ESI), OptumRx, and CVS—handle pharmacy benefits for roughly 95% of insured Americans, and they profit from spread pricing, a hidden markup on the generic drugs that make up 90% of all prescriptions written in the US. Now GoodRx, Amazon Pharmacy, Mark Cuban's CostPlusDrugs.com, and cost-plus pharmacies like Blueberry in Pittsburgh are exposing that spread and pulling patients out of their insurance entirely—and the PBMs are fighting back. Stacey Richter talks with Ge Bai, PhD, CPA, professor of accounting at the Johns Hopkins Carey Business School and professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health, about what this shift means for self-insured employers, plan sponsors, and patients.

WHAT YOU'LL LEARN ✅ How spread pricing lets PBMs collect a hidden markup between what plan sponsors and patients pay for generic drugs and what the PBM actually pays the pharmacy

✅ Why Express Scripts rolled out a Right Price solution that automatically applies discounts to generic prescriptions—a defensive response to losing patients to GoodRx and Amazon Pharmacy

✅ How Amazon's discount card and cost-plus pharmacies are forcing PBMs to compete on price for generic drugs for the first time

✅ Why UnitedHealth Group, the parent company of OptumRx, posted $24 billion in profit in 2021—and what that says about how PBMs make money off generic drug arbitrage

✅ Why Ge Bai says naive plan sponsors are a big problem, and why she believes PBMs have to give a slice of their profit back to consumers

✅ Why 90% of prescriptions written in the US are for generic drugs, and how that scale is what makes PBM spread pricing so lucrative

WHY THIS MATTERS For years, the Big Three PBMs collected what amounted to free money in the spread between what plan sponsors and patients paid for generic drugs and what the PBM paid the pharmacy—protected by contract terms that kept cash-pay pharmacy prices artificially high. GoodRx, Amazon Pharmacy, and a new wave of cost-plus pharmacies are breaking that information monopoly, giving patients and self-insured employers visibility into how much markup is built into a generic prescription. As Ge Bai puts it, this could be a potential sea change—but only if plan sponsors stop being naive about how PBM pricing actually works.

=== LINKS ===

🔗 Show Notes with all mentioned links: https://relentlesshealthvalue.com/episode/encore-ep356-pbms-react-to-goodrx-mark-cuban-and-amazon-pharmacy-with-ge-bai-phd-cpa

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00:00 Introduction

08:39 What is ESI doing by automatically applying discounts to generic drugs?

09:53 Why are PBMs losing money when consumers don't use their benefit?

10:40 "GoodRx disrupted the ongoing game."

10:58 How are PBMs using the Amazon discount card to discourage their patients from moving away from using their benefits?

12:07 Amazon pricing versus GoodRx pricing.

12:44 How much money is a PBM really making?

13:54 EP344 with Steven Quimby, MD.

14:24 EP334 with Sunita Desai, PhD.

14:37 How is future fear playing into the PBM business model?

16:49 Is there a negative consequence to subtracting from the bottom line in a PBM model?

17:44 "I think to have strong PBMs does not mean necessarily bad things for patients."

19:33 What happens if everyone uses Amazon for drugs?

22:33 If every PBM gets their own discount cards, what will happen?

25:32 "We are actually witnessing a potential sea change."

26:19 How do cost-plus pharmacies factor into the current market?

29:09 Is a profit shortfall inevitable?

29:28 "PBMs have to give a slice of their profit back to consumers. That's just reality."

30:05 Can anything be done on the PBM side to generate a higher margin in the generic space?

31:34 "Naive plan sponsors are a big problem."