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It’s Not Pharmacy that Needs Disruption, It’s Prescription Drug Pricing

Dec 18, 2023

There’s a lot of talk lately about disrupting the traditional pharmacy model, but it’s not pharmacy that needs disrupting. If any aspect of pharmacy is ripe for disruption, it’s the prescription drug pricing model.

Amazon thought they would “disrupt” this pricing model, but in the end the big Amazon Pharmacy push was what it had always been: flashy mail order pharmacy for people who love mail order shopping. Even Amazon failed to bring down the true consumer cost of prescription medication.

The newest “cost plus” model of drug pricing isn’t new at all. At least a decade before Mark Cuban Cost Plus Drugs was a household name, independent pharmacies were offering patients “cost plus” prescription pricing - and this was at a time when PBMs had restrictive gag clauses on pharmacies for even telling a patient they could get their medicine cheaper without their insurance.

Pharmacy owners know their drug acquisition cost and - like every business operating on the planet - simply want to cover the cost of goods sold and make a reasonable profit (i.e. dispensing fee) for the transaction. No one goes into pharmacy to get rich, make a killing, etc. – in fact in this profession, just surviving in a marketplace dominated by 3 Fortune 15 corporations is considered “being successful”. And those “Big 3” would love nothing more than to remove independent pharmacies from the equation, further eroding motivation to compete and increasing drug prices to patients and plan sponsors hand over fist.

Of the “Big 3” - and by “Big 3” I mean CVS Health, UnitedHealth Group and Cigna - CVS stands apart for its complete vertical integration. CVS owns PBM Caremark, it purchased Aetna a few years ago through its CVS Pharmacy division (how that happened is a mystery), AND CVS has a joint venture for purchasing generics (called “Red Oak”) with one of the “Big 3” wholesalers, Cardinal. So the insurer is the PBM is the generic purchaser is the drug store. On the prescription drug distribution side, it doesn’t get more vertically integrated than that.

But wait! With political pressure and the spotlight on Mark Cuban’s “new” cost-plus model, CVS now says it's coming to the rescue with its own “cost plus” pricing model! And then CVS strangely says that “cost plus” model won’t lower drug costs for consumers at all, just that some prices will go down yet some will go up. What??

I recently filled a prescription for a patient who formerly used CVS. CVS charged them $120. I filled that prescription for $35 which covered the drug’s acquisition cost and a respectable dispensing fee. As I watched the patient leave, I thought “there’s no way that CVS will give up that kind of profit, and Wall Street wouldn’t stand for it anyway.” So how will this CVS “cost plus” model possibly work?

The answer is it won’t work. Anyone who genuinely thinks CVS’ “new” drug pricing model will provide real solutions is delusional or doesn’t understand that for at least 2 decades CVS and its fellow “Big 3” have done everything in their power to become the biggest tapeworm in the system. And until we as a country deal with that reality, we’ll continue to have conversations about “disruption” that are equally delusional.

Dawn Butterfield, RPh, is a pharmacy owner and President of Florida Small Business Pharmacies Aligned for Reform. She is also Chair of PUTT’s Advisory Board.

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