Our take: Cash pay pharmacies are a symptom of the complex web of prescription drug pricing—not the solution

Cash pay pharmacies have received a lot of media attention lately as more patients—both with and without insurance—use them. One reason why cash pay pharmacies have grown in number and popularity is that insured patients have found cash pay pharmacies may offer lower prices for common, generic medications than their in-network pharmacy copay.

While this may help patients pay less at the pharmacy counter, ultimately, cash pay pharmacies are not the silver bullet solution to our current prescription drug pricing system, but rather merely a symptom of the problem.

Cash pay pharmacies lower generic drug costs by minimizing the mark-ups charged by several pharmacy supply chain players

Cash pay pharmacies minimize the mark-up for the cost of generic drugs across the complex pharmacy supply chain. When a prescription drug moves from manufacturer to patient, manufacturers, wholesalers, and pharmacies all mark up the price of the drug to cover their expenses and add some extra profit for their bottom line. In addition, when a PBM is involved, they may also mark up the cost by charging the patient (or the patient's health plan) more than what they reimbursed the pharmacy for the medication. Sometimes a patient's copay alone covers more than what the PBM pays the pharmacy, and the pharmacy must return the excess copay funds to the PBM.

Cash pay pharmacies have a different, and often simpler, business model. For example, MCCPDC sells generic drugs for cash pay with a $3 pharmacy dispensing fee, $5 shipping fee, and a set 15% mark up across all drugs. This often results in a price that's actually lower than the pharmacy benefit copay at a patient's local pharmacy. However, turning to cash pay pharmacies to address the rising costs for patients does little to resolve the upstream mark-ups that will continue to impact brand and specialty medications. 

Cash pay pharmacies don't—and likely won't—cover more expensive branded and specialty medications

60% of Medicare Part D's spending in 2019 can be attributed to 250 top-selling, brand name drugs with one manufacturer and no generic or biosimilar competitors.

Cash pay pharmacies may begin to explore whether they can provide similar discounts for branded drugs, but we think it's unlikely that the model would work as well in this area. To cover brand drugs, they would need to negotiate with drug manufacturers—one of the main functions of PBMs. Negotiating with manufacturers is not a simple task. Cash pay pharmacies lack the scale of the largest PBMs, which means they have less negotiating power to drive down prices. They also don't have the same tools as PBMs to drive the steepest discounts, such as formulary placement or utilization management strategies. The sheer number of manufacturers would also make negotiations difficult for a small or even mid-size cash pay pharmacy.

The value of cash pay pharmacies may be limited for patients spending the most on drugs

In 2019, the average number of prescriptions per Medicare Part D beneficiary was 54 per year. Patients may find value in having one pharmacy that can sync up refills and look across all their medications to make sure there aren't contraindications for new drugs, rather than dividing their prescriptions between cash pay and traditional pharmacies.

Patients with multiple prescriptions may also find some benefit from running all their medications through their insurance—even if they could get a better price on some at the cash pay pharmacy—so they hit their deductible sooner. However, that's a complex and confusing calculation, and it will be up to individual patients to decide what makes the most financial sense based on their unique situations.

Cash pay pharmacies challenge PBMs to prove their value

The prescription drug supply chain is complex and confusing. Cash pay pharmacies are shining a new light onto how this system works—or doesn't work—for patients. Insured patients are already paying their insurance premiums in exchange for appropriate coverage of their health care costs. When third-party, out-of-network pharmacies offer patients a better deal, patients may begin to question the value of having pharmacy benefit coverage at all.

Cash pay pharmacies may help patients better afford their medications in the short term. In the longer term, they may prompt PBMs to compete for patients and evaluate their strategies with a lens for patient impact. Ultimately, cash pay pharmacies' value proposition—low prices and improved user experience—depend on the status quo of the prescription drug pricing remaining mysterious and costly for patients.

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