by purplepatrick | 2025-12-06 04:34:11+00:00
As someone mentioned already, list prices are completely fictitious. Their purpose is to anchor medical payers during reimbursement negotiations and satisfy PBMs (see below). The allowed price (the price that the payer pays to the drug company) is much, much lower, 70-90% or so in many cases. Thus, juxtaposing OTC and list price is not an apples-to-apples comparison.

That being said, US drug prices are 2-4 times higher than they are elsewhere. In fact, the US market essentially subsidizes international drug markets, where it is much more difficult to charge higher rates due to regulations and lower purchasing power. This also means that, even if the allowed price in the US were known in this example, it would still have to be PPP adjusted to be compared.

Prescription card coupons such as those you get from GoodRx et al apply only to cash prices. These are sometimes lower and sometimes higher than what you’d pay out of pocket with your insurance. to compare, you’d basically have to ask the pharmacy to ring up a drug twice, once with cash price + coupon and once with insurance price.

“Copay assistance” are programs by drug manufacturers, PBMs, or employers to defray the cost of drug prices. This is usually done for specialty drugs that are much more expensive and can often only be purchased from a mail order pharmacy designated by the payer. For example, United Health (left pocket) will only cover the drugs if you get them from their Optum Specialty Pharmacy (right pocket).

As for numbers, here an example: I’m receiving a monthly specialty drug that my insurance is billed ~$9,000/month. In order to arrive at that figure, the drug company proposed, say, a $50k/month list price, and my insurer countered with $9k, using the size of their member pool as leverage. Of course, the drug manufacturer knew they would arrive at approx that figure, which is why they started negotiating that high. Well, sorta. The PBM gets compensated based on a % of the “savings” (spread between list price and final price), so naturally, they want as high as possible a list price, because 5% of a big amount (in my example: $50k-$9k = $41k) than 5% of a smaller amount. Because the PBM often has most of the leverage, the drug manufacturers (most of whom actually dislike PBMs) have to go along with this stupidity.

How much of the $9k I pay depends on a variety of factors, including my insurance plan, which has a specialty drug tier. This means the drug is not handled via the cost sharing accounting mechanism (deductible/copay).

Now, through that specialty tier, my monthly responsibility is set at approx $1,300. I’m not privy to the math behind this, because my insurer has outsourced all drug-related administration to a PBM, which is only loosely regulated and doesn’t even have to issue explanation of benefit statements that would normally disclose the full accounting.

Of the $1,300, I pay nothing, because the drug manufacturer provides me with a copay assistance card. Again, they must keep the list price high to placate the PBM.

I’ve simplified a few things here. For instance, there are now alternative comp models for PBMs. But for those, PBMs have also found ways to manipulate the system in their favor (eg colluding with drug manufacturers). There’s also often a wholesaler involved in the “value” chain.

But by and large, this is roughly how it works…

And yes, individual market plans are substantially inferior. Not only do they have lower actuarial values and higher cost per $ of coverage (which is unavoidable, because they are not risk pools) and narrower networks, but they also usually have built-in mechanisms to further prune away coverage in many subtle ways (they have that in common with self-insured plans): - more prior approvals, - “step therapy” (must first not tolerate cheaper drugs before can receive pricier drug), - not covering the pricier drug tier at all, etc.

These things shave some dollars off the premium, which appeals to price-elastic consumers and employers.