How GoodRx Profits
[00:00:00] Stacey Richter: An Expert Explains, Have You Ever Wondered How GoodRx Makes Money? If So, Today is Your Lucky Day. Ge Bai Will Explain.
Relentlessly Seeking Value.
Today, Ge Bai explains GoodRx's business model and how PBMs and pharmacies fit into that business model. Here's the short version. GoodRx takes advantage of the dysfunction in the pharmacy supply chain, and while they help patients save money, their master plan only works because pharmacies would be charging cash pay patients too much in most circumstances.
Why you might ask?
PBMs Drive Price Gaps
[00:00:41] Stacey Richter: Well, one reason is the big PBMs have contracts with pharmacies that stipulate the PBM must get the best prices. So any patient wandering in off the street without a PBM card is going to always pay more than the rate a PBM can get for its patients. So a pharmacy's list price will always be more than the PBM price.
I'll let of my guests today, Ge Bai explain this better and get into a few details, but that's kind of like the general level set there.
Meet Ge Bai
[00:01:13] Stacey Richter: Ge Bai, PhD CPA is an associate professor of accounting at John Hopkins Carey Business School and Associate Professor of Health Policy and Management at Johns Hopkins Bloomberg School of Public Health.
This an expert explains, goes very nicely with episode 306 in which Ge Bai and I talk about Amazon's Pharmacy and pharmacy model. So you might wanna check out that episode if you have not listened to it yet.
My name is Stacey Richter. This podcast is sponsored by Aventria Health Group.
Ge Bai PhD, CPA, welcome to Relentless Health Value.
[00:01:51] Ge Bai: Thank you, Stacey. Great to be here.
GoodRx Pricing Platform
[00:01:53] Stacey Richter: So as we know, GoodRx steers someone to the low cost pharmacy, but it doesn't supply drugs themselves.
[00:02:02] Ge Bai: Exactly. So they, GoodRx is only a pricing platform. eRx does not have a pharmacy. Amazon is different in that Amazon has its own pharmacy.
[00:02:15] Stacey Richter: So how does GoodRx make money then?
List Price Requirement
[00:02:17] Ge Bai: So the GoodRx makes money from one fact and one fact along that is. For any pharmacy. If you want to contract with third party payer like any insurance company, then you must make sure you lease the price for any drug is higher than any contracted price.
[00:02:42] Stacey Richter: Just so I understand, if I'm a pharmacy and I want to contract with an insurance company or any third party payer, I have to make sure that my list price is higher than any contracted price.
[00:02:55] Ge Bai: So if you are running a pharmacy, there's no way you are making your list price. So the pharmacy will make their least price very high, and then ax identify that problem. Then they use their own PBM contract to offer much more affordable cash price to the uninsured patients or the patients who are willing to pay cash.
[00:03:20] Stacey Richter: But GoodRx is not getting paid by the patient. I mean, at the end of the day, you could say that GoodRx, or could you say that GoodRx is actually saving the patient money, so someone's paying them. How is, how's GoodRx getting paid?
PBM Network Behind Cash
[00:03:33] Ge Bai: Whenever patients use GoodRx, they are using one of many PBMs contracted with GoodRx.
So it, on the surface, it looks like the patients are paying cash without any middleman, but in reality, the patients are paying cash by using a network created by A PBM behind the scene. So the, the patients use good acts by drug from a pharmacy. The pharmacy must pay a fee to that specific PBM. Why?
Because the pharmacy utilize a privilege offered by the PBM.
[00:04:13] Stacey Richter: Let me just interject right there, make sure I understand this. So patient goes in to pay cash, that cash price, despite the fact that that patient is walking in with no insurance card that has any PBMs name on it. That cash price is set by a PBM.,
[00:04:27] Ge Bai: Correct.
[00:04:27] Stacey Richter: And then the pharmacy obviously has to take the cash price that, that PBM hap, like which PBM is it, you know, is it the PBM that that pharmacy happens to be associated with? So every pharmacy across the country has their, like, you know, house PBM.
[00:04:45] Ge Bai: No, it's actually the PBM, so it's actually the PBM utilized the by GoodRx for that specific patient GoodRx contracts with a network of PBMs, you know, including Express Scripts, OptumRx, and many other well-known PBMs.
[00:05:03] Stacey Richter: Oh, okay. So if a patient is paying cash with a GoodRx card, that's when the PBM comes into place.
[00:05:11] Ge Bai: Exactly. So the patients, whenever use a GoodRx card is utilizing the network PBMs contract with GoodRx.
Who Pays GoodRx
[00:05:21] Stacey Richter: Okay, so GoodRx goes around to all the PBMs, says, all right, if you contract with me, then you're gonna get a whole lot of extra patients, because anybody paying cash with my card is gonna go through your PBM.
[00:05:34] Ge Bai: Exactly. I'm expanding your network.
[00:05:37] Stacey Richter: And because PBMs are middlemen and they take a buck from every transaction, then this increases their, you know, their net take.
[00:05:44] Ge Bai: Exactly. And then they cut a percentage of it, or a fixed, let's say, each dispense $3 thanking GoodRx for interact, or introducing that business to me.
[00:05:57] Stacey Richter: Ahha. Okay, so the PBM pays GoodRx a cut of the dollars they are making for adjudicating the claim.
Pharmacies Lose Out
[00:06:06] Stacey Richter: And where does the pharmacy fit in this whole thing? It's just like, is it the pharmacy? The then the PBM makes a hard deal with the pharmacies and says, look, if you, yeah,
[00:06:16] Ge Bai: PBM, the pharmacists are not high paid.
But they have, they have no other ways to circumvent this. The ideal case would be the patients come to the pharmacy, pay the least price, which is very high.
[00:06:31] Stacey Richter: Okay. Pharmacies would love it if cash pay patients came in and just paid the drugs high list price that they set. That'd be like a patient showing up at a hospital and paying the charge master rate, almost like.
[00:06:44] Ge Bai: But now the patient's not coming to the pharmacy directly. Instead, they come with a GoodRx card, getting a better deal, then the pharmacy cannot get the least price from the patient. More than that, the pharmacy has to pay a fee to the PBM. So it's really a loss for the pharmacy.
[00:07:04] Stacey Richter: So the PBM contracts with GoodRx and then shakes down the pharmacies and says, look, if you want a patient in your, in your pharmacy, then you gotta pay for it.
[00:07:13] Ge Bai: Exactly. And then we have to understand GoodRx contracts with multiple PBMs and the pharmacies don't really have a good negotiation power. But if you don't take this GoodRx patient, the next pharmacy will take it. You the better, you know, say yes. And give the PBM some fee.
Wrap Up And Links
[00:07:34] Stacey Richter: Links to everything discussed on the program today can be found at relentlesshealthvalue.com.
If you visit the website, relentlesshealthvalue.com, you will also find a complete listing of all of the shows that we have published thus far with leading entrepreneurs and executives in the healthcare space today. Another cool feature is, you know, you can subscribe to the show. So that every week the episode is automatically sent to you, so you don't have to remember to go to the website to download it.
Thanks so much for listening.