Arielle Bose: Hi, Stacey. This is Arielle Bose from EHD Insurance. Big fan of the podcast. We were talking about GoodRx the other day, and it occurred to me that I’m not exactly clear about how they make money.
So, Stacey, how does GoodRx make money?
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Stacey: Well, Arielle, that is a deeply great question and very apropos considering that we just did three episodes lately where GoodRx and what they do has come up with either main character energy or, at a minimum, in a fairly robust supporting role.
And right now I’m talking about episode 520, where we talk about generic drugs and best ways to make them affordable without accidentally making them unaffordable.
Episode 517 about why it sometimes seems like cheaper generics are not on formulary while some big brand is. That was episode 517.
Then episode 516 with Ophelia Johnson, where we talk about GLP-1s and how GLP-1s and cash-pay opportunities have very much turned into a consumer behavioral hack.
Okay … so, the question, “How exactly does GoodRx make money?” we actually answered. Ge Bai, PhD, CPA, answered it on Relentless Health Value back in 2021.
But a couple of quick updates before we get into the answer of the question. I feel like I’m building suspense here, but before we get into it, I will say that the core mechanics that Ge Bai lays out in the conversation with her that follows relative to how GoodRx makes money is that they still take advantage of the dysfunction in the pharmacy supply chain.
And while they help patients oftentimes save money, their kind of master plan only works because pharmacies would be charging cash-pay patients a pretty darn high price in most circumstances. And that is still true today.
If you go to a pharmacy that takes insurance and you walk in off the street with no coupon and you say, “What is your cash list price?” that price is going to be really high. Why, might you ask?
Well, one reason is the big PBMs have contracts with these pharmacies, like I just said—we are only talking about pharmacies that take PBM contracts—and these contracts do stipulate that the PBM must get the best prices that that pharmacy will offer.
And if the pharmacy is a little unclear on what that PBM price for any given generic med, for example, may be month to month, then obviously it would be in their best interest to make that cash price, that list price, high enough with a big cushion.
And this is, of course, exacerbated by the fact that 80% of the time for a patient in their deductible phase for the top 20 prescribed generics, the PBM rate itself is gonna be higher than the price a patient would pay if they showed up with a GoodRx coupon or went to Amazon, or probably Mark Cuban Cost Plus Drugs or any one of the number of cash-pay pharmacies, right?
So, the PBM rate is already high, and the pharmacy needs to make their list price higher than the PBM price.
All of this, by the way, which Ge Bai talks about as the market dysfunction that creates the opportunity for GoodRx or any of the other coupon vendors here, this is the opportunity that enables them to make money; and it is sadly pretty much the same since this episode aired—although I just did a little tool around the internet and I did see that there may be some legislation proposed to forbid this MFN (Most Favored Nation) “lesser of” language in PBM contracts that I just saw floating around.
So, right … this is the basis for how GoodRx makes money. It’s the problem that they solve, and they have figured out how to monetize.
Here is Ge Bai, PhD, CPA, on how GoodRx actually makes its money.
Big congrats to Ge Bai, who was recently nominated to be Assistant Secretary at the Department of Health and Human Services (HHS).
Ge Bai is a professor of accounting at Johns Hopkins Carey Business School and professor of health policy and management at Johns Hopkins Bloomberg School of Public Health.
This podcast is sponsored by Aventria Health Group, with an assist from Payerset, our series underwriter this year.
Also, thank you very much to Patient Rights Advocate, who gave us a very, very lovely donation recently to help us continue our mission over here at Relentless Health Value.
And here is Ge Bai answering the excellent question: How does GoodRx make money?
Also mentioned in this episode are Arielle Bose; EHD Insurance; Ophelia Johnson; Tom Nash; Mark Cuban; Mark Cuban Cost Plus Drugs; Aventria Health Group; Payerset; Patient Rights Advocate; and Luke Slindee, PharmD.
For a list of healthcare industry acronyms and terms that may be unfamiliar to you, click here.
You can learn more about Ge’s research on LinkedIn and X.
Ge Bai, PhD, CPA, is a 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. An expert on healthcare accounting, finance, and policy, she has testified in Congress, written for the Wall Street Journal and the Washington Post, and published her studies in leading academic journals such as the New England Journal of Medicine, JAMA, and Health Affairs. Her work has been widely featured in the media and cited in regulations and congressional testimonies. She was a visiting scholar at the Health Analysis Division of the Congressional Budget Office from 2022 to 2023. She teaches graduate courses and has received the Johns Hopkins Alumni Association’s Excellence in Teaching Award.
00:00 Introduction to this episode.
00:58 EP520 with Stacey about cash-pay generic drugs.
01:09 EP517 with Stacey about the financial motive behind prior auths.
01:19 EP516 with Ophelia Johnson.
06:22 The conversation with Ge Bai.
06:28 The difference between GoodRx and Amazon Pharmacy.
06:53 The one thing GoodRx makes money from.
07:55 How is GoodRx getting paid?
08:18 Are there middlemen in GoodRx’s financial model?
09:25 How PBMs play into the GoodRx model.
10:29 Where the pharmacy fits into the deals created by GoodRx.
11:51 EP439 with Luke Slindee, PharmD.
11:59 What’s changed since this conversation with Ge Bai.
Recent past interviews:
Click a guest’s name for their latest RHV episode!
Andrew Tsang, Stacey Richter (EP520), Dr Lisa Rosenbaum, Claire Brockbank, Stacey Richter (EP517), Ophelia Johnson, Michelle Cera, Matt Cantor
[00:00:00] Episode 522, Ask Me Anything. How, exactly, does GoodRx make money? American healthcare entrepreneurs and executives you want to know. Talking. Relentlessly seeking value.
[00:00:25] Hi Stacey, this is Arielle Bowes from EHT Insurance, big fan of the podcast. We were talking about GoodRx the other day and it occurred to me that I'm not exactly clear about how they make money. So Stacey, how does GoodRx make money?
[00:00:41] Well, Arielle, that is a deeply great question and very apropos, considering that we just did three episodes lately where GoodRx and what they do has come up with either main character energy or at a minimum in a fairly robust supporting role. And right now I'm talking about Episode 520, where we talk about generic drugs and best ways to make them affordable without accidentally making them unaffordable. Episode 516,
[00:01:11] Episode 517, about why it sometimes seems like cheaper generics are not on formulary while some big brand is. That was Episode 517. And then Episode 516 with Ophelia Johnson, where we talk about GLP-1s and how GLP-1s and cash pay opportunities have very much turned into a consumer behavioral hack.
[00:01:34] Hi, this is Tom Nash, editor and producer of the Relentless Health Value podcast. I bet you're wondering, how can I help Relentless Health Value? Well, that's pretty easy. Have you signed up for the newsletter? The newsletter is great. It tells you when each episode's coming out. It gives you an introduction to the episode with all the mentioned links and a way to click through and listen to the podcast. But there's more ways to help. You can always go over to LinkedIn. Are you following the page? You should be. There's great conversations each week on all the episodes.
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[00:02:36] Okay, so the question, how exactly does GoodRx make money? We actually answered. Dr. G. Bai answered it on Relentless Health Value back in 2021. But a couple of quick updates before we get into the answer of the question. I feel like I'm building suspense here. But before we get into it, I will say that the core mechanics that G. Bai lays out in the conversation with her that follows relative to how GoodRx makes money is that they still
[00:03:05] advantage of the advantage of the dysfunction in the pharmacy supply chain. And while they help patients oftentimes save money, their kind of master plan only works because pharmacies would be charging cash pay patients a pretty darn high price in most circumstances. And that is still true today. If you go to a pharmacy that takes insurance
[00:03:34] and you walk in the insurance and you walk in the insurance and you walk in off the street with no coupon and you say, what is your cash list price, that price is going to be really high. Why might you ask? Well, one reason is the big PBMs have contracts with these pharmacies. Like I just said, we are only talking about pharmacies that take PBM contracts. And these contracts do stipulate that the PBM must get the best prices that that pharmacy will offer.
[00:04:03] And if the pharmacy is a little unclear on what that PBM price for any given generic med, for example, may be month to month, then obviously it would be in their best interest to make that cash price, that list price high enough with a big cushion.
[00:04:17] And this is, of course, exacerbated by the fact that 80% of the time for a patient in their deductible phase for the top 20 prescribed generics, the PBM rate itself is going to be higher than the price a patient would pay if they showed up with a good Rx coupon or went to Amazon or probably Mark Cuban Cost Plus Drugs or any one of the number of cash pay pharmacies. Right. So the PBM rate is already high.
[00:04:44] And the pharmacy needs to make their list price higher than the PBM price. All of this, by the way, which G-Buy talks about as the market dysfunction that creates the opportunity for GoodRx or any of the other coupon vendors here. This is the opportunity that enables them to make money. And it is sadly pretty much the same since this episode aired.
[00:05:08] Although I just did a little tool around the Internet and I did see that there may be some legislation proposed to forbid this MFN, most favored nation, lesser of language in PBM contracts that I just saw floating around. So, right. This is the basis for how GoodRx makes money. It's the problem that they solve and they have figured out how to monetize. Here is G-Buy, PhD, CPA on how GoodRx actually makes its money.
[00:05:36] Big congrats to G-Buy, who was recently nominated to be Assistant Secretary at the Department of Health and Human Services, HSS. G-Buy is an Associate Professor of Accounting at Johns Hopkins Carey Business School and Associate Professor of Health Policy and Management at Johns Hopkins Bloomberg School of Health. My name is Stacey Richter. This podcast is sponsored by Aventria Health Group with an assist from Payerset, our series underwriter this year.
[00:06:05] Also, thank you very much to Patient Rights Advocate, who gave us a very, very lovely donation recently to help us continue our mission over here at Relentless Health Value. And here is G-Buy answering the excellent question, how does GoodRx make money? G-Buy, PhD, CPA, welcome to Relentless Health Value. Thank you, Stacey. Great to be here.
[00:06:28] So as we know, GoodRx steers someone to the low-cost pharmacy, but it doesn't supply drugs themselves. Exactly. So the GoodRx is only a pricing platform. GoodRx does not have a pharmacy. Amazon is different in that Amazon has its own pharmacy. So how does GoodRx make money then? So the GoodRx makes money from one fact and one fact alone.
[00:06:58] That is, for any pharmacy, if you want to contract with third-party payer, like any insurance company, then you must make sure your list price for any drug is higher than any contracted price. Just so I understand, if I'm a pharmacy and I want to contract with an insurance company or any third-party payer,
[00:07:24] I have to make sure that my list price is higher than any contracted price. So if you are running a pharmacy, there's no way you are making your list price low. So the pharmacy will make their list price very high. GoodRx identifies that problem. Then they use their own PBM contract to offer much more affordable cash price to the uninsured patients
[00:07:52] or the patients who are willing to pay cash. 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 GoodRx getting paid? Whenever patients use GoodRx, they are using one of many PBMs contracted with GoodRx.
[00:08:17] So 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 patients use GoodRx, buy drugs from a pharmacy. The pharmacy must pay a fee to that specific PBM. Why? Because the pharmacy utilize a privilege offered by the PBM.
[00:08:47] 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. Correct. And then the pharmacy obviously has to take the cash price that that PBM, like which PBM is it? You know, is it the PBM that that pharmacy happens to be associated with?
[00:09:14] So every pharmacy across the country has their like, you know, house PBM? No. So it's actually the PBM utilized by GoodRx for that specific patient. GoodRx contracts with a network of PBMs, including Express Scripts, OptimaRx, and many other well-known PBMs. So the patients, whenever you use a GoodRx card, is utilizing the network PBMs, a contract with GoodRx.
[00:09:44] Okay, so GoodRx goes around to all the PBMs, says, all right, if you contract with me, then you're going to get a whole lot of extra patients because anybody paying cash with my card is going to go through your PBM. Exactly. I'm expanding your network. And because PBMs are middlemen and they take a buck from every transaction, then this increases their, you know, their net take. Exactly.
[00:10:08] And then they cut a percentage of it or a fixed, let's say, each dispense $3, thanking GoodRx for introducing that business to me. Aha. Okay. So the PBM pays GoodRx a cut of the dollars they are making for adjudicating the claim. And where does the pharmacy fit in this whole thing? It's just like, is it the pharmacy, then the PBM makes a hard deal with the pharmacies and says, look, if you...
[00:10:38] The pharmacies are not happy, but they have no other ways to circumvent us. The ideal case would be the patients come to the pharmacy, pay the least price, which is very high. 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.
[00:11:05] But now the patient's not coming to the pharmacy directly. Instead, they come with a GoodRx card, getting a better deal. More than that, the pharmacy has to pay a fee to the PBM. So it's really a loss for the pharmacy. So the PBM contracts with GoodRx and then shakes down the pharmacies and says, look, if you want a patient in your pharmacy, then you got to pay for it. Exactly.
[00:11:31] 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're the better, you know, say yes and give the PBM something. Listen to that episode with Luke Slindy or, again, episode 520. All these links are in the show notes from a couple of weeks ago. That gets in a whole lot more detail.
[00:11:59] Now let's talk about what has changed since G. Bai originally answered this question. Many players are now competing in that same cash pay lane, especially since the launch of, as I just mentioned, GLP-1s and the whole idea of compounding and looks maxing with testosterone and peptides, all the focus on HRTs. So, yeah, consumers are realizing that getting prescribed a drug is now a cue to initiate an evening of online shopping.
[00:12:28] That is pretty new and probably accelerates the value prop of GoodRx. But, of course, it also has inspired a whole lot of competitors in this market. And sure, obviously, GoodRx hasn't stood still in the midst of all this. They have also evolved their business model. They now work with branded drugs. They sell data. They can promise customer acquisition. The episode that I mentioned earlier with Ophelia Johnson also gets into this
[00:12:55] from the standpoint of a branded pharma manufacturer and how branded pharma manufacturers may engage with GoodRx. Also, since this episode originally aired, Mark Cuban Cost Plus Drugs has shown up, along with a wave of cash-only pharmacies, all able to offer lower prices and still make money because of the exact same market dysfunction I just described. G. By Ph. D. CPA, thank you so much for being on Relentless Health Value today. Thank you so much, Stacey.
[00:13:24] My pleasure. Hi, this is Mark Cuban of CostPlusDrugs.com. And not only do I listen to every episode of Relentless Health Value, but it is the most incredible, stupendous, amazing health care podcast in the history of all health care podcasts. So make sure to listen every single time.