One of the biggest mysteries within the Express Scripts contract template is the algorithm that determines whether a drug is a brand or a generic. Here is an example of how the algorithm could be used at the smallest scale.
How it works:
- Imagine a generic drug has an average sticker price of $100, and its cost (including money for the drug maker, wholesaler and pharmacy) is $15.
- The PBM says it will apply an 80% discount on generic drugs, meaning an employer should only pay $20 for the drug. The PBM pockets $5 on normal spread pricing (after subtracting the $15 cost).
- However, using the algorithm, the PBM could define the generic drug as a brand, which only commands a 17% discount.
- Under that scenario, an employer would pay $83, or more than four times what it should for the generic, and the PBM pockets $68 after subtracting the drug's cost.
- Multiply this strategy for millions of generic prescriptions, and the profits add up quickly.
The bottom line: "You, as a customer, will never understand what's in there," one person familiar with the pharmacy benefits industry said about the algorithm.
From the Express Scripts template:
Other parts of the series: