Question about prescription prices

[Zhoen]

This is just curiousity/interest... my insurance covers me fine, but I am interested because I know it affects a lot of people out there and I don't really understand it...

My daughter has been tried out on a number of different medications this year, and when I get each one filled, I pay my copay and go on with my life... then a while later I get a note from the insurance company that says how much it cost, how much they allowed/disallowed, and none of it really matters to me because my payment is the same...

... but I was reading it today, and I noticed that while I had paid nothing (I'm wayyyy over my catastrophic cap already this year) and the insurance had paid $15... the pharmacy had billed $350, of which the insurance had "disallowed" $335.

How the heck does that work??? Is the pharmacy taking a loss? Or are they overbilling $335 and the insurance is just wise to it?

I noticed the same thing with their pediatrician... before I was under this insurance, it was $175 just to walk through the front door, but the insurance only "allowed" the first $100, and the rest was written off... usually I save more from their "disallowances" than from what the insurance actually pays...

But for someone without a cheap insurance company to "disallow" the price... man, $350 a month is a bit outrageous for a drug that really only costs $15 (generic)...

What's up with that?

 

[NYCDiane]

I barely even use my insurance anymore to get prescriptions filled. I stopped using CVS and now use a supermarket pharmacy. I get my diabetes meds completely free. Other meds are between $3.99 (30 day) or $9.99 (90 day). The only time I use my insurance is when there is a prescription not on the free/3.99/9.99 list.

As for what is up with the charges vs what is actually paid? The whole thing is a big scam to make you think you're getting more than what you are and that it's a good thing you have this crazily-priced insurance because god knows you have to pay $800/mo in case you need to bring your child for a $75 pediatrician visit and get some $30 meds.

Before I started using the supermarket, I caught some huge errors... for example, there was a med I was supposed to pay a $15 co-pay for. I asked what it is w/o insurance? $7.

 

[disneychrista]

The insurance company and the pharmacy/doctor have a contract that stipulates how much they will pay. They pay that amount & the rest is "disallowed."

 

[ajh88]

As for what is up with the charges vs what is actually paid? The whole thing is a big scam to make you think you're getting more than what you are and that it's a good thing you have this crazily-priced insurance because god knows you have to pay $800/mo in case you need to bring your child for a $75 pediatrician visit and get some $30 meds.

Before I started using the supermarket, I caught some huge errors... for example, there was a med I was supposed to pay a $15 co-pay for. I asked what it is w/o insurance? $7.

First, I disagree that it is a scam. Pharmacy reimbursements are calculated in a ridiculously complicated manner based on what is called AWP (Average Wholesale Price), along with some other factors that vary from contract to contract.

The "cash" price is what you would pay with no insurance, and this is generally the amount that is submitted to your insurance company. It may be based on AWP or the wholesale acquisition cost (WAC) of the drug - they are likely two very different numbers. As a PP stated, a pharmacy that is contracted with your insurance company has agreed to write off the difference between what your insurance pays and allows - just as doctor's visits, etc. work. Usually, the pharmacy still makes money - but there are times when they don't.

They aren't "overbilling" per se - but it is especially true with some generics that the AWP is some super high number but the WAC is reasonable. Again, depending on the contract, it dictates what price is used as the cost basis for the Rx billing. I probably have done a terrible job of explaining this and my dear pharmacy business teacher would be disappointed in my attempt, but it's been a few years now. Here is a little link that tries to explain it in one page, if you're interested.

Second, I'm not sure how the $15/$7 example is a huge mistake? Maybe other pharmacies are different, but at mine, you pay the lower of the two prices. If your co-pay is $15, but the cash price is $7, you pay $7.

Finally, the drug doesn't only "cost" $15 - that is just how much your insurance company has agreed to pay for it - the pharmacy could be taking a loss on it (we fill one Rx every month where the insurance reimburses us $10 and the drug COSTS us $175 to obtain - we write it off every month). FWIW, as of a couple of years ago (and I think it is pretty much the same now), the average profit margin of a pharmacy is about 3% - we obviously make more money on some drugs than others.

And thank you OP, for actually paying attention to your insurance statements and asking these questions.

 

[williamson_ja]

I just think it's a raw deal that insurance companies that have billions of dollars get to pay hardly anything for a prescription, but your regular person without insurance has to pay hundreds of dollars. It's a whole heap harder for an individual family to come up with the money for that medicine than it is for the insurance company. It's a sore subject for me. We've lived without insurance for about 7 years. My dd has severe asthma and was on very expensive medication until 2 months ago. Her medication would run up over $400/month. In the end, we ended up finding alternative places to get what she needed. Then, we found a way for her to get off of most of her medication. It still irks me that they charge families so much for the medicaitons though. We don't make a lot of money and it was sure hard to do!

 

[mrsklamc]

I just think it's a raw deal that insurance companies that have billions of dollars get to pay hardly anything for a prescription, but your regular person without insurance has to pay hundreds of dollars. It's a whole heap harder for an individual family to come up with the money for that medicine than it is for the insurance company. It's a sore subject for me. We've lived without insurance for about 7 years. My dd has severe asthma and was on very expensive medication until 2 months ago. Her medication would run up over $400/month. In the end, we ended up finding alternative places to get what she needed. Then, we found a way for her to get off of most of her medication. It still irks me that they charge families so much for the medicaitons though. We don't make a lot of money and it was sure hard to do!

By the time those of us with insurance pay for the insurance, I'm not sure we are getting it a lot cheaper.

 

[dhardawa]

It is all in the way the insurance company has contracted with the provider/pharmacy. A doctor can charge whatever s/he wants to someone who walks in without insurance. You typically see the super high charges at places like hospitals where they'll charge $5,000 for an ER visit if you don't have insurance, but the insurance company has a negotiated rate of $1,200. The funny thing is, the insurance company is actually subsidizing the hospital because the vast majority of people who walk in without insurance and get charged the $5,000 can't pay it so they either negotiate a very low rate with the hospital themselves or the hospital ends up writing off the charge and getting nothing for it.

As for the pharmacy, the idea of negotiated rates is the same. There may be drugs that they agree to take a loss on in exchange for higher payments for other drugs too. We see this a lot with providers. So, a primary care doctor may want an additional 5% for a standard office visit, but will take a 30% cut on a practice s/he doesn't do often like obstetrics. Also, the negotiated rates will vary by how dominant the insurance company is in that market and, therefore, the number of members it can drive to the provider. If a company is very weak and can only drive a small number of patients to the provider, it isn't in the provider's best interest to negotiate very low rates. If the insurance company can drive a huge amount of patients, the provider can afford to make his/her money on quantity.

It is very complex and will vary based on many different factors.