Whether or not pharmacies make money off prescriptions is a complex question. Identifying pharmaceutical drug profit flows is an important policy issue. Understanding the factors that drive price increases is critical to government intervention.
In 2015, prescription drugs sold in retail pharmacies accounted for almost $325 billion. These profits are attributed to the manufacturer and pharmaceutical intermediaries’ Prescription Discounter in the distribution system. However, these sources are highly aggregated. Understanding the distribution system is important for identifying the factors that are driving price increases.
Manufacturers have higher gross profit margins on branded drugs. During the past three years, prescription drug prices have increased by 9%. The increased costs have caused Medicare beneficiaries to burn through their coverage faster. This leads to a greater coverage gap.
Generic drugs have lower cost-sharing requirements
Generic drugs have lower cost-sharing requirements. PBMs often negotiate rebates for drug plan sponsors. They also charge a fee for administering rebates. However, these rebates are paid separately from the claims submission/payment cycle.
In the past, independent pharmacies made a higher gross margin from non-prescriptions. However, due to vertical integration, they have seen shrinking margins.
PBMs steer customers to specialty pharmacies and affiliated chain drugstores. They also charge high fees retroactively. These fees are often described as quality measures. Those who complain about the fees claim that these fees are imposed more for sales volume than for quality measures.
Drug plans charge pharmacies 10 to 15 cents per transaction. They also charge for interactions with the claims database. However, these costs are far less than the actual costs of drugs.