How spread pricing increases prices of generic drugs

What is Spread Pricing?

Spread pricing refers to the difference between a reimbursement for a prescription, paid by insurance companies, and payments for prescription medications, the money paid to pharmacies. That difference is referred to as spread pricing.

To understand spread pricing, we need first to understand who Pharmacy Benefit Managers (PBMs) are.

PBMs are middle-men in the pharmaceutical pricing game. One of their roles is to negotiate “better pricing” for medications for health plans by communicating with the companies who make medications.

PBMs determine how much a health plan pays for a medication. Health plans make payments to PBMs for medications and the PBMs act as a middleman in the transaction who then pay the pharmacy. However, what happens here is that the health plan often pays the PBM more than what the PBM reimburses the pharmacy for sequestering funds for themselves. This difference is called “spread pricing”.

Often health plans don’t even know about this.

How Spread Pricing Can Inflate Drug Prices?

Despite the low cost to produce generic medications, the average patient in the U.S., with insurance, pays $10 per month for their generic medication. Why so much for something that is so cheap to produce?

Spread pricing is partially to blame. Here’s a theoretical example:

• A patient goes to a pharmacy to get a prescription for rosuvastatin (generic Crestor^®).
• The PBM has negotiated the price to be $80 a month.
• During the checkout the patient will pay a co-pay of $10. The PBM will transfer the pharmacy the outstanding balance, in this case, $70.
• The PBM will then request payment from the insurance company for this prescription of $100, profiting $30 on this prescription. That $30 profit is termed “spread pricing”.
• The PBM doesn’t tell the pharmacy how much they are requesting from the insurance company, and they don’t tell the insurance company how much they told the pharmacy to sell the medication at. Is that really fair for anyone?

Spread pricing is essentially a hidden fee that inflates the cost of medications. Ultimately, it means a higher cost for prescription medications that is paid for by taxpayers, employers, and patients.

Save Money on Generic Medications with Marley Drug's 'No PBM' Model

Now you may be thinking, the PBMs are providing a service that helps drive down healthcare costs. This is not the case, at least for generic medications. Generic medications are generally very inexpensive to buy.

At Marley Drug we don’t accept insurance, and as a result we cut out the PBMs who set the price of medications. By doing so we can offer rosuvastatin (generic Crestor^®) for $37 for a 6-month supply or $70 in a full-year supply. In the above example that would be an overall savings of $50 for the patient and $1,080 for the employer or plan sponsor!

That’s why you should always consider the cash-price for medications when looking for the best deal. You’ll be surprised to learn it’s often the most affordable option out there!

Real-Life Examples of Spread Pricing

A 2018 report by the Ohio Auditor of State found that spread pricing for generic Medicaid prescription cost taxpayers $208 million in fees, or 31.4% of the $662.7 million paid by managed care plans between April 1, 2017 and March 31, 2018 for generic medication.^[1]

This 31% spread pricing fee was 3 to 6 times the normal rate for service^[2] and is becoming a major contributor to the rising cost of healthcare in the U.S. In Ohio these spread pricing fees added on an additional $6 per prescription. As a result, Ohio has decided to make changes to the way PBMs can operate and they estimate it will save the state between $150 million to $200 million per year.

Similarly, a 2019 Kentucky report revealed that PBMs charged $123.5 million through spread pricing.^[3] After this report came out the state has made efforts to change PBM pricing strategies to reduce costs.