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Some five years ago, my health insurance decided to be particularly horrible. Medication that typically cost $5 to $10 suddenly promised to cut a $130 or so hole in my wallet at the usual pharmacy chain. I cursed the American medical system, rationalized the cost, and prepared to bite the bullet. But as I pulled out my credit card, the pharmacist, like some fantastical drug-dealing Robinhood, leaned over and whispered: “Search up GoodRx.”
I did. And like magic, my bill shrank to about $22. Elated, I handed over my card with considerably more willingness. In the back of my mind however, I couldn’t help but wonder: How did that work? After all, there is no such thing as free lunch.
My colleague Erika Fry dove into the topic for her most recent feature “GoodRx helps people afford drugs. But is it improving health care or profiting off of a broken system?” Backed by the likes of Francisco Partners, GoodRx went public last year and is valued at about $15.7 billion in the public markets.
Here is effectively how it works. Before you read, know that PBMs, or pharmacy benefit managers, are middlemen that negotiate how much consumers owe for medication and how much each of the players—insurers, manufacturers, and pharmacies—are paid. They aim to keep drug spending in check, but the debate is still out on their success.
“GoodRx is able to monetize the discounts, somewhat ironically, through its partnership with the various PBMs. When a consumer seeks out a lower-price medication at a particular pharmacy with a GoodRx coupon, the PBM with that contracted price processes the claim and rewards GoodRx with a sort of “referral fee,” explains Hirsch. (These fees account for 90% of GoodRx’s revenues.) It can be a sweet deal for PBMs in that they’re able to elbow their way in and pick up revenue on transactions that they previously had no part in.
‘[GoodRx] is kind of a front for PBMs,’ explains Geoffrey Joyce, a health economist and director of health policy at the University of Southern California’s Schaeffer Center. ‘They provide the benefits a PBM might provide for uninsured consumers.’ Those benefits can be substantial. “Uninsured consumers, they’re a big cash cow for pharmacies,” says Joyce. ‘They pay ridiculously high prices [for generic drugs].’”
I haven’t been the only one to benefit from its model. GoodRx says it has saved Americans over $25 billion on prescription drugs since 2011 (though some critics argue it could be less).
Still, the model is more of a pain reliever than a cure for the messy state of the U.S. health care system—a sentiment that GoodRx co-CEO and cofounder Doug Hirsch might agree with. “To some extent… our success is a barometer of how broken the health care system is,” he told Erika.
I can’t help but wonder where GoodRx goes in the long, long term. The company is doing a good for many who are dealing with ballooning medication costs, but it also has a vested interest in the confusing state of the health care system. It reminds me a bit of where tax preparation software providers like H&R Block or TurboTax provider Intuit sit today. Certainly, their software made filing taxes easier for many, but the duo have also lobbied heavily to maintain the status quo within the byzantine U.S. tax system.
But the challenge within the health care system is likely much bigger than that of tax filings. And GoodRx, for its part, has been expanding into other businesses including telehealth and connecting consumers with branded pharmaceuticals. Read more.
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