Comment by ahzhou | Hacker News Reader

Comment by ahzhou | Hacker News Reader

Interesting how Amazon uses “Automated Discounts” to get around “Usual and Customary” prices. Typically, pharmacies only get reimbursed by PBMs (middlemen between insurers, manufacturers, and pharmacies) up to a maximum of of their U&C price so their incentive is to set it really high in order to maximize reimbursement rates.

Amazon’s GoodRX-style discount cards gets around this by basically charging a spread over the reimbursement and kicking back some portion of the spread to the PBMs. By making the price an “Automated Discount” to some number between the U&C price and the reimbursement price, Amazon can charge less without impacting their reimbursement rates while paying the PBMs off.

This is a huge simplification of the US’s broken pharmaceutical system, obviously. One example of the nuances here is that Amazon is probably not able to set the price of the discounted drug.

Some reading: https://www.drugchannels.net/2020/08/how-goodrx-profits-from...

For most people, the PBM is just a department of the managed care organization (MCO, aka health insurance company) that deals with medicine. So not much of a middleman in those cases.

UHC has OptumRX, Elevance Health has Carelon, CVS has Caremark, Cigna has Express Scripts, Humana has Humana Pharmacy Solutions, etc.

The biggest PBM not owned by MCOs is probably Prime Therapeutics, and they are hired by all the smaller BCBS plans that are not big enough to operate their own PBM, I presume.

Are there any resources where I can learn more on how the overall pharmacy/prescription drugs/insurance/patient value chain works in the US?

I would search forums like reddit.com/r/pharmacy or /r/medicine or sdnforum

For example

https://www.reddit.com/r/pharmacy/comments/33ac79/what_is_th...

But you can ignore a lot of the complexity these days due to consolidation. What used to be a health insurance company selling insurance for medical procedures only, and outsourcing the task of of evaluating coverage and negotiating prices for medicines to a third party known as pharmacy benefit managers, PBMs, is many times no longer outsourced.

Hence the term "managed care organization" (MCO) to supplant "health insurance company". Because now, the same business that sells the insurance can also employ the pharmacist, negotiate pricing for medical procedures and medicines, and employ the doctor providing the healthcare in some cases.

From a patient perspective, you and/or your employer pay the MCO, the MCO pays the doctor and/or pharmacist if the service/medicine is covered, and you pay the deductible/copay and this counts towards your out of pocket maximum.

Kaiser Permanente is an MCO that owns healthcare delivery from hospital to doctors to pharmacies. Some MCOs own more of the healthcare chain than others, and on the other side, you have hospital and doctor groups consolidating to be able to negotiate more favorable terms with increasingly larger MCOs.

The pharmacy pays the medicine distributor (such as Cardinal or McKesson or Amerisource Bergen), and the medicine distributor pays the medicine manufacturer (Pfizer, Merck, NovoNordisk, etc).

Most pharmacies themselves are owned by huge entities. Such as the largest retail pharmacy, CVS, which itself is an MCO. Next up is probably Walmart, Kroger, Costco, Albertsons, and then you have the last 2 big standalone retail pharmacies, Walgreens and Riteaid.

Looking at market capitalization graphs for Walgreens and Riteaid will inform you of how "up or out" the business is.

Thanks! I believe there are some interesting startup opportunities in this space, but is muddy as hell and scary to get into due to built up complexity over the decades.

> By making the price an “Automated Discount” to some number between the U&C price and the reimbursement price, Amazon can charge less

I don't think Amazon is "making" the price to some number. It's just applying the manufacturer discount automatically

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