When your doctor writes a prescription for medication, A.J. Loiacono thinks that one of the biggest mysteries in life is how the pharmacy arrives at the price you end up paying.
“I spent eight years trying to unlock this mystery from the procurement and audit side, and I couldn't,” he says. “I couldn't change the way drugs were priced or patients were serviced.”
It was at that point, in 2017, that he decided “enough’s enough,” so Loiacono and two of his colleagues, Joseph Alexander and Ryan Kelly, founded pharmacy benefit manager Capital Rx with a goal of offering up more transparency (and lower prices) for prescriptions. To that end, his company announced Wednesday that it now has a consumer prescription card, Capital Rx Advantage.
This card can be obtained by anyone to buy medication at a price the company says is lower 80% of the time compared to its competitors.’ What’s more, Loiacono says, is all the customers who use the card get the same price, which is unusual for the industry. The company earns money by charging a flat 99-cent fee per transaction. Other cards charge between $4 and $36, according to healthcare law firm Frier Levitt.
This maze of hidden fees and unknown charges plagues the pharmaceutical industry, and over the past few years everyone from the insurance industry to Congress has attempted to bring some clarity to the process, for which pharmacy benefit managers (PBMs) do the lion’s share of the work. “The pharmacy may buy their inventory and stock their shelves,” Loiacono says. “But they’re not setting the price.”
But it’s not always easy to figure out where drug prices come from, says Loiacono. That’s thanks to some of the convoluted connections between insurers, plan providers, suppliers and pharmacies. “When I read my first PBM contract, I was like, ‘Is there an amendment? Is there a schedule? Where are the drug prices?’ Because if you’re coming from manufacturing and the supply chain, everything has a price. And my colleagues on the payer side would be like, ‘We don’t have drug prices. We have descriptions of pricing.’ It’s almost funny to say out loud.”
That lack of transparency in pricing, Loiacono believes, is at the heart of why medications cost so much in the United States—over two and a half times higher than other comparable companies, according to the Rand Corp. “For efficient markets to exist, buyers and sellers really need to communicate,” Loiacono says.
Capital Rx, which now serves as a PBM for organizations and manages costs for over 500,000 people so far, has made the first step in managing drug price transparency. Rather than rely on complicated formulas, the company bases its prices on the National Average Drug Acquisition Cost pricing, a benchmark developed by the federal government. This benchmark is married with its pricing model, which the company says provides visibility into drug unit pricing with minimal variability.
This model has proven popular with both customers and investors alike. Capital Rx has raised over $69 million in venture funding, with backers including Edison Partners and Transformation Capital. The company projects it will have $470 million in revenue for 2021, and it reports a compound annual growth rate of 381% from 2018 through 2021.
One benefit of Capital Rx’s new prescription savings card, Loiacono says, is that it’s based on the same prices that his company gives its customers. Folks on plans that use Capital Rx as a PBM, he says, won’t have any need for it—their prices will be the same. That said, while he’s excited about his company’s offering, he’s irritated that he feels compelled to offer one in the first place. “Discount cards shouldn’t exist in the United States if carriers and PBMs just did their damn job,” he says.
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This Company Aims To Bring Down The Cost Of Your Medicine With Price Transparency - Forbes
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