The Price May Be Right, But it Doesn't Make Sense

The Price May Be Right, But it Doesn't Make Sense

Plinko has been a fixture on “The Price Is Right” gameshow for 35 years. I personally prefer the show’s Hole-in-One game, because it doesn’t come down to luck. Plinko, however, is a great metaphor for how prescription drug prices are determined for any given consumer.

At Rx Savings Solutions, we often start a presentation with a simple survey. We ask people to guess the price for a 90-day supply of 10 mg Atorvastatin tablets, a widely prescribed generic cholesterol drug/dosage:

_ $305.89
_ $37.87
_ $17.75
_ $8.89

The right answer surprises everyone in the room: “All of the Above!” It’s true. Those are potential price outcomes for one of our members.

How can the exact same drug cost one person (or health plan) more than $300 in one scenario and less than $9 for another? Great question, and a very complicated answer. Think back to the Plinko board.

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Credit: TV Insider

Pretend your prescription is the chip and the pegs are all the parameters at play in the pricing equation. Everyone starts from the same place—the top—but everyone can wind up traveling down and across the board in a much different path—landing on dramatically different prices.

Here are all the pegs on the Plinko board:

A) Pharmacy – We see price variance of 2,000 percent or more from one pharmacy to the next.
B) Therapy – Equivalent therapy options within the same drug class can vary in price by more than 72 times.
C) Network – There are hundreds of pricing networks across various commercial plans. They typically change every year.
D) Formulary – Tiered formularies might give the illusion that Drug A is the best therapy, when in fact it may be there due to rebate dollars shared through the supply chain.
E) Price Calculation – We see variances up to 131x in “list prices” that are used to calculate cost to the payer.
F) Suppliers – Average number of wholesalers that move the product from the manufacturer to the pharmacy: 2.
G) Availability – Thanks to consolidation and raw ingredient shortages, drug prices can fluctuate wildly in a short timeframe.
H) Packagers – More appropriately called “re-packagers,” they can increase prices 20x or more for the service of putting pills into a different container.

You may have noticed that drug-makers don’t have any pegs on the Plinko board, but they play a huge role in this. In our Atorvastatin example, we’re talking about a generic, one of eight in the statin class. However, as this Washington Post report points out, the generic market is not immune to pricing manipulation. You might say manufacturers determine which slot you start out in at the top of the board.

If it’s somehow easier to think of the pricing equation in mathematical form, it goes like this, using variables and factors A through H above:

A x B x C x D x E x F + G + H = X (your prescription price)

We’re talking tens of thousands of possible outcomes. Change any variable in the equation and it changes where you land at the bottom of the Plinko board. If you’re really lucky, you get the best therapy at the lowest price. Rx Savings Solutions has the right equation to get you there the first time.

Pharma pricing shouldn’t be a Plinko game. I’d rather play Hole-in-One. I know our members and clients would, too.