Large pharmacies like Walgreens negotiates contracts directly with insurers. Smaller independent pharmacies band together to negotiate as a group.
Because so much discounting and rebates happen on drugs, it's actually really hard for an insurance company to know what a pharmacy paid for a drug. Plus, there are so many drugs, it's hard to negotiate each one. What you end up with are blended reimbursement rates. An insurer might agree to pay 5% below list for all blood pressure medication. The pharmacies then try and get the best price they can. As a result, they make a lot of a handful of drugs, a slim margin on most and lose money on a few.
PBMs that own pharmacies (Express Scripts is the biggest) are in a unique situation where they know both side of the transactions - what the purchase price was so they can set reimbursement.
There are also DIR fees happening where PBMs clawback additional funds later on. That makes knowing the actual margin for a pharmacy really hard to determine until the transaction is already complete.
I’ve worked in a couple of healthcare segments over a couple decades. One thing I’ve come to learn is things can never be simple. I think economic complexity somehow adds s ton of system cost. If nothing else it adds layers of middlemen
If you don't have insurance you just default to the list price.
However that is changing. I can't remember the company, but one pharmacy is starting a cash pay discount program.
No not at all. “Self pay” was your status and those people pay the highest rates. This is true for almost all US healthcare. Being self pay is basically like going to a car dealer and paying MSRP with no negotiation or rebates, etc.
The pharmacy has agreements with wholesalers (sometimes directly with manufacturers) that determines their cost structure of inventory. This includes discounts and rebates and a lot of other cost reductions but All these drugs have sticker price. Insurance companies drive volume and can decide which pharmacies their patients use, thus they can negotiate prices as well. The pharmacy<>insurance transaction is usually going through a PBM, another middle man, that can tell them pretty much instantly what you owe based on your coverage (this is why a pharmacy can give you accurate pricing but doctors offices can’t). There’s a lot of intricacies but the difference between self pay and insured rates can significant. For a generic, I’d be surprised if the pharmacy paid more than 5-20$ but billed you what they could. When insured and you pay 10$, the insurance company has done the math that they will profit on their total generic base even if they lose a little on your purchase (but they probably didn’t).
I work in healthcare finance currently at a pharmacy