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The Hidden Dark Side of Prescription Discount Cards: What Your Pharmacy Needs to Know

Stating that they will increase pharmacy patients and foster loyal customers, Prescription Discount Card companies encourage pharmacies to utilize and distribute discount card programs and promote their use among patients. While additional patient traffic might be a plus for pharmacies, the discount card companies often hide humungous transactional fees charged to pharmacies per transaction. Because of the complexities of the pharmacy business model in terms of accounts receivable, these charges are often difficult to uncover and reconcile. Many pharmacies pay these fees unknowingly. Pharmacies need to be aware of discount card fees and how their relationships with third parties could be costing them money just for filling claims.

Prescription Discount Cards are programs offering cash patients a way to lower the price of their medications. Prescription Discount Cards are generally produced and administered by prescription discount companies who create Bin and Group numbers, print cards and distribute them to the patients to be used to process cash claims. Essentially, when a cash patient comes into a pharmacy with a Prescription Discount Card, the pharmacist is to process the Prescription Discount Card through their software system, and the Prescription Discount Card will reduce the cash price. Some Prescription Discount Card companies require a patient to register or sign up before hand, and will issue a personalized card. Others are simply printable and are identical from patient to patient.

Prescription Discount Cards claim to enable the pharmacy to be able to provide a discounted cash price to their patients, without lowering the Usual & Customary (U&C) calculations vis-à-vis their third-party payors. This can best be illustrated with an example. If a pharmacy’s U&C price for a particular drug is $34.00, a patient using a Prescription Discount Card might only be charged $30.00. Thus, the patient saves money on the cash price. Prescription Discount Cards promise that, on average, patients can save up to 20% on brand drugs and up to 40% on generic drugs from the U&C cash price of their prescription.

These Prescription Discount Cards differ from copayment reimbursement cards, like the ubiquitous Lipitor card. Unlike the copay reimbursement cards, Prescription Discount Cards apply only to cash patients and are not valid when used in connection with private insurance. The copayment reimbursement cards are designed to offset the copay that the patient has to pay in order to induce the patient to choose a higher-priced, brand drug. The Prescription Discount Cards are designed to provide a discount on the cash price for any cash paying patient. Another key difference is that with the copayment reimbursement cards, the pharmacy is receiving the full amount of the price of the drug, that is the reimbursement from the patient’s Pharmacy Benefits Manager (PBM), as well as payment of the copay (albeit from a party other than the patient after the secondary claim is processed through a switch). With Prescription Discount Cards, there is no reimbursement from a third party; what the pharmacy collects from the patient is all that the pharmacy will be paid for dispensing that drug.

Prescription Discount Cards are put in the hands of patients through various sources of distribution. Prescription Discount Card companies utilize physicians, municipal and county governments, paid marketers, and even pharmacies to distribute the cards and promote the programs. In addition, certain Prescription Discount Card programs are administered by PBMs, and can be used by members for drugs which are not covered under the plan’s formulary. An example of this is a PBM Prescription Discount Card covering hair growth medication, barbiturates or erectile dysfunction drugs, which are excluded from coverage under Medicare Part D.

While Prescription Discount Cards may seem useful in helping impoverished patients purchase medications, Prescription Discount Cards often fail to clearly reveal the hefty transaction fees per prescription discount processed. Prescription Discount Cards charge anywhere between $4 and $36 dollars per transaction fee, with many charging approximately $8 per transaction. The way this works is that a cash patient comes into a pharmacy with a Prescription Discount Card, the pharmacist processes the Prescription Discount Card through their software system, the system states the lowered price that the pharmacy may charge the patient, and the Prescription Discount Card lists a transaction fee that the pharmacy must pay, apparently in exchange for processing the Prescription Discount Card and being able to charge the patient a reduced cash price. 

Illustrated with real numbers, the process becomes dubious. A patient comes in for a drug with a cash price of $20 and uses a Prescription Discount Card, which indicates to the pharmacy to lower the price to $10. The pharmacy collects the $10 from the patient (that is all the pharmacy is receiving for this prescription). Then, the Prescription Discount Card charges the pharmacy a transaction fee of $5. As explained below, the Prescription Discount Card company “charges” the transaction fee to the pharmacy through various mechanisms, including deduction from third party reimbursements, subsequent invoices, and bills. At the end of the day, the pharmacy is left with a $5.00 net payment. This situation gets even worse, as in many instances, the Prescription Discount Cards (coupled with their high transaction fees) result in the pharmacist dispensing the medication below cost.

As a result of these economics, we’ve heard a good deal of chatter about pharmacists opting not to process the Prescription Discount Cards. Sometimes pharmacists inform customers that they do not accept Prescription Discount Cards. Others, inform customers that they will run the Prescription Discount Card, see what the price is, charge the patient that price, then reverse the claim. In a third scenario, pharmacies process Prescription Discount Cards, receive a bill from a Prescription Discount Card company, and simply did not pay the bill. Each of these options has its risks.

What pharmacies may not realize is that in certain scenarios they may be contractually obligated to accept and process Prescription Discount Cards through their Pharmacy Services Administration Organization (PSAO). Just like participation in PBMs’ networks, PSAOs contract on behalf of their member pharmacies to participate in Prescription Discount Card programs.  What’s more, if the PSAO administers central pay on behalf of the pharmacies, the PSAO may actually be deducting the high transaction fees from the remittance to the pharmacies. Thus, for example, for each time the pharmacy processes a Prescription Discount Card and the software system lists a $4 transaction fee, the pharmacy’s reimbursement from the PSAO will have the $4 transaction fee deducted. Therefore, each time the pharmacy processes a Prescription Discount Card, it may be actually be costing the pharmacy money from other reimbursements that the pharmacy receives from the PSAO.

Moreover, the pharmacy may not be avoiding all these results by simply running the Prescription Discount Cards, charging the patient the reduced Prescription Discount Card price, then reversing the claim. First, particularly in instances where the transaction fee is being deducted from the general remittance from the PSAO, simply reversing the claim may not allow the pharmacy to escape the transactional fee. As is the case in other areas such as E-Prescribing and claims adjudication with PBMs, transaction fees can be (and often are) charged regardless of the ultimate result of the transaction or if the transaction is reversed. Thus, reversing the claim may not always protect the pharmacy. Second, by undertaking this practice, the pharmacy may be subjecting itself to risk of audit by the PBMs. PBMs generally define U&C as the lowest net cash price a cash customer would have paid the day the prescription was dispensed, inclusive of all applicable discounts. Thus, by not processing the Prescription Discount Card claim and simply reducing the cash price for that customer, a PBM could find that the pharmacy’s true U&C was lower than what the pharmacy has previously represented, and could seek recoupment on that basis.

It is a wonder, therefore, why PSAOs would contract on behalf of their member pharmacies with Prescription Discount Card companies when Prescription Discount Cards result in high transaction fees, subject the pharmacies to additional liability with the PBMs, and are known to be a huge source of patient data mining. A few possibilities exist. First, as with drug manufacturers, PSAOs may be receiving rebates or “kickbacks” from the Prescription Discount Card companies in exchange for enrolling pharmacies in these programs. A second possibility is that the drug manufacturers pressure PSAOs to do this on behalf of their members. In any event, PSAOs often act as “attorneys-in-fact” for their member pharmacies, and as a result, owe significant duties to act on the pharmacies’ behalf and in their best interests. 

Subjecting pharmacies to high transactional fees by entering them into Prescription Discount Card networks may not be in the pharmacies’ best interest. Pharmacies should vigilantly review the remittances received from your PSAO and verify the fees they’ve been charged in connection with Prescription Discount Cards. If you’ve paid fees that you didn’t agree to (or even know about), Frier Levitt can help. Contact Frier Levitt-We can help.