November 29th, 2021

Independent pharmacies vs. big chains: who has better prices?

The economics of the U.S. healthcare system can be confusing, especially when it comes to pharmacy benefits. Under “normal” retail conditions concepts like economies of scale, supply and demand, and consumer choice drive business decisions. It is not that these concepts do not exist in healthcare (they do), it is just that they don’t always lead to intuitive outcomes. 

For example, take the concept of economies of scale in pharmacy benefits. Let's say you are a consumer and you want to buy a box of chocolates. You drive down the street and find two stores: a national grocery chain and a mom and pop candy store. If you are looking for the best chocolate you would probably go to the local mom and pop candy store, but what if you wanted the least expensive chocolates? Informed by the concept of economies of scale, you would most likely choose the national chain under the assumption they are buying in bulk for all of their stores. For a box of chocolates and the vast majority of consumer goods, that is probably an accurate assessment.

Purchasing prescription medications through your pharmacy benefit is a different story. Let’s now say that instead of needing chocolate, you need to fill a prescription medication. As you drive down the street you see two options: an independent pharmacy and a national pharmacy chain. As you think through the options intuitively you decide national chains consist of thousands of pharmacies and would have the most buying power so they can purchase drugs at a lower cost. This is correct. However, a pharmacy purchasing drugs at a lower cost does not translate to you also buying your medication at a lower cost. The reason for this difference is the existence of a middleman known as the pharmacy benefits manager (PBM). 

PBMs sit in between your health plan and the pharmacy where you are getting your prescription. They are contracted by your health plan to negotiate the cost of prescription drugs with all of the pharmacies across the country. The large national pharmacies have stronger negotiating power and can therefore charge higher prices for prescriptions, which means higher costs for your health plan. 

So as you drive down the street looking for a pharmacy, keep in mind this counterintuitive reality of drug costs: your local mom and pop pharmacy is a more affordable source of drugs for you and your health plan than the large national chains. This creates a win-win opportunity for you as a patient and consumer: by choosing to fill your prescriptions from independent pharmacies, you can save yourself and your health plan money, while also supporting your local community.

Other Recent Posts

Your PBM says they met their guarantees, but did they save you money?

We have previously discussed the standard methods used to evaluate PBMs and how contract definitions can impact PBM accountability in complex ways. In addition to contract definitions, another critical aspect to driving PBM accountability is understanding drug utilization mix. If you evaluate PBM performance using aggregate pharmacy network discounts and rebate payments (which is the… Continue reading Your PBM says they met their guarantees, but did they save you money?

Why are drug prices so high? The answer in two charts

It’s clear to most Americans that our medical costs are higher than they should be, and that drug prices in particular are growing out of control.  These rising costs place a massive burden on America’s businesses, particularly small- and medium-sized businesses, as well as American families directly.

Independent pharmacies vs. big chains: who has better prices?

The economics of the U.S. healthcare system can be confusing, especially when it comes to pharmacy benefits. Under “normal” retail conditions concepts like  “economies of scale”, “supply and demand”, “consumer choice” drive business decisions. It is not that these concepts do not exist in healthcare (they do), it is just that they don’t always lead to intuitive outcomes. 

Partnering with SmithRx to provide transparent pharmacy benefits helps us deliver low-cost, high-quality care. Their pass-through model is the best way to ensure prescription drug pricing is fair.

Will Young
CEO at Sana Benefits

My loudest and most challenging group was handled perfectly in the first 30 days post-go-live by SmithRx. If it were up to me, I would put every one of my new groups with SmithRx.

Ken Mensio
Vice President at Risk Strategies

Ready to make the leap?

Ready to make the leap?

99%+

client retention

1,200+

employers served

50%

potential RX savings