Overview
We spoke with an independent pharmacy owner/operator based in the mid-Atlantic (11 pharmacies in the group; ~400k prescriptions and ~$55MM in total sales annually, including some specialty meds) about GoodRx ($GDRX) and current pharmacy/drug supply chain issues. Previously, he spent time managing regions for two of the largest national chains. We were surprised to hear about how strong consumer demand has been for the flu vaccine, which reinforces our #NoFluSeason thesis, and we learned more about the practical use of prescription coupons, how and why pharmacies interact with consumer at the counter, and more. While we have some concern(s) about GDRX’s model, the gap in the market in which it [very] profitably operates is not likely to close in the foreseeable future.
Field Notes
What’s your view on drug coupons, and can you give us a rough percentage of customers that use coupon apps like GoodRx?
- We see 15-20% for cash discount cards in general, and GDRX is easily >50% of that usage. If we were at a social gathering, at least 60-70% of people have heard of GDRX. After them, SingleCare and Blink are 2 and 3, and FamilyWize is next.
- It’s important to remember that these coupons a) have been around for 15+ years, b) take care of a gap for people without health insurance/a drug benefit, c) 20-30% of the time the discount card pricing isn’t accurate and the pharmacy is upside down on price, d) most pharmacies (CVS, Walgreens, Rite Aid, etc.) have their own clubs/programs, and e) GDRX has been the leader since its inception.
- Drug coupons started slow w/ the uninsured (maybe 3-5% growth). More recently, consumers use the cards/apps because of marketing/advertising. “GoodRx has an ad on display at my dermatologist’s office at the check-in counter! They have the best marketing.” The rise in copays and deductibles over the past 5-10 years has helped boost growth, even if the cost of the drug doesn’t go toward the patient’s deductible, the savings at the point-of-sale (POS) is often worth it (especially for a one-off – i.e., not chronic – medication).
- Discount card/app prices can lead to low, no, or negative margins for pharmacies, which are not supposed to refuse to fill a script. The issue often arises when there’s a recall or other supply chain issue and prices don’t adjust quickly enough to reflect the reality of the supply side (e.g., “If you can’t get the generic inhaler from a different source, GDRX or the PBMs won’t have an accurate price, and we’ll be upside down on it.”).
- GDRX vs. pharmacy programs = one drug vs. looking at all a patient’s medications; “pharmacies are constantly trying to negotiate – the basket vs. one drug.”
GDRX is primarily for generics, right? Do people ask for specialty prescriptions?
- Yes, but people are asking about it for specialty too. If the cost of a medication is nearly $300 and a coupon knocks it down to $250, that doesn’t really help. I think GDRX is making inroads into branded, but brand meds are often very expensive.
- 96-97% of our scripts, for cards, are generics (87-88% of the prescriptions we fill are generics).
Who is the average GDRX customer?
- It’s a wider range than you’d think. Just the other day, we had a 74-year-old woman ask about it, and then a young mother with a baby in a stroller asked about it later. That said, the average customer used to be the older person, either uninsured or in the “donut hole.” It’s been trending toward a younger demographic due to aggressive marketing by all the coupon companies.
- For the 30-50-year-old range, it’s probably closer to 15% because people don’t take as many medications, only need one drug for less than 90 days, etc. Also, for kids/babies, nobody cares. For the most part, parents aren’t price sensitive for 1x prescriptions (asthma and diabetes, or other chronic conditions are different).
- Most seniors have Medicare, and they are still sensitive to prices because of the tiers and variability in plans and drug coverage (sometimes a senior makes a mistake and will have to switch in the following year). Also, most seniors have fixed incomes. Of the total class of seniors, all would be interested if they had the ability to see/use GoodRx. However, some have no desire. In my opinion, about 25-20% of might want it AND would try it.
- This would be the lower quartile of income, most likely.
Which piece of the fee does GoodRx collect? What does it mean for/to you? How does it work?
- GDRX gets its price lists from Caremark, Optum, etc. that’ll show that the drug costs $5, and maybe the patient is charged $20. So, there’s a fee back for adjudication, and then a split that’s negotiated between GDRX and the insurer/PBM.
- The average “under-cut” on usual and customary is $12-$14.
- We just run the credit card at the store and after the credit card fee and “vig” for Blink, SingleCare, or GoodRx (ranging from 40 cents to $8, but usually ~$2 – it’s somewhat dependent on the price of the medication).
- We are almost always better off offering our own pharmacy’s pricing club/list because there’s no fee, we save whatever that vig is. I think everyone is starting to understand that GDRX is buying down the cash price the pharmacy pays. Take Lisinopril: if it’s $40 but costs me $15, we would make $25. GoodRx comes in and the customer uses the coupon and pays $25. We pay the fee back, which happens when we adjudicate (RxBin tells the pharmacy system what price to charge at the POS). The price list is the whole problem.
- JV: Because pharmacies are under contract, they can’t tell the customer what to do in these scenarios. If the pharmacy is listed as participating/taking GDRX and the price is “fair,” most pharmacists will let it go. However, ~50% of the time, the customer ends up NOT using GDRX because they don’t need to (e.g., for $4 generics like at Walmart). And, if the opportunity presents itself (i.e., if the customer is on multiple medications and the pharmacist has time), a pharmacist can ask the customer if they’d like to review everything they are taking to see if there’s an opportunity to save money using the “in-house” program.
- Overall, GDRX does help. They raise awareness of where better prices are available, and everyone is inclined to lower price. The average consumer is relatively price sensitive, and seniors will go across the street to save $5.
What are the risks to GoodRx?
- Legislation or reform – changes to the rebate system, for example. If there were any change that meaningfully altered the PBM model, it could impact the space. DIR fees are still an issue, but nothing has been done.
- That said, most of the rebates revolve around branded.
- Amazon is a real threat – if they came out with a cash program, it’d be a game-changer.
- Amazon bought PillPack for a reason and has been hiring senior pharmacy executives. They are “very deliberate” and don’t want to fail or “half-ass” this, in my opinion. Whatever Amazon ultimately does will be formidable and will likely hurt PBMs.
How valuable is HeyDoctor/having telehealth built into the offering for GoodRx?
- Telehealth has its place, but for any serious conditions it’s not sufficient.
- For GDRX – a quick visit, refill, etc. – it’s viable and valuable. It’d be important for GDRX to have licenses in every state, like Amazon w/ PillPack.
- Older clientele doesn’t like telehealth, but 10-15 years from now, as everyone ages, it will be much more accepted.
Have you looked at Tabula Rasa or any other medication risk management software recently? Who do you use for your pharmacy software?
- We use PioneerRx and would never switch. In my mind, they are the best. The way everything integrates/interfaces with 3P plans and different state registries, immunizations, controlled substances, purchasing/inventory, etc. It would be very, very tough for us to consider anything else (or justify the cost of adding something to it).
- We use Dispill for multi-pack/adherence packaging, and it’s great. We need to be a 5-star pharmacy for reimbursement, so we offer text messaging, adherence packaging, etc. to make sure that compliance is high.
Outlook for reimbursement?
- I don’t see the pressure decreasing, and DIR fees are still a problem. We really need reform here – something to reel things back in with rebates driving prices up.
CVS & Walgreens
- If we’re going to telehealth, do we need bricks-and-mortar? Walgreens pulled away and is partnering or opening small apothecaries, but CVS is all-in with HealthHUBS. CVS was able to get rid of inventory and add dental or an optician in that space, but 13k sq. ft. stores are too large. CVS has lost a lot of executives in the wake of the Aetna deal, but Larry Merlo is “an animal” and deserves respect.
- Shopping patterns have changed, and stores are likely to get smaller. Independents, like the larger chains, may be upside down on many of the scripts they are filling, and often make more money selling a bottle of CBD.
- Walgreens is still working on digesting the Rite Aid stores.
What are your thoughts on this year’s flu season? How is vaccine demand?
- I think this year’s flu season will be milder for all the obvious reasons – masks, distancing, etc. You never know though – what if the flu shot is only 50% efficacious vs. 70-90%?
- We are completely out of the low dose flu vaccine due to demand from 30-60-year-olds. Over 60s are still afraid to leave their homes due to COVID; however, old people want the vaccine delivered.
- YoY, we’ve easily surpassed 2019 – it feels like we’re ~30% ahead, or 30-40 days. We have more supply coming in (it comes in stages, per usual planning). But we’ve never run our this early in stage one.
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