Generic Drugs at Cost with ZERO Markup - ScriptCo

This video features an interview with Zach Zeller, President of ScriptCo, detailing their mission to disrupt the traditional healthcare system by offering transparent, cost-plus medication pricing, primarily focusing on generic drugs. Zeller explains that ScriptCo was founded after he and his co-founder, Mark Cormier, discovered the opaque and high-margin practices of Pharmacy Benefit Managers (PBMs) while operating traditional retail pharmacies. They realized that consumer copays were often significantly higher than the actual acquisition cost of the drugs, leading them to spin off their retail operations and launch ScriptCo in 2019 with a focus on transparency and service.

ScriptCo operates on a unique business model where they monetize the service, not the medication. Consumers pay an annual membership fee ($140 for an individual) to access drugs at the exact cost ScriptCo paid for them (zero markup). For the business-to-business (B2B) market, they charge employers $3 per member per month (PMPM) or $10 per utilizing member PMPM. A core component of their value proposition is real-time pricing transparency. They work with one manufacturer and 30 wholesalers, and their custom-built technology immediately updates their quote tool and partner platforms (like EMRs) whenever inventory is received, ensuring accurate, real-time cost reflection. This level of transparency is positioned as a direct counter to the "golden handcuffs" of traditional PBM contracts that obscure true drug costs.

The company emphasizes the massive potential for savings in the generic drug space, which accounts for 92% of the market. Zeller highlights that even low-cost generics, like Lisinopril (which costs pennies per pill), can have retail prices around $15 for a 30-day supply due to PBM contracts, copay requirements, and retail pharmacy margins. By removing this "fat," ScriptCo achieves significant savings, reporting an average reduction of 25% to 30% in total generic spend for self-funded employers. They operate a highly efficient mail-order fulfillment center utilizing Prada Max 2 robotic systems for their top 120 high-volume drugs, which allows them to maintain a national average delivery time of three days and an average 90-day supply cost of $8.70.

ScriptCo positions itself as an "adjunct benefit" or "belt and suspenders" approach that can be layered onto existing PBM arrangements, allowing employers to carve out generic maintenance medications. This strategy pulls claims out of the traditional insurance ecosystem, avoiding PBM adjudication fees (which can be as high as $7.50 per claim) and high copays, thus delivering net savings—an average of $250 per employee per year after all expenses (membership and drug costs) are accounted for. The primary hurdles for scaling include overcoming PBM resistance to releasing claims data and driving high employee utilization, though Zeller believes the ethical obligation to provide affordable access and the significant financial benefits will ultimately drive widespread adoption.

Key Takeaways:

• PBM Contract Opacity in Generics: The majority of hidden margin ("pork") in the pharmacy supply chain exists within the generic drug market, which comprises 92% of prescriptions. This is driven by PBM contracts dictating high copays and retail pharmacy margins, even on drugs that cost pennies to acquire.
• Significant Employer Savings Potential: Self-funded employers utilizing a cost-plus model like ScriptCo can expect to reduce their total generic medication spend by 25% to 30%. One case study cited a net savings of $417 per life per year after all expenses were paid.
• Cost-Plus Model Mechanics: ScriptCo's model is based on monetizing service, not medication. They sell drugs at their exact acquisition cost (zero markup) and charge a predictable service fee ($140/year for consumers; $3-$10 PMPM for B2B), providing clear financial predictability.
• Real-Time Pricing Technology: ScriptCo maintains real-time transparency by linking inventory updates directly to their quote tool and partner platforms. This custom software development is crucial for accurately reflecting the true cost of drugs immediately upon inventorying.
• Addressing High-Frequency, Low-Severity Claims: The cost-plus model effectively pulls high-frequency, low-severity maintenance drug claims out of the insurance system, similar to Direct Primary Care (DPC). This avoids PBM adjudication fees and high copays, reducing overall plan costs and improving patient access.
• Operational Efficiency via Robotics: To maintain low costs and a positive user experience, ScriptCo utilizes Prada Max 2 robotic fulfillment systems for their top 120 highest-volume drugs, allowing for rapid and efficient processing (one fill every 30-45 seconds).
• User Experience is Paramount: Since ScriptCo only makes money on the service fee, a seamless user experience is critical for retention. They aim for a three-day average turnaround time nationwide from payment to doorstep delivery, supported by immediate tracking number generation upon scanning the pick sheet.
• Implementation Strategy (Belt and Suspenders): Employers can implement ScriptCo mid-year without changing their existing PBM contract by positioning it as an adjunct or voluntary benefit. This allows employees to opt-in and carve out their generic maintenance meds from the traditional insurance plan.
• Data Access Hurdles: A major challenge in scaling is obtaining claims data from TPAs or PBMs to perform repricing analyses. Employers often face resistance in accessing their own data, requiring executive intervention to compel release.
• Focus on Maintenance Generics: ScriptCo focuses on maintenance medications and explicitly excludes Controlled Substances due to the high regulatory risk and compliance burden, directing those prescriptions back to traditional pharmacies.
• Streamlined Onboarding: Employer onboarding is designed to be frictionless, accepting 834 EDI or CSV files for eligibility and allowing contract signing and onboarding to occur on the same day.

Tools/Resources Mentioned:

• Prada Max 2 Systems: Robotic fulfillment systems used for high-volume drug dispensing.
• 834 EDI File / CSV File: Standard formats accepted for eligibility data transfer from employers.

Key Concepts:

• Cost-Plus Pricing: A business model where the price charged to the consumer is the exact cost of the product (acquisition cost) plus a fixed service fee or membership charge, ensuring total transparency.
• Adjudication Fee: A fee charged by PBMs for processing a prescription claim, regardless of the drug's cost. This fee contributes significantly to the hidden costs of generic medications.
• Belt and Suspenders Approach: Implementing a new benefit (like ScriptCo) alongside existing benefits (like a traditional PBM) without requiring immediate contract changes, often functioning as a voluntary or supplemental option.