This Pharmacy Went Cash-Only, Lost 70% Of Customers, & Doubled Profits | With Brad Hart

This video provides an in-depth exploration of the "cost-plus" pharmacy model and its disruptive potential within the opaque and often exploitative pharmaceutical industry. Brad Hart, owner of Forest Park Pharmacy, shares his journey from a struggling traditional independent pharmacy, mired in the complexities and poor reimbursements of the insurance-based system, to a thriving cash-only, cost-plus operation. He details how this radical shift, initially leading to a 70% loss of customers, ultimately doubled his profits by eliminating the predatory practices of Pharmacy Benefit Managers (PBMs) and providing transparent, significantly lower drug prices.

Hart highlights the systemic issues plaguing the industry, particularly the role of PBMs in inflating drug costs through "spread pricing" and the deceptive "low copay trap" that misleads consumers about the true cost of their medications. He provides startling examples of Medicare overpayments, where common generic drugs costing pennies or a few dollars are reimbursed for thousands, leading to billions in annual waste. His use of social media, particularly TikTok, to expose these discrepancies by comparing his pharmacy's prices to Medicare reimbursements, garnered viral attention and transformed his business, despite initial challenges in managing the influx of inquiries for brand-name drugs he couldn't assist with.

The discussion also delves into the logistics of operating a cost-plus pharmacy, including the necessity of dropping all insurance contracts due to restrictive clauses that prevent transparent pricing and direct-to-consumer models. Hart explains his pricing structure (acquisition cost + 15% + $10 fee) and the importance of a robust online "price checker" tool for customer education and transparency. He touches on the challenges of scaling such a model, including state-specific licensing requirements for pharmacists and the inability to compete on brand-name drugs due to the rebate-driven pricing structure. The conversation concludes with a forward-looking perspective on PBM reform, the emergence of direct-to-consumer models from pharmaceutical manufacturers, and the critical role employers can play in driving systemic change by demanding transparency and adopting alternative benefit designs.

Key Takeaways:

• PBMs Drive Independent Pharmacies Out of Business: Independent pharmacies often struggle to survive under the insurance-based reimbursement model, with PBMs paying below acquisition cost, forcing pharmacies into unethical workarounds like falsely claiming drugs are out of stock. PBMs explicitly aim to run independents out of business to consolidate market share for their own pharmacies.
• The "Low Copay Trap" Masks True Costs: Consumers are often misled by low copays, which incentivize them to use insurance without understanding the actual, significantly higher cost of the drug to their employer or the healthcare system, ultimately driving up premiums.
• Cost-Plus Model Can Double Profits Despite Customer Loss: Forest Park Pharmacy's experience demonstrates that abandoning insurance and adopting a cost-plus model (acquisition cost + 15% + $10 fee) can lead to a substantial increase in profitability, even after losing a significant portion of the original customer base.
• Billions in Medicare Overpayments for Generics: Public data reveals egregious overpayments by Medicare for common generic drugs, with examples like Aberdarone costing $96 at a cost-plus pharmacy but being reimbursed for $3,400, leading to billions in annual waste across various drugs.
• Social Media as a Disruptive Force: Brad Hart's viral TikTok videos, comparing his pharmacy's transparent prices to Medicare reimbursements, proved highly effective in raising public awareness and driving business, demonstrating the power of social media for industry disruption and education.
• Binary Choice: Insurance vs. Cost-Plus: Pharmacies cannot operate a true cost-plus model while simultaneously accepting major insurance plans, as PBM contracts contain restrictive clauses that prevent transparent pricing, direct shipping, and other operational flexibilities.
• "Specialty Generic" is a Misnomer for Inflated Prices: The term "specialty generic" is often used to justify absurdly high prices for drugs that are otherwise cheap, highlighting another area of market manipulation by PBMs and manufacturers.
• Average Wholesale Price (AWP) is a Fabricated Metric: AWP, often used in reimbursement calculations, is a proprietary, privately set price that bears no resemblance to actual wholesale acquisition costs, often being 100 times higher than what pharmacies actually pay.
• Direct-to-Consumer Models are Emerging and Disruptive: Pharmaceutical manufacturers like Eli Lilly and Novo Nordisk are launching direct-to-consumer models with significantly lower non-insurance prices, challenging traditional distribution and pricing structures.
• Employer-Sponsored Healthcare is the Biggest Lever for Change: With 165 million Americans covered by employer-sponsored health insurance, employers have immense power to drive systemic change by demanding transparency, challenging PBM contracts, and adopting alternative benefit designs.
• GLP-1 Compounding Highlights Price Discrepancies: The ability of 503b outsourcing facilities to batch compound GLP-1s during shortages created a massive price differential (e.g., 10x cheaper than brand names), demonstrating the potential for significant savings through alternative drug sourcing.
• Legislation Alone May Not Solve the Problem: While PBM reform legislation is gaining traction at state and federal levels, it often addresses minor issues or opens new loopholes; true, lasting change requires market-driven solutions and employer action rather than centralized price controls.
• Transparency Tools Empower Consumers: Online price checkers that clearly display drug acquisition costs plus a transparent margin empower consumers to understand true drug prices and identify overpayments, prompting them to seek more affordable options.
• "Usual and Customary Price" Manipulation: Insurance companies often require pharmacies to set an absurdly high "usual and customary price" to qualify for reimbursement, effectively forcing pharmacies to inflate their cash prices if they also want to accept insurance.

Tools/Resources Mentioned:

• Forest Park Pharmacy's Price Checker: An online tool on their website that provides transparent pricing for over 10,000 drugs based on acquisition cost plus a fixed margin and fee.
• Diversify RX: A local conference for pharmacy owners where Brad Hart learned about the cost-plus model.
• Blueberry Pharmacy (Kyle): One of the first cost-plus pharmacies, serving as an inspiration for Forest Park Pharmacy.
• costpluspharmacies.com: A search tool created by Kyle (of Blueberry Pharmacy) to help consumers find cost-plus pharmacies across the country.
• NABP (National Association of Board of Pharmacies): Mentioned for an upcoming national certification exam for pharmacists, which could streamline multi-state licensing for mail-order services.
• FTC Reports on PBMs and Specialty Generics: Referenced as comprehensive reports that exposed the problematic practices of PBMs, particularly concerning specialty generics.

Key Concepts:

• Cost-Plus Pharmacy Model: A business model where drug prices are determined by the pharmacy's acquisition cost plus a transparent, fixed percentage margin and a dispensing fee, without involving insurance.
• Pharmacy Benefit Managers (PBMs): Third-party administrators of prescription drug programs for health insurance companies, Medicare Part D plans, and large employers, often criticized for their opaque pricing practices and role in inflating drug costs.
• Low Copay Trap: The phenomenon where low patient copays for prescription drugs obscure the actual high cost of the drug, disincentivizing patients from seeking cheaper alternatives and contributing to higher overall healthcare premiums.
• Spread Pricing: A practice by PBMs where they charge the payer (e.g., employer) a higher price for a drug than they reimburse the pharmacy, keeping the "spread" as profit.
• Specialty Generic: A term often used to classify certain generic drugs as "specialty" to justify significantly higher prices, despite their low acquisition cost.
• Average Wholesale Price (AWP): A benchmark price for prescription drugs that is often used in reimbursement formulas but is a proprietary, inflated price that does not reflect actual wholesale costs.
• 503b Outsourcing Facilities: Facilities that can batch compound drugs and sell them to pharmacies, providing a legal pathway for large-scale compounding, particularly relevant during drug shortages.
• Usual and Customary Price: The price a pharmacy typically charges cash-paying customers, which PBMs often require to be artificially inflated to qualify for insurance reimbursement, hindering transparent cash pricing.
• Comparative Effectiveness Analysis: An approach to evaluating drugs based on their clinical effectiveness and value compared to other treatments in the same class, rather than solely on rebate potential.
• Most Favored Nation Pricing: A concept where a buyer (e.g., a government) demands the lowest price offered to any other buyer globally, aimed at reducing drug costs but potentially leading to unintended consequences like price increases in other nations.

Examples/Case Studies:

• Forest Park Pharmacy's Business Transformation: The core example of converting from an insurance-dependent model to a cash-only, cost-plus model, losing 70% of customers but doubling profits due to elimination of PBM inefficiencies.
• Aberdarone Overpayment: A specific example where Medicare reimbursed $3,400 for a drug that cost Forest Park Pharmacy $96, illustrating billions in potential waste.
• GLP-1 Compounding: The case of compounded GLP-1s (e.g., Semaglutide) being significantly cheaper than brand-name versions, driving substantial business for independent pharmacies until regulatory changes around shortage lists impacted their ability to batch compound.
• Walgreens' Struggle without a PBM: Mentioned as an example of a large pharmacy chain struggling to remain profitable without its own PBM contracts, highlighting the PBMs' market dominance.
• Eli Lilly and Novo Nordisk Direct-to-Consumer: Examples of major pharmaceutical manufacturers launching direct-to-consumer platforms offering lower prices for their drugs outside of insurance, signaling a potential shift in drug distribution.