Online Pharmacy Cuts Out the Insurers
Satish Srinivasan wants to push insurance out of direct involvement in prescription drug purchases.
Srinivasan is the founder and CEO of DiRx, a 2-year-old East Brunswick, New Jersey-based company that runs an online pharmacy. The site serves customers who are using their own cash — not health insurance — to pay for prescriptions.
For a typical agent or advisor, the clients interested in a cash-only pharmacy could be those using a high-deductible health insurance policy, either with or without a health savings account, to hold premiums down.
Some of those clients may already be getting primary care from “direct pay” or “cash-only” medical practices that avoid connecting patients with their health insurers.
Clients who are comfortable with submitting prescription claims to insurers themselves might also shop at a cash-only pharmacy, and, in many cases, they might be able to get at least some reimbursement for DiRx purchases.
Srinivasan has a bachelor’s degree in pharmacy from the University of Mumbai and a master’s degree in pharmacy from the University of Illinois Chicago.
He entered the pharmaceuticals industry in 1994, as a territory manager for North America at Orchid Chemicals and Pharmaceuticals. He later ran Orchid’s U.S. generic drug sales unit, then headed U.S. distribution arms for other non-U.S. drug makers.
He started DiRx in 2020. As the head of an online pharmacy, he has a keen awareness of what drugs really cost.
He answered questions about prescription prices via email. The answers to the questions in this interview have been edited.
THINKADVISOR: How do you think the insurance industry contributes to higher drug cost inflation?
SATISH SRINIVASAN: In addition to adding the cost of administering insurance to the equation, since the reimbursement is based on a “reference price” and not the actual cost of acquisition of a product, the system intermediaries find it convenient to keep that reference price high even when the product’s cost goes down over time and pocket all the margin in the middle.
Do you think there are any other culprits?
The usual suspects are the traditional pharmacy benefit managers (PBMs) and the “Big 3″ drug wholesalers (especially in the case of generics, which are 90% of the prescriptions). They control the distribution chain and get to decide which product gets into the supply chain at what cost, while still keeping the system “pricing” pegged to the reference price for reimbursement.
How do you propose trying to fix things?
From a generic prescriptions perspective, we’ve tried to disrupt these two distribution layers (wholesalers and traditional PBMs) by directly sourcing products from manufacturers and making these directly available to consumers without the need for insurance.
