How do prescription discount cards work? [Insider knowledge from a pharmacist]

You may have received a prescription discount card in the mail, watched a tv commercial, internet ad, or observed the display in your doctor’s office like many Americans do every year. Because these pharmacy discount cards are free, many people are naturally curious about what they are and how they work.

In short, prescription discount cards work by using the power of large groups of people to negotiate discounts in exchange for your business.  The codes are input into the pharmacy system with your prescription data and the price is returned as your copay.  The longer and more detailed answer to all of the questions you may have is below.

Many of you may have questions such as:

  • Are prescription discount cards legit?
  • Are pharmacy savings cards a scam?
  • How do these prescription discount cards work?
  • Can a rx savings card really save you money?

The truth is free prescription discount cards DO save you money BUT it may not be as much as you are expecting and it’s not completely “free”.

Keep reading and I’ll explain these questions and many more.

The Basics: What is a prescription discount card?

Simply put, a prescription discount card is a free program in which you can buy medications at a discount from the pharmacy’s cash price.  This is made possible because the discount card company has negotiated lower prices with the pharmacy in exchange for your business.

There are three different types of companies that sponsor free prescription discount cards.

  1. Pharmacy benefit managers (PBM), the normal prescription insurance processing companies like CVS Caremark, Express Scripts, EnvisionRx, and others.
  2. Data collection and marketing agencies like GoodRx
  3. A privately-owned company or non-profit agency.

The majority of pharmacy discount programs currently available are owned or administered by PBMs.  However, there are two, Singlecare and RxCut, that are privately owned.

The advantage of a privately-owned discount card program is that they negotiate directly with the pharmacies and administer their programs without the added cost of a middleman processing company such as a PBM.  This typically results in better pricing for you as I’ll explain later.

Behind the scenes the discount card administrator develops its formulary, pharmacy network, pricing, and “fee-to-fill” or “marketing fee”.

A formulary is simply a list of medications that are covered/approved. The pharmacy network is the list of pharmacies that have agreed to provide the negotiated discounts to individuals that present the pharmacy savings card.

The “fee-to-fill” or “marketing fee” is what the discount card company will charge the pharmacy for any transaction(s) completed using that company’s prescription discount card.

Who are the companies behind the free prescription discount cards?

Pharmacy benefit managers

Pharmacy benefit managers are companies that are hired by health insurance companies to manage their prescription drug benefits.  They determine what medications are covered and the reimbursement the pharmacy receives for filling a prescription as well as negotiating rebates with drug manufacturers to help reduce the cost of brand only medications.

Marketing  and data collection agencies

These companies are exactly what you expect.  They use the data collected from individuals using the free drug discount cards and sell it to drug manufacturers, insurance companies, and anyone else that wants to mine or use the information to sell something to you.  I’ll explain more on what data is collected below.   Marketing agencies that sponsor discount cards hire middleman companies called pharmacy benefit administrators  (PBA) to process the adjudication of claims,  negotiate prices with network pharmacies, and collect their claims data.  The PBA is much like a PBM except they only make money by charging a fee for each transaction processed.

Privately-owned companies and non-profits

Privately-owned company and non-profit discount card sponsors are the best of the three types.  These companies typically are not interested in anything but the collection of the transaction fees from the pharmacy.

These companies also have better motives by providing additional services and charity outreach to those in need.  The discount cards I’m aware of in this category are Singlecare and RxCut which are privately-owned and Familywize which works in partnership with the United Way.

How do prescription discount cards work?

As stated above, the discount card company negotiates cheaper prices on a select list of medications with a network of pharmacies.  The privately-owned companies do this directly with the pharmacies while the companies that use a PBM have the middleman negotiate and manage their formularies and discounts for them.   The lack of direct control by the companies that use a PBM often results in widely varying, unpredictable prices for you.

The companies also negotiate the “fee-to-fill” or “marketing fee” with the pharmacies.  The privately-owned companies don’t have a middle man to pay for administration of their discount program, so they charge the pharmacy a reduced fee.  Since the cost that you pay the pharmacy is a combination of the price of the medication and the “marketing fee”, you save more money.

Your Copay =  negotiated price of medication + pharmacy’s negotiated dispensing fee + “marketing fee”

The pharmacies agree to provide the lower prices to you so that they can earn your business.  The pharmacy pays the “marketing fee” to the discount card company when you fill a prescription using the codes provided in exchange for earning your business as a customer.

Essentially, the discount card company directed you to the pharmacy by showing you the low price for the medication you needed.

How do prescription discount cards save you money?

To explain how prescription discount cards work in simple terms, they use the power of large groups to negotiate lower prices with pharmacies.  The PBMs and PBAs use the power of their large insurance groups in combination with the cash discount card customers to negotiate the much lower cash prices.  

The companies also convince the pharmacies that if they accept a lower price from their customers then they will make up the reduced profits with a larger number of people buying prescriptions and general merchandise from them.

How do you use a prescription discount card?

The process to use a prescription discount card is very simple.

  1. You take your prescription discount card, screenshot, coupon, or code obtained from the app into your local participating pharmacy with your prescriptions to be filled
  2. The pharmacy uses the special billing codes on the card and sends them electronically to the discount card company along with your prescription information
  3. The discount card company compares the pharmacy price to the current drug price in the database and then applies the negotiated/agreed upon price (if it is a formulary item)
  4. The company then sends the discounted price back to the pharmacy as your cost
  5. You save money!

What’s in it for them?  How do prescription discount card companies make money?

Prescription discount card companies have several possible revenue streams.

  1. resale of information from claims data collection (your info)
  2. Rebates from drug manufactures
  3. Transaction fees (marketing fee) collected from pharmacies

Data Collection

Discount cards sponsored by marketing companies like GoodRx collect your information every time you use it to fill a prescription.  They then store that information in a large database. This is how they identify trends and can post them on their website.   Think about how Facebook or Google customize the advertisements you see based on your interaction with their sites.  or can predict the severity of flu season based on search data.   They make BILLIONS of dollars doing this so think about how valuable your health information is to the drug and insurance companies.

Manufacturer Rebates

Prescription pricing in the US is very opaque and largely unregulated.  The current drug distribution supply chain has a number of middlemen that all get a cut of a drugs “list price” in the form of a rebate from the drug manufacturer.  The major culprits are the drug wholesalers, PBMs,  and plan sponsors.  Drug Channels has a very nerdy article about this topic if you’re into getting more details.

Transaction fees

Each time you use a prescription discount card to fill a medication for a reduced price the discount card company charges the pharmacy a transaction fee.  The pharmacy collects this fee as part of the price you pay for the medication then sends a payment to the sponsor company at the end of the accounting period.  The transaction is a little more complicated than that but that is the simplified version.

Why do pharmacies accept drug discount cards?

  • More prescriptions sold that normally wouldn’t be due to high cost
  • Increased customer traffic=higher overall sales and profit
  • Increased customer loyalty and satisfaction scores

What are the risks of using a prescription discount card?

One of the factors I discuss in “How to select the best prescription discount card” was how the rx discount card company handles your private information.  With each transaction your data is being transmitted and possibly collected in a database by the discount card company.

Data that may be collected includes:

  • Name
  • Date of Birth
  • Address
  • Drug name, Strength, and quantity
  • Prescriber name
  • Pharmacy name and location

Before using a pharmacy discount card be sure to read their privacy policy to make sure you are comfortable with how this sensitive information will by handled by the company.

Does a prescription savings card ALWAYS provide a cheaper price?

The honest, short answer is no.  While a vast majority of prescription discount cards use what’s known as “lowest of” pricing there are some that do not. These are the ones you want to stay away from.  Read more about that in my “How to select the best prescription discount card” post.

What are the best prescription discount cards to use?

If you’ve made it this far down the page then you are probably wondering what discount cards I recommend to my patients.  The pharmacy discount cards I recommend to my patients on a  daily basis are Singlecare and RxCut.

The reasons are that both discount cards are privately-owned,  and both have the lowest transaction fees of all of the discount cards on the market resulting in some of the best pricing for the most commonly prescribed drugs.

My overall top choice of the two would be Singlecare since they have an app to install on your smartphone. Make sure to read my full review of Singlecare.

Save money with alternative prescription savings programs.

Aside from prescription discount cards there are also other ways to get severely discounted generic prescriptions such as using Blink Health.  You can pick your medications up at your local pharmacy or even have them delivered via mail through Blink Health.  Use my exclusive special offer and receive an additional discount on your first order.


As a practicing community pharmacist in his home state of Michigan, Joe (AKA TheFrugalPharmacist) is always on the lookout for new information and ways to ensure you can afford your medications and don't get ripped off in America's complicated world of healthcare.

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