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Satish Srinivasan. (Photo: DiRx)

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Online Pharmacy Cuts Out the Insurers

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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.

DiRx is the first company to launch this model on a national scale.

How do you think your approach will help?

I think it will help by…

Promoting high-value care.

By bringing prices closer to the real acquisition costs, and stripping away avoidable system-induced costs, we make higher-quality care more accessible and affordable for the average and underprivileged consumer.

Empowering patients to make choices.

Patients now have the visibility of transparent prices and are able to make choices that are based on the actual sourcing costs and not on a system-inflicted pricing model.

Lowering treating physician red tape stress.

Physicians in rapidly expanding care models such as direct primary care (DPC) are already preferring our prescription model because they’ve realized the stress and red tape inflicted on them by the reimbursement model and have chosen to practice and provide care the way their patients really need, based on transparent and significantly lower cash pricing.

Holding down patients, health insurers and government spending.

Patients benefit the most from our model, though health insurers and the government will benefit a lot too if they look at our cost-based model rather than the existing reimbursement-based model.

Maintaining the strength of the pharmaceutical industry and the drug development pipeline.

While the brand name drug and specialty pharmaceuticals industries are thriving, the generic pharmaceutical industry, which supplies 90% of the scripts dispensed in the country, has been struggling, due to disproportionate supply chain control and system intermediaries that purchase products from them at rock-bottom prices and then charge higher prices based on reimbursement benchmarks.

Through our model, we are able to provide better prices for suppliers, and lower prices for consumers, by skipping the cost inflation added by the intermediaries.