Michael Silence had a report in yesterday's paper (registration required) about a new prescription drug discount card program being offered in Knox County.

Details were sketchy, but it is apparently some sort of partnering between Knox County and an outfit called Advantage Wellness of America. WBIR had a follow up report with a little more information, noting that Knox County gets 40 cents per prescription filled, but incorrectly stating that it is open only to Knox County residents.

Michael Silence has another report today (registration required) with a little more information. It says that anyone in East Tennessee can participate, and that AWA gets 80 cents for each prescription filled and they pass 40 cents along to Knox County.

In all the articles praising Knox County for offering this new program, it says you can get up to a 75% discount on your prescriptions, and that this is made possible through "bulk purchasing".

Hey, this all sounds pretty great. So I checked the website (knoxrxcard.com) and looked up my two prescriptions. According to the prices they had posted, I could save about $18 (which is approx. 10%) on one, and about $70 (which is approx. 70%) on another. These are for 90 day fills, so that's nearly $30 a month in savings for me if those prices are good. That IS pretty great, especially since I don't have insurance coverage for prescriptions.

So then I got to wondering, how can they do this? And why hasn't TennCare partnered with a company like this to reduce prescription drug costs? And who are these people, anyway?

So I started checking around. What I found was a murky, multi-level marketing sounding web of companies and services with an interesting business model.

Read more after the jump…

According to AWA's website, they are a "privately held company located in Knoxville, Tennessee and a separate operating unit of United Networks of America, Inc." (as mentioned in Michael Silence's first article.)

According to their website, United Networks of America is "one of the largest providers of value added managed care products and services in the United States." They also provide "Consulting, Development, Franchising, and Request-for-Proposal (RFP) services." From this, I'm guessing AWA is a local franchise of UNA?

(And here's an interesting profile of the Baton Rouge company and its founder, whiz-kid entrepreneur Ryan Jumonville. There's a Knoxville connection. He attended U.T. on an athletic scholarship, and more recently "split the cost with former UT baseball standout Todd Helton of $6.4 million-worth of free membership in UNA's Tennessee Dental Plan for the UT system's 14,000 employees through 2007".)

And look at this. UNA offers a discount drug card similar to the KnoxRX card called UNARxCard, that anyone can sign up for by simply entering your name and e-mail address. (If I were the local franchise, I probably wouldn't be too happy about this competition from my franchiser.)

I got one. They generate a web page that you print out with an official looking card with official looking member, plan, and group numbers and a toll-free number you or your pharmacy can call if there are questions. I called my local pharmacy and they said they accept it. I'll let you know if the savings are true the next time I fill my prescriptions.

But wait, there's more. When you click on the links at either UNARxCard.com or KnoxRXCard.com to find out about participating pharmacies in your area and to check prices, you are taken to a website run by an outfit called "HealthTrans".

So who is HealthTrans? According to their website, they are a pharmacy benefits management company, whose services "optimize benefits administration, providing web-enabled applications, coupled with clinical expertise and services. Our services complement existing medical claims and pharmacy systems, and other legacy systems. We offer a cost-effective alternative to the burdensome efforts of acquiring, converting, operating, and maintaining an in-house system, as well as providing the required IT infrastructure."

So, the relationship between AWA, UNA, and HealthTrans isn't clear, nor is their relationship with Knox County or how all this works. And all of these are privately held companies, so there's little financial information available (although some of HealthTran's press releases make you wonder if they are planning to go public.)

And I'm still puzzled about who is paying for all this and who is making money and how. Pharmacy discounts don't just fall out of the sky, and AWA and UNA aren't charities -- they're businesses looking to make a profit. Who pays AWA the 80 cents per prescription they are splitting with Knox County?

One possible clue can be found at HealthTrans' website. They say they run "transparent" pharmacy benefit management for their insurance and large employer/group clients, meaning that all pharmaceutical company rebates are disclosed and passed on to their clients. Rebates? What rebates?

Here's an interesting article that talks about HealthTrans's business model. Apparently there's a vast and deep well of pharmaceutical manufacturer rebates available for PBM programs and others who promote one drug or another in their formularies and benefit programs. And apparently there's a whole industry built around dipping into this well as part of providing prescription drug benefits.

According to the article, "transparent" PBM programs say they pass the rebates along to their clients and make their money by charging a flat fee for transactions and claims processing. Since, according to local media reports, Knox County and AWA are receiving a per-transaction fee that they split, and there is no cost to the consumer, and the drug store chains are presumably not paying a fee (ed. note: actually they do, see the update), that leaves the pharmaceutical company rebates.

So one logical conclusion is that this is a rebate-fueled deal negotiated with pharmaceutical companies by HealthTrans, and provided to clients by AWA/UNA. This is just speculation, though, because the media reports are, as I said, sort of sketchy on details. I e-mailed AWA with these and other questions about how it works, and will let you know what they say if/when they respond. (Ed. note: This is only partially right. See the update for their response and explanation of how it works.)

Anyway, there's nothing wrong with any of this per se. I'm happy to save $30 a month or so however they do it, as long as it works as advertised and there isn't a "catch". I only wish I had known about it sooner. And I still wonder why TennCare hasn't done something like this, or implemented their own "bulk buying" program. Of course, now Medicare is forbidden by law from negotiating with pharmaceutical companies, so that's good for private enterprises like AWA and UNA, I guess.

But however it works, it reveals one of the problems with our so-called "free market" health care system. Three different people can walk into a drug store, one with insurance, one with an Rx discount card, and one with nothing but cash in their pocket, can all buy the same drug and all pay a different price. How is that a "free market" exactly?

And why is it that someone buying on a multi-level marketing plan (which they enrolled in by simply typing their e-mail address on a website) pays less than someone paying cash for the same product delivered to the same location and sold by the same pharmacist? It doesn't make any sense. Why can't pharmaceutical companies make the discounts and/or rebates available directly to the consumer (I guess some do) or better yet just dispense with all the craziness and just lower prices across the board? What a complicated mess.