What's the real price for RX drugs in the US?

Factual Questions
1

I have group health insurance. Get prescriptions filled with a big chain pharmacy. In the last six months, the receipts have changed to say:

Cash Price <random number>
Amount Due <cash price> <tier 1 co-pay> … <tier 3 co-pay>

Last week I switched from 1 commonly prescribed drug to another because it’s the standard protocol for my condition. It’s not a cutting edge drug-… the new drug has a Cash Price of $1499.99 for 90 day supply. :eek:

It is only a <tier 2> drug, so I paid $50.

This produced a strong WTF reaction–

what do people do without health insurance? I would be back on the old drug even though the new drug increases long term survivability

how much is the health insurance carrier giving to the drug company as reimbursement?

how much is drug company cutting in the pharmacy on?

Does this explain why the pharmacy kept calling me to pick up the prescription for the 3 weeks I was using the sample pill from the MD’s office?

2

The answer to how people survive without insurance is simple. Most people don’t need prescription drugs to continue living.

3

My pharmacist tells me he gets an extra-good [del]kickback[/del] profit on these insanely priced drugs.

4

You have this a little backwards, drug companies do not receive payment from the insurance company, and they do not pay the pharmacy.

The supply chain for legend drugs in the U.S. normally goes this way: Drug Manufacturers (Glaxosmithkline, Pfizer, Teva, Mylan, etc) sell to a drug wholesaler (Mckesson, Cardinal), who then sell to the local pharmacies (Rite Aid, CVS, Wallgreens, and your local independent), who then sell to you, the patient.

The Pharmacies are then reimbursed by the insurance company for the drug in question. Now, how much they pay for the drug, and how much they get reimbursed can be hard to explain… I’ll try the best I can, at least enough for you to get the general idea.

First, you need some definitions for some terms:

[ul]
[li]AWP: Average Wholesale Price = the average price throughout the country that wholesalers sell the drug for (to people without contracts)[/li][li]AAC: Actual Acquisition Cost = What it actually cost the pharmacy to acquire the drug.[/li][li]Dispensing fee: The fee paid to pharmacies by insurance to reimburse them the cost of dispensing (toner, ink, vial, cap, bag, tech time to type and fill, pharmacist time to check and council, profit, etc)[/li][/ul]

Ok, now pharmacies negotiate a contract with the wholesaler to find out how much below AWP they will actually be charged. This amount is normally a percentage, so what they pay for a drug could change day to day. This is especially noticeable with generics, and one of the reasons your pharmacy might change the generic you are given. An average chain might get a contract for something like AWP minus 15% to 18%. This sets up the pharmacies AAC.

A pharmacy also signs a contract with the health insurance companies, determining the rate they get reimbursed. This is also normally set by AWP. Now, the insurance companies know that no one actually buys at AWP, and the AAC can be quite a bit lower. So, an average contract between a pharmacy and an insurance company might list rates such as AWP minus 10% plus $1.50 dispensing fee.

Now, to see it from the pharmacies point of view, the problem they are having is that the insurance companies keep fighting to lower the reimbursement rate to the pharmacy. This fight is led many times by the state governments who keep lowering the Medicaid reimbursement rates in their states (the state governments don’t sign contracts, they set their reimbursement rate, and the pharmacy takes it or leaves it) in order to help control Medicaid spending. The insurance companies don’t like paying that much more then Medicaid is willing to pay, so when Medicaid lowers their reimbursement, the insurance companies do the same next time the contract comes up for renewal. The pharmacies are caught in the middle, expected to keep filling the scripts, for less and less money. It will get to the point that pharmacies will not be able to keep their doors open for the amount they are getting paid to fill your script, even now, there are times that filling an Rx actually costs the pharmacy money, and doesn’t make any. There was actually a big to-do in Delaware when Wallgreens stopped accepting Delaware Medicaid customers after Delaware lowered their reimbursement rate a little too far.

As you can see, it can be really hard to pin down exactly what the cost of your medication REALLY is, since none of these terms have anything to do with the “cash price” listed on your receipt. For people without insurance, most pharmacies have discount cards, or plans, or some have cheap generics.

I hope this helped explain some of the ways that legend drugs are priced and sold here.

5

I wrote an ehow article awhile back addressing the no-insurance problem.
http://www.ehow.com/how_4736183_save-money-prescription-drugs-insurance.html

miatachris, R.Ph.

6

Wow, thanks for the very thorough explanation. Can you explain how the amount wholesaler pays to the manufacturers for product is determined? And how does the manufacturer set its price? Cost of production, raw materials, etc?

Because how can it be justified that the OP’s drugs retail at $1499.99?? Unless the pills themselves are made of solid gold?

I don’t buy the answer of “research and development costs billions, and that’s why drugs are so expensive, and we wouldn’t have the awesome drugs we have now if manufacturers didn’t make enough for R&D!”

Let’s be honest - if you were to calculate the real cost of the OP’s 90 tablets - the actual raw materials and production costs - that amount of $1499.99 has to be thousands of percent pure profit; multiple tiers of profit, to the manufacturer, the wholesaler, and the pharmacy. What is the real cost?

The reason it’s so hard to find out is because the manufacturers and the wholesalers keep these numbers very secret. What is the justification the manufacturers and wholesalers use for keeping the real numbers secret?

7

People w/o health insurance who need medications either switch to generic alternatives, or they get higher doses and take 1/4 or 1/2 a pill a day, or they buy from foreign countries, or they try to get prescription assistance programs, etc.

Costs can vary wildly. Normally Costco is one of the cheapest pharmacies, but with a drug like propranolol, Costco charges about 8x more per pill than the cheapest pharmacy canadadrugs.com ($1.13 vs $0.14 for an 80mg pill).

However for the same 2 pharmacies (Costco and canadadrugs.com) the drug neurontin in 300mg doses is 4x more expensive at canadadrugs than costco ($0.57 vs $0.13 per pill).

Its a weird situation. Drug 1 may cost 5x more at pharmacy A vs pharmacy B, but drug 2 may cost 5x less.

8

The really fun thing I like to do when someone brings up gold as a comparison to prescription drugs – look up the cost of gold as a prescription product : auranofin.

Brand name auranofin/Ridaura is currently going for $350/60 caps.

Therefore, gold is cheaper than the OP’s prescription.

Unfortunately, this happens a lot.

As to the “don’t buy the R&D costs” argument, I’ll refer you to the Annual report of, say, Merck. They break it down for it you, at least into investor-speak.

miatachris, R.Ph.

9

They go without when the cost is too much. I’ve seen the drugs turned down by the patient at the pharmacy window many times while waiting. Say you get 20% off as a special card holder as was stated, but isn’t a given. $1,500 at 80% is $1,200. Generics are not always available and still can be expensive. I’ve seen patient sites where they flat out explain that the only medicine that checks the illness is out and production won’t happen for another 6 months, which is another problem with having one maker of a medicine.

10

Thanks!
This explanation helps.
I do want to comment that the term “Average Wholesale Price” sounds a little like the children of Lake Wobegon-every child is above average. :slight_smile:
I know you say the AWP is the price to people without contracts. But the average patient can’t buy directly from the wholesalers. I suspect that the percentage of people who buy drugs from wholesalers without contracts is pretty small.

All that said, your explanation was very helpful.

11

Why don’t you buy this? R&D does cost billions. And for every drug that makes it out into pharmacies there may be 10 - or 100 - that don’t. If you can’t include these costs in the price of drugs how do the companies stay in business?

It also costs just as much to develop a drug that sells only 500,000 prescriptions a year as one that does 50,000,000. Why shouldn’t the former cost 100 times as much as the latter? It would be a wonderful world if you could sell products for the few for the same price as products for the many, but that’s not one we’re currently living in.

12

They spend more on marketing than R&D. (but they never mention that unless pressed)

13

But a significant number of us do. And without insurance, we have no choice but to pay for them ourselves. Your idea of “simple” is very different from mine.

14

It’s ironic that you emphasize the word “real” as if the only costs were the physical materials and the electricity to run the factory. The costs of “research & development” costs are just as “real” as the raw materials. The company also has to pay the scientists with “real” money to develop the drugs – of which some are winners and some are losers.

15

They go bankrupt, or…

In my case (having been declined by every insurer licensed in my state), I sold 95% of everything I owned and moved out of the USA. I now have better coverage than ever for $220/mo total for my wife and I, valid everywhere in the world except the USA.

A recent surgery was quoted as $10-12K in the USA (Nevada) and cost me $450 in Prague where I live. No insurance involved - that is the cash price (since my deductable is £1000)

16

R&D DOES cost that much. I don’t know why people don’t understand this. It takes many years, with multiple studies all done double-blind. You have to pay the doctors and researchers and you generally compensate the research subjects. You may research two or three drugs for every one that goes out the door. And many drugs are for a small percentage of the population and so you don’t sell very many of them.

The reason the cost makes no sense to you is that you’ve denied the reason it makes sense to everyone else.

It’s like saying that you don’t believe the sun is the center of the solar system, but that you don’t understand how the sun can go around the Earth in only 24 hours.

17

I had insurance with a prescription co-pay of $20- flat - no matter what the drug.

When I lost the insuracce do to a new job, I didn’t have insurance for a month. I filled two prescriptions that month - total retail no insurance cost - $12. This is long before wal-mart’s $4 plan.

The business model for new drugs is kinda convoluted, but the pharma companies know through market research how much they have to sell at $100, at $50 and at $20 and at $1500 to bring in the total to cover the research and development costs (which thanks to an impossible drug aproval policy by the US Gov’t does cost billions and take years.)

The plan is to make a profit before the patent becomes public domain - which for pharma products, if they’re lucky is a couple years after gov’t req’d testing completes. (up to 15 years or more for testing, patent protection lasts 20)

So a pharma company has to plan to make money on a new product only for about 5 years and with a delay of about 15 years. It’s a gamble, because if gov’t testing doesn’t work out, the R&D costs have to be absorbed.

18

Well, I don’t think it’s that hard to find out. Merck (link goes to page from which PDFs can be loaded), for instance, spent $7.4 billion on “marketing and administration” in 2008, while spending $4.8 billion on R&D. The former number includes reserves for litigation costs. They also spent $1.3 billion on restructuring. Their sales for the year were $23.9 billion.

19

I find it absurd that prescription drugs are allowed to be advertised on television in the US. They should only be targeted at doctors (JAMA and other publications). So wonder something that costs $450 in Europe is $10,000+ in America. (both prices are out of pocket with no insurance involved)

20

This is the original article from which the claim comes that pharmaceutical firms spend twice as much on marketing as on R&D.

You need to read through the article to find out what their definition of marketing is.

IOW, advertising, which is what most readers would assume that marketing costs would be, runs only about 10% of the total marketing budget.

But a much higher proportion, if you use the IMS value, which the article winds up doing, goes to samples. Samples are written off as marketing. But most of them go to patients as free pills.

Free pills are the cost of doing business in the U.S. and you can argue over in GD whether that should be the case. But if you’re going to ask the cost of medications, then the cost to patients, i.e. consumers, have to be taken into account. Part of that total cost is offset by the original application of that medication being free to them.

Marketing and advertising are separate terms of art, and separate fields. Most outsiders wrongly lump them together. For our purposes here we need to make a clear distinction.