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Prescription needed to remedy generic drug pricing shenanigans

Prices for generic prescription drugs can often go on a roller coaster. The FDA should take action to help consumers find out the true cost of such medicine.

March 18, 2013|David Lazarus
  • "Many factors can impact pharmacy charges, including a guest’s insurance plan, price changes from manufacturers, if a provider has named the pharmacy a preferred location and the guest’s deductible,” says Jessica Deede, a Target spokeswoman. Above, a Target store in Peru, Ill.
"Many factors can impact pharmacy charges, including a guest’s… (Daniel Acker, Bloomberg )

Wanda Ferrin fills her husband's prescription for the generic antibiotic doxycycline at a Target in Simi Valley. For years, the medication has cost her $6 a month.

In February, however, the price tripled to $18 for 30 pills. And this month, it skyrocketed to $133.

This is noteworthy enough. But what happened next makes the entire business of drug pricing a study in lunacy.

"A pharmacy clerk at Target suggested running the prescription through the company's discount program," Ferrin, 61, recalled. "After a minute at the computer, the clerk I'd been dealing with came back and said my price was now $8."

That's right: A $6 drug turns into an $18 drug and then a $133 drug. But with a little retail hocus-pocus, it can be changed to an $8 drug.

Talk about a trip through the looking glass.

I heard a number of stories similar to Ferrin's after writing recently about a CVS customer who saw her bill for generic doxycycline jump from $4.30 to $165.

One reader told me about a doubling of the price of the generic gout medicine colchicine. Another cited prices for the generic version of the blood-clot blocker Plavix that ran from $21 to $400.

Question: How does this happen? Answer: It's complicated.

The ingredients of prescription drugs come from all over the world these days. Sometimes there are shortages, sometimes not. Sometimes numerous manufacturers will produce a generic drug, pushing prices down. Sometimes only a handful of makers will be in the game.

There are industry lists of so-called average wholesale prices for generic drugs, but pharmacists say these are meaningless because they're not the prices wholesalers or pharmacy chains pay.

"The average wholesale price is a made-up number," said Esther Lainer, a pharmacist at an independent drugstore in Beverly Hills. "Nobody goes by the average wholesale price."

So how are generic drug prices set? Apparently, it's anything goes.

Lainer described her own process for buying drugs. She and other independent pharmacists in the region have formed a buying group, and together they negotiate the best possible price with a wholesaler.

The wholesaler, for its part, haggles prices with drug manufacturers. The manufacturers set prices at whatever level they think the market will bear.

But manufacturers aren't solely to blame. Pharmaceutical economists told me that drugstores often jack up prices for generics as an easy way to boost revenue. Wholesalers might also cut themselves in for extra profits by boosting prices to drugstores.

Meanwhile, Lainer said, insurers have caught on to the pricing shenanigans and often reimburse drugstores for patients' claims at levels they believe are closer to a drug's actual cost — in other words, below what a manufacturer, wholesaler or drugstore may have charged.

Insurers also keep patients in the dark by failing to inform them of what's actually happening in the market. All the patient typically is aware of is his or her co-pay or coinsurance cost.

I asked Target to explain the pricing roller coaster that Ferrin described. Jessica Deede, a company spokeswoman, said she couldn't discuss an individual customer's experience.

But she said that "many factors can impact pharmacy charges, including a guest's insurance plan, price changes from manufacturers, if a provider has named the pharmacy a preferred location and the guest's deductible."

Prescription-drug discount programs can vary from one Target store to another, Deede said.

More than 60% of Americans — and 90% of seniors — take a prescription drug in any given year, according to a recent report from the National Center for Policy Analysis. Roughly $300 billion is spent annually on medication, including over-the-counter drugs.

With stats like that, you'd think transparency would be a key component of the drug market. But the Food and Drug Administration appears content to allow the industry to operate largely in the shadows. As with other facets of our healthcare system, consumers are simply unable to find out how much prescription drugs actually cost.

The first thing the FDA should do is make the pharmaceutical industry do away with its bogus average wholesale prices and instead list the true prices of drugs.

Should there also be greater regulation of generic drug prices? People will undoubtedly disagree on this score.

All I know is that if the price of something can go from $6 to $133 to $8 in the span of a few weeks, something's hinky with that business.

One other thing

Speaking of drug prices, one of the drug makers I cited in my earlier column, Mylan Pharmaceuticals, protested after the column ran that it wasn't fair to compare the pricing of its generic doxycycline with that of a generic doxycycline manufactured by rival Watson Pharmaceuticals.

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