If Crack Dealers Took Lessons From Walgreens, They Really Would Be Rich

Several weeks ago, I was talking to a physician in Houston, the sort of older gentleman family doctor you don’t see much of anymore. His name is Cyril Wolf. He’s originally from South Africa, but other than that, he struck me as the quintessential American general practitioner of decades past.

I’d asked him a variety of questions — what’s changed in recent years in his practice, how managed care has affected him, etc. — when suddenly his eyes fired up, his jaw set tight, and his voice took on a tone of great exasperation. He began to describe a simple but huge problem in his practice: a lot of generic medications are still too expensive for his patients to afford. Many of his patients, he explained, must pay for their drugs out-of-pocket, and yet even the generic drugs at pharmacy chains like Walgreens, Eckerd, and CVS could cost them dearly.

So Wolf began snooping around and found that two chains, Costco and Sam’s Club, sold generics at prices far, far below the other chains. Even once you factor in the cost of buying a membership at Costco and Sam’s Club, the price differences were astounding. Here are the prices he found at Houston stores for 90 tablets of generic Prozac:

Walgreens: $117

Eckerd: $115

CVS: $115

Sam’s Club: $15

Costco: $12

Those aren’t typos. Walgreens charges $117 for a bottle of the same pills for which Costco charges $12.

I was skeptical at first. Why on earth, I asked Wolf, would anyone in his right mind fill his generic prescription at Walgreen’s instead of Costco?

His answer: if a retiree is used to filling his prescriptions at Walgreens, that’s where he fills his prescriptions — and he assumes that the price of a generic drug (or, perhaps, any drug) is pretty much the same at any pharmacy. Talk about information asymmetry; talk about price discrimination.

I had meant to blog about this, and had collected a few relevant links: a TV news report in Houston about Wolf’s discovery; an extensive price comparison compiled by a TV news reporter in Detroit; a Consumer Reports survey; and a research report on the subject from Senator Dianne Feinstein.

But I had forgotten all about this issue until reading this comprehensive article in yesterday’s Wall Street Journal, which does a good job of measuring the difference in prices between chains (most of the differences aren’t as drastic as Wolf’s example with prescription Prozac, but they are still huge) as well as the economics behind the pricing of prescription drugs in general. Perhaps the most interesting sentence in the article is this one:

After a call from a reporter, CVS said it would drop its simvastatin price [from $108.99] to $79.99, as part of an “ongoing price analysis.”

So that’s what they call it: “ongoing price analysis.” I’ll have to remember that the next time my kids catch me trying to buy a $2 toy when I’d promised one for $20.

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  1. speed says:

    Costco does not require membership to use their pharmacy. Just don’t try to buy a ten pound box of pretzels while you’re there.

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  2. speed says:

    Costco does not require membership to use their pharmacy. Just don’t try to buy a ten pound box of pretzels while you’re there.

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  3. dfaerber says:

    No wonder Walgreens and CVSs are popping up on every corner here.

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  4. dfaerber says:

    No wonder Walgreens and CVSs are popping up on every corner here.

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  5. chebuctonian says:

    Is anyone going to create a mashup of drug prices by pharmacy?

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  6. chebuctonian says:

    Is anyone going to create a mashup of drug prices by pharmacy?

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  7. Bruce Hayden says:

    At least Walgreens does provide some other benefits, such as drive through and some 24 hour a day pharmacies. The drive through is nice if you either can’t easily, or just don’t want to, get out of your car. You call the prescription in, or drop it off earlier, then it usually takes a minute or two at the checkout window. And at least some of their generics are fully covered by insurance – I remember picking up birth control pills for someone w/o having to pay a co-pay.

    Nevertheless, my shopping will change because of this. A friend is used to the Walgreens drive through AND my paying the co-pays. Maybe, just maybe, things will be cheaper at Sam’s Club or Costco (she has both).

    Which brings to mind that this is another instance where lack of knowledge is being exploited for profit, but that lack of knowledge is being erased by the Internet, resulting potentially in another group of merchants who depended on this knowledge disparity becoming less profitable.

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  8. Bruce Hayden says:

    At least Walgreens does provide some other benefits, such as drive through and some 24 hour a day pharmacies. The drive through is nice if you either can’t easily, or just don’t want to, get out of your car. You call the prescription in, or drop it off earlier, then it usually takes a minute or two at the checkout window. And at least some of their generics are fully covered by insurance – I remember picking up birth control pills for someone w/o having to pay a co-pay.

    Nevertheless, my shopping will change because of this. A friend is used to the Walgreens drive through AND my paying the co-pays. Maybe, just maybe, things will be cheaper at Sam’s Club or Costco (she has both).

    Which brings to mind that this is another instance where lack of knowledge is being exploited for profit, but that lack of knowledge is being erased by the Internet, resulting potentially in another group of merchants who depended on this knowledge disparity becoming less profitable.

    Thumb up 0 Thumb down 1