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.


speed

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.

dfaerber

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

chebuctonian

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

Bruce Hayden

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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mcjane

i used to work at a doctor's office, and once called the different pharmacies in the area trying to find the best place for a patient who didn't have insurance. i remember that the prices for a round of antibiotics were so varied, from probably $10 to $90, that it surprised me.

Innocent Bystander

Does Sam's Club require a membership for their pharmacy?

(I only ask because I don't have a CostCo near me. *sigh*)

That said, Jesus. I'm never getting prescriptions filled at one of those places again. I mean it. I'm renewing my lapsed (because the company is evil) Sam's Club card just for that.

RJS

Generic drugs are prescription loss-leaders for these places. Pharmacy makes up a tiny percentage of their revenue, and it's a ploy to get people in the door.

AWP for simvastatin -- which I'm 90% sure is what your doctor friend is talking about -- is significantly higher than $12-17, no matter who your supplier is. They're losing money every time they fill a prescription for it.

Contrast this with CVS, where pharmacy made up 70% of their revenue in 2005. So keep shopping at those places -- you're helping the chains stay in business by doing so... ;)

Successory

I was just picking up a prescription from Sam's Club yesterday ($6 for a month's supply) and asked about the membership issue.

I was told by the pharmacist that they do not require a membership to fill out prescriptions because it is actually illegal to do so. Same for Costco.

P.S. I called Target first and they quoted me $41.

nklukow

Costco's website indicates that they fill prescriptions through the mail (except Schedule 2 controlled substances) and you can look up drug costs on the website as well-

Squirrel

Drive-through pharmacies??!! Maybe if people got more exercise they wouldn't need so many drugs!! It's a funny old world, eh?! xx

JordanO

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.

But what if they're medicinal pretzels?

jonathank

A similar cost differential exists for other prime generics like for claritin. Costco sells the pills for about 4 cents each - their housebrand label - while the drug chains, which were at $1 a pill, now seem to be around 80 cents a pill on average.

Costco says they maintain a strict pricing policy which limits markups on brand names and generics. I believe their housebrand -Kirkland - has 1% less markup.

RobertSeattle

Why don't local newspapers report these prices weekly as a public service? I wish they'd do the same for common grocery items.

egretman

And this is another area where rich white suburbanites get cheap drugs while the inner city poor clods have to go to Wallgreens. Every time my dad goes to Sams's Club, I point this out to him.

He just shrugs.

(yes, a case of lack of information)

Swampdog

Related to overcharging at Rite-Aid pharmacy - I have been taking Prilosec occasionally since it was prescription only a few years back. About a year ago my doc recommended that I keep some on hand. It's completely available OTC but I thought I'd try to get it with a prescription and make my insurance pay for part of it. My doctor checked and said that the prescription and OTC are identical. I took the prescription to Rite Aid and submitted it but they said, "now that it's available OTC we charge full rate when you get it by 'scrip". Well, I thought, here I am anyway, might as well pay here as go look for a box, and so I asked "how much does it cost to get it here?".

For the IDENTICAL medicine, available in the SAME store for $20, I'd pay $120 for the privilege of having a person count out pills into a bottle. I was shocked. I bought the OTC box, needless to say.

This is not an exaggeration or a "friend of a friend" story.

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zippy1981

http://angry-economist.russnelson.com/free-er-markets.html

On a similar note from my favorite angry libertarian quaker. One article cites an example of imperfect information leading to higher consumer prices, and another argues that even no market is perfectly free, freer markets are better than less free ones.

My conclusion is more perfect markets are better than less perfect markets.

pkimelma

One note: a few years ago, I priced Propecia at various stores by calling around (most do not publish on the internet). Costco was lowest. But, I told the Target pharmacy that Costco was lowest and what the price was. They called Costco, confirmed it, and then matched the price. I have been told other pharmacies have a price matching program as well.
You also did not point out that Walmart has started a test program of offering all generics at $4, including internet orders. It is only in select States, but they are rolling it out across the Country over 2007 I think.

RJS

For the IDENTICAL medicine, available in the SAME store for $20, I'd pay $120 for the privilege of having a person count out pills into a bottle. I was shocked. I bought the OTC box, needless to say.

It's not identical. You cannot substitute one for the other. The active ingredient is identical --omeprazole -- but the salt used to make it useful to the human body is not. Prilosec OTC is omeprazole magnesium. Prescription Prilosec is omeprazole sodium.

A subtle, but distinct difference with absolutely no clinical significance so far. :)

You also did not point out that Walmart has started a test program of offering all generics at $4, including internet orders. It is only in select States, but they are rolling it out across the Country over 2007 I think.

It's not "all generics." It's some. Details here.

You won't find generic Zocor on that list.

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pkimelma

RJS, you are right that Walmart is not doing that with all generics. They have picked the major ones that people take for extended periods of time. Also, they have fully rolled it out now. Only North Dakota does not have that deal. Some states have slightly higher prices on a few items due to state laws (!).

lucidreamstate

When Eliot Spitzer was the attorney general of NY, he actually set up a website that would allow consumers to compare prescription drug prices at different pharmacies. But the nearest Costco or Sam's club is in New Jersey, of course. I kinda think that other states should be required to do the same. Normally I'm a believer that businesses should be able to charge what they want... But not when it comes to heart medication.

Here's the link for those that are interested:
http://www.nyagrx.org/