Why are Some Drugs So Expensive?—Endocrinologist Tells Consumer to Shop Around

| Dec 1, 1999

One year ago, I was standing in line at a local pharmacy to purchase a prescription drug for my wife. The woman in front of me had given the pharmacist a prescription for a mild agent to help her son sleep. This drug is neither essential nor even clearly effective. As the pharmacist gave the woman the bottle of 30 pills, he asked her for $204.

"Wow," she exclaimed. "I didn't know I needed a bank loan to buy this drug!"

I was as shocked by this price as everyone else in line, but I was probably the only physician standing there. Because of that, I was perhaps more affected by this brief exchange than the others. I was concerned about the high cost of this agent, which was, in my opinion, only marginally useful. I wondered if the prescribing physician had known what this drug cost. I pondered on why physicians would prescribe drugs with such exorbitant price tags. And, as an endocrinologist, I worried about how well I knew the cost of drugs I used.

Even Physicians Don't Know How Much Some Drugs Cost

Since then, I have learned that the cost of drugs does not conform to the common concepts of product cost, and is not primarily determined by the usual market forces. Moreover, physicians are surprisingly uninformed-or misinformed-about drug costs. These realities make it quite important for diabetes patients to become cost-conscious consumers when buying prescription drugs.

Why are there such peculiar variables with drug costs and such a low level of recognition about costs by health providers? The first and foremost reason is that physicians receive misinformation about drug costs from pharmaceutical salespeople. This, however, is not done intentionally. Instead, it reflects the fragmented and inscrutable nature of drug pricing to pharmacies and other vendors.

The Average Wholesale Price

The standard cost of a drug is stated as AWP, the average wholesale price. This is the supposed price by which the drug is sold to retailers. The problem with this standard is that there are so many significant deviations, both up and down, that the true retail cost for patients is often not reflected in the AWP.

Pharmacies or other vendors may have special discounts or sell a product as a "loss leader" in order to attract certain customers. For example, insulin and syringes are frequently discounted heavily at the retail level, to get people with diabetes into the store. Diabetes customers purchase up to four times more products from pharmacies than the average customer.

There is no standard markup of drugs, so, again, the AWP means little. Pharmaceutical companies assume that an approximate 20 percent markup will occur in the pricing of a drug to consumers. Yet, we have seen much higher markups on hot new drugs. Viagra is an example.

Another irregularity, for which there is no clear reason, is the wide variation in retail prices for the same drug from one pharmacy to another. When we price specific products locally, we find up to a 30 percent variation in price at different stores.

One of my patients called around to different pharmacies in our area for pricing on a hot antihypertensive drug. One pharmacy charged $200 per month, another, only $80.

Physicians Not Trained on Cost Issues

Doctors are not usually trained to consider business issues in their clinical work. In fact, in many physician training programs, business issues are never discussed and students are discouraged from concerning themselves with these topics. Thus, physicians do not frequently apply economic implications when thinking about patients' prescriptions. This is not out of a lack of concern, but it reflects the biases of their training.

These influences suggest that good consumerism will help people with diabetes reduce their drug costs. The diabetes patient should price drugs at a number of pharmacies. Also, raise questions to the doctor about the costs of the drugs he or she prescribes. Often, but not always, a less expensive treatment may be out there.

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Categories: Diabetes, Endocrinology, Insulin, Pharmacy, Syringes


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