E-drug: Prices markups on generics WSJ (cont)
Not having had the benefit of reading the Wall Street Journal article
referred to by James Love, I am at somewhat of a disadvantage; I will,
however, make a point of finding it. The gist of the article, as
presented, seems high on the sensationalism scale. The saying "if it
seems too good to be true, it probably is" applies here in the reverse. "If
it seems that bad, it probably isn't."
The headline, saying that the price markup on generics is higher than
on brand name drugs, sounds like an indictment, but common sense will tell
you that this will normally be the case. For example, if the
brand name product costs 75 dollars and the generic costs 12 dollars, and
you apply the same fee of $5.00 to both, the result will be a higher
percentage markup on the generic product. The bottom line, however, is that
the price to the consumer is less than one-quarter of the cost of the brand
As a former pharmacy owner, I can guarantee you that all pharmacies would
be thrilled to obtain such prices as quoted. It has been, in fact, a point
of contention in class action lawsuits that manufacturer drug pricing is
discriminatory for community pharmacies. In addition, a sliding scale drug
markup is much more socially equitable in that it makes expensive drugs
more affordable than they would be under a fixed markup system. It does
not, contrary to the suggested "ripping off" perspective, mean that lower
cost drugs (brand name or generic) are priced to gouge the consumer.
I wonder if the author of the article happened to mention that less
than 50% of pharmaceuticals are currently paid for out-of-pocket and that
this percentage is expected to decrease. Third parties typically pay
pharmacies a dispensing fee of around $3.00 or so for a
prescription, regardless of whether the cost of the product is $1.00
or $500.00. Taking into account all variable and fixed expenses
incurred by even the best managed pharmacy, participating in these
programs is a liability, not a bonanza.
I would caution the reader in drawing conclusions. It is an
unwarranted and completely inaccurate implication that all pharmacies are
out there making an outrageous profit. Were that the case, then the average
net profit in community pharmacies would be much higher than the 4% or less
that it currently is. No doubt, there are unscrupulous pharmacy owners out
there, just as there are in any other profession. Let's not paint them all
with the same broad brush.
There are reputable sources of drug pricing and consumption
information in the US. Just as we should be vigilant in interpreting
study data, we should apply the same healthy skepticism in this case.
Olya M. Duzey
Management Sciences for Health
1515 Wilson Blvd., Suite 710
Arlington, VA 22209
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