Why are some generic drugs so expensive?

Two of the biggest -selling prescriptions of all time, Plavix, an anti-platelet medication, and Lipitor, a cholesterol lowering medicine, have been available in generic form since May 2012 and November 2011, respectively. However, most retail pharmacies are still charging patients $100-$200 monthly for these medications. Why? And what does this market oddity say about our chances of lowering healthcare costs in the United States?

Patients are used to paying a high price for branded medications, and pharmacies know this. So when a new generic becomes available, many pharmacies discount the medication, but only by a small fraction as little as 10- 15%, However, the patient buying the prescription sees the new generic medication is somewhat cheaper and appreciates paying a little less for it. Over the course of a year or two, the price at the pharmacy retailer falls little by little. Eventually the generic medication stabilizes at a much lower price — as low as a tenth of the original, non-generic price. Meanwhile, the patient never realizes that they have been paying a very steep mark-up that constitutes as much as 15 times the wholesale price.

How did I come to realize this? Because for nearly four years I have run a cost comparison web site for healthcare called LesliesList.org that serves the Chicago and Dallas/Fort Worth communities, and will become available in New York City by the end of this year.

Consider the example of anastrozole, a generic breast-cancer drug whose brand name is Arimidex. When a drug enters the generic market it can be produced by a wide array of manufacturers, usually within 6 months. The wholesale prices of these generics are subject to normal market forces and drop dramatically—but these cost savings are initially enjoyed by the major pharmacy retail drug purchasers and pharmacy benefit managers or PBMs, who are responsible for negotiating drug prices for insurance companies. But not by you and me. A few months after going generic in August 2010, the branded version of anastrozole, was selling for more than $400 for a month’s supply. The generic form was sold for $361 at CVS, $360 at Walgreens and about $340 at Walmart and Target. Sounds like a bargain, right?

Actually it was not. You might be interested to know that Costco has a well-publicized pricing strategy of charging the wholesale price plus a standardized 14% mark-up on everything it sells, including prescriptions. So how much was Costco charging at the time for this life-saving cancer drug? $27 per month. So we can deduce that the wholesale price at that time would have been around $24, which means that the major retail pharmacies were charging quite a hefty mark-up.

Why bring this up now? Because the generics of two of the all-time biggest-selling prescriptions, atorvastatin (Lipitor) and clopidogrel (Plavix), are at roughlythe same point in their pricing cycle as anastrozole was in 2010. What are their retail prices? From January 2013 through March 2013, thirty tabs sell for:

Atorvastatin (Lipitor) 20mg
Costco: $17
Walgreens: $153
Target: $144
CVS: $148

Clopidogrel (Plavix) 75mg
Costco: $14
Walgreens: $180
Target: $158
CVS: $173.

This table shows that for both atorvastatin and clopidogrel, the major retail pharmacy chains have been charging their cash-paying customers more than 10 x the presumed wholesale price. Pharmacy Times reports that in the United States in 2010 almost 46 million prescriptions were written for atorvastatin (as Lipitor), and 30 million for clopidogrel (as Plavix). Collectively, American patients who pay out–of-pocket for prescriptions could be saving billions of dollars annually on these two medications alone. But patients first must become aware that these wide pricing discrepancies exist. Most physicians don’t know. And governments do little to gather and publish prices.

Healthcare pricing is not transparent and the prices are not regulated in any meaningful way. Why is this? How does this make sense in a country where healthcare costs are the biggest strain on a struggling economy? Comparison shopping for healthcare must be made easier for Americans.

Leslie Ramirez is an internal medicine physician and founder of Leslie’s List, which provides information that enables all patients, but especially the uninsured and underinsured, to find more affordable medications and health care services.

View 13 Comments >