Steve Wilson Exposes Huge Prescription Drug Price Markups
By Steve Wilson Web produced by Seth Myers February 5, 2004
Generic drugs are just as safe and effective as their brand-name counterparts but they cost only a fraction as much. That is because companies that produce the generic versions simply copy the formula developed by the drug's inventor years before.
HOW HIGH ARE THE MARKUPS AND WHO PAYS?
While your drugstore charges you less for a generic drug than a brand name version, that price difference is nothing compared to the markup most druggists place on the generics. Your pharmacy most likely paid a wholesale price of only pennies for that generic medicine. They then charge you a markup of 3,000%, 4,000%, even 5,000% or more, pocketing most of your savings.
Action News blew the whistle right here 18 months ago on this practice that has been a secret in the retail pharmacy business far and wide for a long, long time. Who's paying sky-high prices? People who can least afford to get ripped off—the elderly, the unemployed, and everybody who has to pay for their prescription medicine out of their own pocket.
HOW DO THE DRUG STORES EXPLAIN IT?
When Channel 7 Chief Investigator Steve Wilson looked at this story 18 months ago, Heritage Sav-Mor Drugs in Allen Park was just one of many pharmacies raking in windfall profits every time a cash customer bought generic Prozac, the popular anti-depression drug.
Gregory Papp of Heritage Sav-Mor explained the markups this way: "It's almost a necessity to keep things on an independent basis running."
"You pay $2.16 and you sell it for $92!" explained Steve Wilson, noting Prozac prices.
"It's not right," admitted Papp.
And now, as then, the big drug chains like CVS, Walgreens and Rite Aid are still pocketing some of the biggest profit margins in town.
That's right, at CVS the cost of generic Prozac is marked up at least 56 times what the drug cost wholesale. It is a 5,594% markup. And in our survey of more than a dozen popular generic drugs, CVS leads the pack with average markups of 1,436% Walgreen's is not far behind at 1,341% and Rite Aid markups on generics average 1,183%.
The stores and their trade group insist their prices just reflect the costs of doing business on what sometimes seems like every corner in town.
Steve Wilson took the issue to Kurt Proctor, Vice President of the Association of Chain Drug Stores. "Explain to me why it's necessary to take an 82? product and mark it up to $46.69?"
"You have to mark it up 5,500% to meet your costs to make a profit? This is really about greed, isn't it?" asked Wilson.
"It's not about greed," responded Proctor. "That's not accurate at all. That's a misleading statement. What I hope you will focus on is making sure people use their medications correctly."
MARKUPS NEED NOT BE SKY HIGH
Meanwhile, pharmacist Alan Levin has run his own neighborhood drugstores for 44 years. "I'm not looking to get rich," says Levin. "I'm just looking to make a living and to help people afford their prescriptions."
In a little medical center in Southfield, Levin manages to make a fine living marking up generics only about a quarter as much as the big guys. Of course, this small Beacon Hill Pharmacy location is his only one. He is not open 24/7. His advertising campaign is pretty much limited to flyers he tapes on the doors to the building.
Granted, Levin's overhead is low—but then he doesn't have the volume his big-name competitors enjoy, so exactly how are his prices so dramatically lower, even compared to the guys who run other neighborhood drugstores across Metro Detroit?
"Now you can't tell me the difference in overhead between this place and that place justifies that kind of difference," noted Steve Wilson
"No it doesn't. It doesn't," Levin answered. "And I can't explain to you why he wants to charge that price. I know what I want to do and what I feel like doing and my commitment to people in this neighborhood is maybe a higher commitment than what he has."
THE STORY OF THE STATE REP.
State Rep. Stephen Ehardt (R-Lexington) owns four drugstores up in Michigan's thumb region. And as the chairman of the state House Committee on Health Policy, he's working now to formulate a new law to protect Michigan pharmacies from what they see as unfair competition from out-of-state mail-order drug companies.
Ehardt publicly deplores price-gouging: "I think anytime a pharmacy price-gouges an individual, it's wrong."
"At your own pharmacies, are you pricing these generic medicines with high profit margins like the ones I'm talking about?" questioned Wilson.
The Representative's response: "What we're doing at our pharmacies is charging a very low, very competitive, price to our customers."
Actually, the prices at Ehardt's pharmacies are not very low. And, many would argue, not very fair. At all four Ehardt Pharmacies, the markup on a dozen generic drugs averaged more than 1,000%. The markup was as much as 1,357% at one of his locations.
So what is the lawmaker doing to protect consumers?
"Um, I'd be happy to look at that evidence. I think if all pharmacies are gouging people, we absolutely should deal with it," he said.
But now, neither Ehardt nor any of his staff have any interest in responding to our 7 On Your Side investigation.
WHERE IS THE BEST PRICE?
Meanwhile, who remains the undisputed champ in generic drug pricing? It's still Costco, the warehouse store where you don't need to be a member to get your prescriptions filled at rock-bottom prices. Not even Alan Levin can compete with what they charge.
Kevin Foster, a Costco pharmacist is impressed by his own company. "It's impressive how well and efficient the company is run to make sure that it's responsible not only to itself, the corporation and stockholders, but that end patient?that patient at the window?that's the most important person, right there."
The fact that one can find a wide disparity in drug prices from one pharmacy to the next was apparently surprising news to many people. And there's probably some truth to the notion that because we tend to view generic drugs as great "money-saving" alternatives to brand drugs, we often don't consider that the mark-up on generics can vary widely from one retailer to the next. The basic facts laid out in the message quoted above are true.
Steve Wilson, a reporter with WXYZ-TV in Detroit, conducted an investigative study into the cost of generic drugs at various pharmacies and other retail drug outlets and found quite a disparity between the highest and lowest prices charged for certain generic drugs. Comparison Chart available in conjunction with Wilson's report shows that a one-month supply of Fluoxetine HCL (the generic for Prozac), which wholesales for $1.48, varied in retail price from a high of $92.24 to a low of $9.69 just within the Detroit area.
Comparison shopping applies to generic drugs just as much as it does to food, clothing, DVDs, automobiles, or any other product. Those willing to do some hunting around get the best prices, and many drug comparison sites are available on the web to help consumers compare the costs of various drugs at different retail outlets before submitting their prescriptions (although medical insurance or HMO restrictions may limit which pharmacies a covered patient can use). Price differences between pharmacies can't necessarily be chalked up to nothing more than mere greed, however some pharmacies offer additional levels of service (such as staying open 24 hours a day) and have to recoup the costs of those additional services by charging higher prices.
Although we can't guarantee that Costco always has the lowest prices on generic drugs, it is generally true that their pharmacy will fill prescriptions for non-members (but be prepared to pay by cash or ATM card rather than check).