prescription bottle

“You probably remember hearing the news a few weeks ago about a greedy hedge fund manager who acquired the rights to sell a life-saving medication just so he could raise the price of it by about 5,000%,” Dr. David Belk writes over at Huffington Post. “That was a pretty evil thing to do, and it showcased the sort of abuse drug companies can, and do engage in. Still, that was just one hedge fund manager, and maybe a few drug companies. What about your friendly neighborhood chain pharmacy? Would they ever try to gouge a customer that much?”


(Reposted with permission by the author from The Huffington Post)

Patricia Bernstein has suffered from migraine headaches since she was twelve years old. She often gets several migraines each month and, without treatment, her headaches can be severe enough to cripple her. Fortunately, there is a medication called Maxalt that will make even her worst migraines vanish in only a few minutes. When Maxalt was released 17 years ago it was pretty expensive. However, a little more than two years ago a generic form of Maxalt (rizatriptan) came on the market that’s far less expensive than the brand name drug.

So last month I prescribed Patricia 40 rizatriptan pills, assuming she would have no trouble filling her prescription now that her medication is generic. But about one hour later, I got a message from Walgreens stating that her plan doesn’t “cover” generic rizatriptan so I’d need to authorize it. They explained that the cash price for 40 generic rizatriptan pills would be $1,490 or about $37 a pill! That’s a lot of money for a generic medication but, if it costs that much, I can see why her insurance wanted authorization.

My receptionist called Blue Cross and explained to them why my patient needed that medication and they approved. The next day Patricia went back to Walgreens where they told her they could only sell her 10 pills, but since she now had insurance authorization, she would only be responsible for a copay of $167.94.

$167.94 for ten generic pills. And that’s with insurance!

Next stop: Costco

Patricia suspected something, so she walked out of Walgreens and took her prescription to Costco. With no fuss, Costco sold her all 40 rizatriptan pills for $41.21. She didn’t need any authorization. She didn’t even need insurance. $41.21 for 40 rizatriptan pills, and that was it.

This was great news for my patient, but the rest of us have to wonder how Costco was able to sell rizatriptan at just over one-fortieth the price Walgreens quoted? So let’s try following the money backward.

Perhaps this is about buying power. Did Costco just “intimidate” the makers of rizatriptan so they could undercut Walgreens (by a factor of 37)? Probably not — Walgreens is the second largest retail pharmacy chain in the country (behind CVS). Costco sells only a fraction of the prescription drugs Walgreens sells. So no, if anyone will be setting the prices they pay drug companies, it will be Walgreens, not Costco.

Maybe Costco decided to just take a huge loss on the sale for their own nefarious purposes. That seems pretty unlikely, but we don’t need to guess. The Centers for Medicare and Medicaid Services (CMS) keeps track of the average price all retail pharmacies in the US pay for medications. By their records, the average price payed by pharmacies in the US for rizatriptan in September was about $1.20 a pill. In fact, it has cost pharmacies less than $2 per pill for over two years. So Costco managed to buy their rizatriptan for a little less than the national average last month, but considering Walgreens’ size, it’s not likey they paid even twice the national average for rizatriptan, let alone more than 20 times that much.

So if we follow the money on this $37 generic pill, we see that the money goes from patient to Walgreens, and pretty much stays there. Very little leaves the pharmacy to buy a $1.20 pill. Even with my patient’s insurance “discount” they make at least $16.79 a pill, which is a huge profit for them.

And this means the story isn’t about Costco, it’s about Walgreens. And the story is that they’ve learned to play the same game as the hedge fund managers, and there’s really no one to stop them. Sure, my patient figured it out, but they make more than enough on other patients with migraines to make up for it.

Why are medications so expensive?

And here’s how the game has played out overall: according to the financial statements of both Medco and Express Scripts, generic medications have gone from about 40% of prescriptions filled in 2001 to more than 80% in 2013. That should be good news, because generic medications often cost pharmacies 50 to 100 times less than brand-name medications, so you would think we’d be paying less for our pills than we did 15 years ago.

Yet we’re actually paying about twice as much now for our prescriptions as we did then. Why are we paying so much more for our prescriptions now? Possibly because this isn’t the only time Walgreens or another retail pharmacy has massively overcharged someone for a generic drug.

And one more thing: what was going on with Blue Cross while Walgreens was trying to gouge my patient? They have access to the same pricing information from CMS so, why was Patricia’s copay so high?

I think the case of Patricia Bernstein should be a wake-up call for everyone. It isn’t just the pharmaceutical companies and greedy hedge fund managers inflating the prices of our prescription medications. We need to lift the curtain on this process more often and take a good look at what our local pharmacies are trying to do. We also need to stop believing that insurance companies are really doing anything to try and help us.


We bring this to you courtesy of Dr. David Belk, a California internal medicine doc who has a deep interest in health-care pricing, and who wrote this blog post at Huffington Post, from which we re-post with permission.


Jeanne Pinder

Jeanne Pinder  is the founder and CEO of ClearHealthCosts. She worked at The New York Times for almost 25 years as a reporter, editor and human resources executive, then volunteered for a buyout and founded...