Pricing of prescription drugs

Unless you’ve been encased in lucite for the last several years, you know that prescription drug pricing is such that you generally pay more for buying drugs here than you would buying the same drugs in Canada. You also pay a lot more without insurance than with. The reasons are simple: the Canadian government, which negotiates on behalf of its 30+ million customers, has more negotiating clout than your insurance company. Your insurance company has a lot more negotiating clout than you.

I was interested in comparing the prices for A Certain Brand Name Medication a member of my family uses:

SourceCostComments
Canada Pharmacy$34.00Canada mail order house picked randomly – no endorsement is implied.

The message is clear: for a recurring prescription, where you don’t have insurance coverage, order it direct from Canada. If you have insurance coverage, it doesn’t really matter where you get it since your deductible is the same.

I have very mixed opinions here. On the one hand,
I’m a capitalist, believing that companies
that take (reasonable) risks should benefit from rewards. As such, my
retirement portfolio is heavily invested in the health care sector. If the industry is able to optimize prices, my portfolio benefits. Indeed, one particular fund has beaten the market index for over 15 years in a row.

On the other hand, I hate feeling like I’m being screwed. My folks are getting old — I’m getting old — and we are going to consume more prescriptions as we age and things break.
The price differential seems excessive as does the hassle factor, especially
when I know the manufacturer and Canadian pharmacies are making profits.
(If they weren’t, supply would be visibly limited. It’s not.)

I’ve seen the prescription discount cards proposed as a solution to
all of this. The idea is private companies would negotiate deals
directly with the pharmaceutical companies and pharmacies. Consumers would use these cards as the vehicle through which the forces of supply and demand converge.

Intuitively, relying prescription discount cards don’t seem like a good solution because the situation converges to the rental car pricing discount exercise. The AARP, one of the better deals in rental cars, even suggests

consumers do a lot of research
before selecting a card.

I just received a card from AAA, the American Automobile Association. Since I’m not old enough to join the AARP and I don’t currently have prescription drug coverage, I thought this would solve my problems, especially since they fared very well in the rental car pricing discount. However, as I discovered in the chart above, I can do better with drugstore.com.

If I were taking a regular prescription, I wouldn’t hesitate in ordering it from Canada. Even if I had to make the 2 1/2 hour drive to Vancouver, it’s still more cost-effective. If I had to buy something on-the-fly, like antibiotics for my kid’s ear infection, I’d choke it up and buy locally.

10 thoughts on “Pricing of prescription drugs”

  1. For the last few months I’ve been running out of my Imitrex prescription well before my insurance will cover a refill on my nine pills. This, to me, seems like cruel and unusual punishment. Without the insurance, the cost to us is about $180.00 for those nine little pills, so I just do without and hope that my next migraine doesn’t get so bad that I need to make a trip to the emergency room…

    Good post.

  2. There’s a bit more to this story in terms of economics. It’s not just negotiating power, it’s often government regulations (especially in euro and asia where the governments heavily discount the R&D cost in margins). The cost of R&D for the American consumer is a kicker. A little over half of all research went to AIDS drugs since 1995 or so. But, the countries that have the highest per capita use for it will never be able to afford the research cost. Add on top of it that the US has the highest purchasing power in the world, it does make sense we pay the most for the drugs. But, do we really need to pay the lion’s share of R&D for the world? Must be one of the reasons everyone hates America…

  3. USA Today ran a story today that some major drugmakers spend a greater percentage of money on dividends than research. To their credit, the industry does spend 8.1 cents per $1 of revenues, second only to technology (8.4 cents/$1 revenue) on research.

  4. Beware of buying generics from Canada. They can be more expensive than at the corner store.

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