Monday, March 31, 2003
What About Generic Meds?
Hmm, looks like drugs are today's topic. The Wall Street Journal has a great article today about pharmacy-benefit companies (like Medco that I ranted about the other day); unfortunately, no link is available. They profile Express Scripts Inc., one of the big middleman companies that handles pharmacy benefits for employers and health plans. Apparently, this company and others like it have found a way to make money -- lots of money -- on generic drug prescriptions. Their markup on these drugs is huge. In the most blatant example, a review of billing documents showed that Express Scripts made a profit of $170 on a single 90-pill prescription of fluoxetine (generic Prozac).
This is possible for several reasons. When these companies buy in bulk, they are able to purchase drugs at well below the AWP, or average wholesale price, which is used as standard pricing in the industry. These companies offer drug prices at well below the AWP (like 60% price cuts), which naturally sounds like quite an attractive deal. But AWPs are wildly inflated and in many cases are not really a reliable indicator of the actual cost of the drug. In the example given by the Journal, the AWP for fluoxetine is $2.66 per pill. Express Scripts, offering a 60% discount, offers the health plans a rate of $1.06 per pill - but they purchase it at a cost of five cents per pill.
That's a markup of 2100%, if my math is correct.
Express Scripts claims that they take a loss on many brand-name drugs to keep prices low for their customers and that their average profit is only 46 cents per prescription. Maybe so. But if I were one of these health plans, I'd start auditing my drug bills PDQ.