Why Do My Medications Cost So Much?

Why Do My Medications Cost So Much?

Steve Ariens

Steve Ariens, PD Pharmacist

By Steve Ariens, P.D. Pharmacist

I started working in a local community pharmacy in the summer of 1967 as a pharmacy student.

“Way back then”, there was no Medicare, Medicaid, Insurance drug cards, prior authorizations or Controlled Substance Act.  The whole community medication distribution system was very simple and straight forward. involving a drug wholesaler, pharmacy and physician.

The average prescription price was $4 and change and the wholesale price of medications was fairly static and there were few generics.  The market place was dominated by independent pharmacies – some 40,000 to 50,000 independent pharmacies.  The chain store industry “giants” were measured with hundreds of stores, unlike the tens of thousands today.

The turn of the decade marked the turn of how community pharmacies operated.  The UAW contract in the fall of 1969 with the BIG THREE car manufacturers, International Harvester, and John Deere, brought us the infamous “drug card” and contract with insurers/PBM (prescription benefit managers) on a “take it or leave it basis”…”if you don’t accept our contract and what we will pay you, we will get our insured – your customers – to go to one of your competitors.”

During the 70’s we had states passing mandatory generic substitution, the Medicaid system implemented MAC (Maximum Allowable Cost) pricing and MANDATORY rebates (kickbacks) from the brand name manufacturers and the growth of the PBM’s share of paying for prescriptions at the retail level.

During the 80’s we had continued growth of generic utilization and per-cent of prescription paid for by the PBM’s and pharmacies started putting in computers to help handle all the extra paperwork associated with billing the PBM’s

During the 90’s we had most insurance companies demutualized.  Prior to this most insurance companies were “mutually owned” meaning that they were not-for-profit companies owned by their policies holders.  Demutualizing meant that these previously not-for-profit insurance companies now were publicly traded stocks with a FOR PROFIT motive, stock holders and the stock market to “keep happy”.

We entered the new century with medication distribution system amassing many new middlemen, each with their own cost overhead and motive to make a profit. Generic utilization continued to increase along with the per-cent of prescription paid for by PBM’s.

During the first decade of this century, the PBM’s – with their ever-growing share of the prescription market place –  they exerted their “buying power” to extract discounts/rebates/kickback against; particularly, the brand name manufacturers.  They even went as far as telling a particular manufacturer that they would “sway” their drug to a higher market share to whoever gave them the highest “give back”.

They got so brazen that they would send letters to doctors, telling them that they could save the system money, if they could switch their patient from Drug A to Drug B – because they were considered “therapeutically equivalent”…

No one knows what or how much these “give backs” were because there is no transparency with the PBM’s, but when they prefer a brand name drug over a generic, it must be substantial.

In the last decade, there has been such a consolidation of generic companies in chasing the ability to sell their products at a lower cost, that we have reached a point where there are only 1-2 companies producing a particular generic or line of generics.  The “bums rush” to get less and less expensive generics has created less competition and higher prices.

Today, we have brand name medications, accounting for 10%-15% of all prescriptions and those medications have to cover all the cost of R&D (research & development) for new drugs. Something that nearly 100% of all prescriptions bore 50 years ago.  New drugs use to cost a few hundred million of dollars to get to market, until today – it can cost 2-3 billion to get a new medication to market.  Generic manufacturers do no R&D, they just produce medication that are no longer protected by a patent.

No one really knows how many different middlemen there are in our prescription medication distribution system, but I have identified at least three different categories of profit driven middlemen.

It was recently stated by the CEO of a pharmaceutical manufacturer that they only get 45% of the retail price.  I know what the average gross profit is of wholesalers and pharmacies is, and as a percentage, it is HALF of what it was 50 yrs ago.  So, it would appear that the middlemen who are supposed to be saving the system money, are consuming some 25%-30% of the retail price – to cover their overhead cost and generate a profit.

Steve Ariens is a pharmacy advocate, blogger, and National Public Relations Director for The Pharmacy Alliance.

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There are 11 comments for this article
  1. Jean Price at 4:50 pm

    Years ago, doctors felt they had to give patients a script before they left…and patients did too!! A sign of being treated, I suppose. So supply and demand kicked in and prices went up! Then with brand new medications, the cost are to make back the tens of millions of research dollars spent on getting a chemical compound to a marketable medication!! The FDA requires extensive studies for safety and efficacy and even post market follow up on some. So the patent only lasts something like 14 years and starts with the first discovery/research…and whe it runs out, then a generic can be made and the sales will drop off. So they try to recoup it all those first years! Now some insurance companies are making generics more expensive than brands because of how they cover them! Must have contracts with the companies to do so! And with Medicare part D, when and if you get out of the doughnut hole, the generics will be substantially less, regardless of the insurance company’s affiliation with the brand guys! So…Pretty confusing, if you ask me! But then again,,pharmaceutical companies are businesses and they have to make back all that money and turn a profit or they won’t research new medications! And the FDA won’t take foreign data to cut down on the amount of research needed. I suppose we’d miss stuff like Motrin and some of the other cardiac meds if they hadn’t come along! Oddly, opioids should be relatively inexpensive because they have been around so long, but that’s changed too. Again… Health care is a business, and we are the buyers, so not likely to ever have cheap meds!

  2. connie at 2:39 am

    As usual government interference costs us dearly. I will never understand why people with zero training in medicine can be so involved with the dispensing of drugs. Another thing that totally floors me is if a prescription is written for a particular name of medication and the pharmacy is out of it why another brand of the same medication cannot be used to fill the prescription. I have more than once had to wait days without one of my meds and make the 2 hour round trip to fill my prescription when they could have filled it with half name brand half generic!

  3. Ken at 7:12 am

    Ah, prior auth, my favorite two words. Another stumbling block that keeps you gripping your hands, are they going to approve my so needed medication, what if they deny it? That’s wasn’t put in place to control the costs for the consumer, that is only to save the insurance company money, who I may add, could give a hoot about you and your pain. Wouldn’t it be great for f we could walk into the pharmacy and pick out the med we need just as anyone can walk into a liquor store to buy a bottle of booze without the ten stumbling blocks we have to dodge getting to that point? What kills more people pills or alcohol? You don’t hear much about that one do we CDC, DEA ?

  4. Maureen at 7:13 pm

    Excellent and easy to comprehend posting. Thank you Mr. Ariens.
    I so wish times were as they were back then. Things were simpler.
    Today, my head spins with all of life’s daily challenges.

  5. Angel at 2:52 pm

    Sickening. The free market system worked. Your local pharmacist wasn’t beholden to the big chain of corporate gobbly gook. We were responsible to pay for our medications our care. Until we dissemble the entire insurance system and go back to cash pay it’ll only get worse. How frustrating to see such a succinct timeline of big business and government meddling in what is our most private and necessary health outcomes.

  6. Pharmacist Steve at 1:29 pm

    Our government has greatly contributed to all of this… many years ago one of the major brand name manufacturers was losing their patent on one of the first statin meds (cholesterol) and a generic was coming out … at a much lower price… this brand name manufacturer decided to lower the price of their brand name med to match the generic’s price. Our Federal Dept of Justice threatened to sue them because they were “disrupting free market competition”… This was back in the late 80’s – early 90’s … so – IMO – the DOJ was interfering with the “free market competition” by the actions they were taking…
    If it wasn’t for the actions of the DOJ at that point… IMO .. we could have brand names dominating the prescription market place… at more reasonable prices.. because the profits from those medications could have been used to fund R&D and the 2-3 billion it now costs to bring a new medication to market would not have to be recovered in the typical 5-6 yrs that a manufacturer has left on a patent to recoup their investment. Of course, all too often politicians and bureaucrats are much too short-sighted and myopic and can’t see the “bigger picture”

  7. Sheryl Donnell at 1:27 pm

    Thank you for your explanation. The corporate greed has been destroying our amazing country over and over. Your article points that out perfectly. Thank you

  8. Bonnie Brackus at 9:11 am

    Very interesting article, shared it on Face Book. The outrageous $$ for a lot of drugs is disgusting. The middleman on these negotiations must be having quite the time with the money they are making. As a Senior disabled with Fibromyalgia, ever day is a struggle. I am disgusted with a Goverment that allows this nonsense to happen.

  9. Amy Hartmann at 7:09 am

    Love this post – great summation of how the industry has spiraled in a few decades.

  10. Jill Jensen at 4:55 am

    Fascinating! If it doesn’t already exist this kean analysis should be the basis for a committee recommendation and new legislation that significantly curbs the ability of these middlemen to sway the medical practice pharmaceutical companies in favor of some drugs over others. What is used should be up to the doctors and the consumers, NOT profit- driven middlemen!

  11. M Jean at 4:31 am

    Thanks Steve. It is difficult to explain to my patients why their drugs cost so much, This helps clarify in a way they can understand.