[Ip-health] WSJ: "Why Generic Doesn't Always Mean Cheap"

[Benjamin Krohmal]

Another from today's WSJ, this one useful.  The web page also has a
chart with pricing for several drugs at different vendors, but
subscription is required: http://online.wsj.com/article/
SB117374717814634856.html?mod=todays_us_personal_journal

Why Generic Doesn't Always Mean Cheap
Zocor Case Shows Drugstores
May Offer Only Small Savings
Over Brand-Name Drug Prices
By SARAH RUBENSTEIN
March 13, 2007; Page D1

The great promise of cheap generic drugs is taking a bumpy road to
arrival.

Case in point: Zocor, one of the most commonly prescribed pills in
the U.S., which lost patent protection last June. Multitudes of
patients have switched to generic versions of the cholesterol-
lowering drug, lured by lower insurance co-payments or the promise of
a significant price drop for those who pay out-of-pocket.

As predicted, the price that many insurers pay for generic Zocor has
dropped dramatically. But the price that pharmacies charge patients
who pay cash remains high in many locations, with wide variations by
vendor. At online pharmacy walgreens.com, for instance, the price for
30 tablets of a 20-milligram dose of Merck & Co.'s Zocor is $149.99,
compared with $89.99 for simvastatin, the generic version. And last
week, the same dose of simvastatin cost $108.99 at CVS's Web site,
compared with $154.99 for Zocor. After a call from a reporter, CVS
said it would drop its simvastatin price to $79.99, as part of an
"ongoing price analysis."

At a time when policy makers are searching for ways to cut health-
care costs, generic drugs are often viewed as one of the most
straightforward solutions. But as the situation with generic Zocor
illustrates, prices can vary wildly, and may not be nearly as cheap
as expected. Generics of a number of other notable drugs that came
off patent recently -- including the antidepressant Zoloft, the
antibiotic Zithromax and allergy drug Flonase -- have also so far
failed to deliver big savings in many cases.

"We're not seeing that sharp a drop-off" in price among generic drugs
that have come out in the past couple of years, says Jim Yocum,
executive vice president of DestinationRx Inc., a Los Angeles
pharmacy data and software company. "We're just not seeing it."

To be sure, even for the uninsured, generics still typically cost
less than their branded counterparts. And at big clubs such as Costco
Wholesale and Sam's Club, out-of-pocket prices for generics do
generally plummet. Simvastatin costs $6.97 for 30 pills of the 20-
milligram dose at a Sam's Club for which the company provided price
information.

But just how far -- and how fast -- generic prices fall depends on a
number of factors. Among them: how many generics makers sell the
drug; how much competitive pressure pharmacies feel; whether there is
another alternative, such as a different generic in the same class of
drugs; and whether a particular generics maker gets an initial
exclusivity period. By law, the first generics maker to challenge a
patent on a branded drug and prevail wins six months of exclusive sales.

For the more than 46 million Americans without health insurance --
plus perhaps millions more whose insurance plans don't cover drugs --
the lesson is to shop carefully. Some pharmacies list prices online,
and certain Web sites will compare prices from a number of
competitors. If your pharmacy doesn't list prices, a few phone calls
to some competitors can mean big savings. If you're willing to
travel, try pharmacies that aren't very close to each other and are
less likely to react directly to each other's prices.

The growing variety of outlets for prescription drugs -- with
wholesalers and online vendors joining the chains and mom-and-pops --
brings a range of business models that affect how generics are
priced. At sellers where drugs are a significant driver of revenues,
prices may remain high. Sometimes, as with generic Zocor, prices stay
high even after a six-month exclusivity period ends, when additional
generics makers start fueling supply.

Stores say they regularly review prices. At drugstore.com, generic
simvastatin until recently had been at $125 for the common 30-tablet
dose, compared with $135.99 for Zocor, even after the six-month
exclusivity period ended in late December. After a reporter called to
inquire about the price, drugstore.com on Friday dropped simvastatin
to $27.99, which the company said was part of a regular review. Zocor
now costs $139.99. On walgreens.com, simvastatin's price hadn't
fallen after the six-month period's end. After a reporter inquired
about it in late February, it dropped to $89.99 from $129.99. A
spokeswoman said the price had already been under review.

At Rite Aid Corp. pharmacies, a spokeswoman last week said the
average price of the common Zocor dose was $178.99, compared with
$131.99 for simvastatin. Yesterday, the spokeswoman said those prices
were inaccurate and that the company frequently adjusts its prices,
keeping them in line with competitors; she declined to provide new
figures, saying it was proprietary information.

Prices can also vary widely for other generics. Pfizer Inc.'s
antidepressant Zoloft lost patent protection last summer, and generic
Zoloft's six-month exclusivity period ended in early February. At
drugstore.com, branded Zoloft costs $87.14 for 30 tablets at 50
milligrams, compared with $67.99 for the generic, sertraline. The
generic is priced similarly high compared with branded Zoloft at
cvs.com and walgreens.com, and somewhat less at a Wal-Mart location.
But at the Sam's Club location, the generic is $5.97.

Data through January from Wolters Kluwer Health show the average
retail price that consumers paid for the generic of nasal spray
Flonase has hardly dropped since it became available about a year
ago. A common dosage and package size of the generic of antibiotic
Cipro cost consumers nearly as much as branded Cipro in mid-2003,
then fell sharply around mid-2004, according to Wolters Kluwer
Health. And the average retail price consumers paid for a common
dosage and package size of the generic of antidepressant Paxil held
steady for about three-quarters of a year until mid-2004, then fell
steadily until around the fall of 2005 -- when it increased before
falling again.

At Costco Wholesale, whose Web site yesterday listed the common dose
of generic Zocor at $11.96, the company says that even at such
prices, Costco is making a profit. Charles Burnett, senior vice
president of pharmacy at Costco, says the company can acquire the 30-
tablet, 20-milligram dose of simvastatin for $2.71. He says the price
on costco.com today will fall to $10.66. Patients are allowed to use
the pharmacies of clubs such as Costco and Sam's Club, even if they
aren't members.

Chain drugstores argue that their business model is different from a
company like Costco or Sam's Club. CVS, Rite Aid and Walgreen Co. all
say that about two-thirds of their revenues come from prescription
drugs.

"We don't sell snow tires," says Mike DeAngelis, a spokesman for CVS/
pharmacy. "The core of our business is the pharmacy."

Mr. DeAngelis wouldn't say how much CVS pays for generics but
confirmed profit margins on generics are generally bigger than for
branded drugs. On all drugs, Mr. DeAngelis says, CVS's prescription-
drug profit margins are 2% to 3%. A spokeswoman for Walgreen gave a
similar figure, and a spokeswoman for Rite Aid said the company's
prescription-drug margins were very thin.

Walgreen spokeswoman Tiffani Bruce says there can be a lag in retail
price reductions if the company had stocked up on large quantities of
a generic before the manufacturers' prices dropped. She also says
profit margins on generics help the pharmacy chain make up for much
smaller profits -- or even losses -- on branded drugs. The beginning
of a generic's availability "represents a small window where
drugstores are able to recover from the weight of carrying all these
unprofitable prescriptions," Ms. Bruce says.
[Graphic]

Patients whose drugs are covered by insurance often don't notice
subtle shifts in generics prices, because insurers typically allow
patients to pay the lowest co-payments for generics as soon as they
are available. As big purchasers, insurance companies can often make
steep cuts in what they will pay for widely used generic drugs.

Insurer Humana Inc., Louisville, Ky., is paying pharmacies about
$20.50 for the typical amount of simvastatin, according to the
insurer's Web site. UnitedHealthcare is paying a typical amount of
$38.20, its site says. Both insurers say they pay pharmacies more for
drugs than it costs the pharmacies to acquire them.

For patients who aren't covered, online price searches can be
helpful. But the sites have limitations. For instance, if you don't
purchase the drugs via a chain's online outlet, prices at the bricks-
and-mortar locations may vary. Mr. DeAngelis of CVS says individual
stores' prices may be a little higher than the Web site's. CVS's site
doesn't list prices for generic drugs but provides a customer-service
number to call for that information.

Other sites that offer price comparisons include destinationrx.com.
More tips can be found on the Consumer Reports site
crbestbuydrugs.org. The National Center for Policy Analysis, a think
tank that promotes "consumer driven" health care, offers tips such as
bulk-buying and pill-splitting in a publication on its site ncpa.org,
called "Shopping for Drugs: 2007." Drugstore.com, for instance, says
consumers can spend less per pill by buying larger quantities.

A spokeswoman for Rite Aid says the chain will match local
competitors' prices if a customer asks. In cities, the competitors
would likely have to be located "within blocks," she says. In rural
areas, the distance could be five miles or so.

--Jacob Goldstein contributed to this article.

Write to Sarah Rubenstein at sarah.rubenstein@wsj.com

Benjamin Krohmal
Coordinator - Project on Medical Innovation
Knowledge Ecology International
Tel: +1-202-332-2670 ex. 14
Fax: +1-202-332-2673
ben.krohmal@keionline.org