DrugTrendsToday.com

Average Cost of Common hypertension Medications

Over the next several months, we will be tracking the average cost of several top hypertension medications.  This chart shows average pricing across four major retailers for both brand and generic options; each month the line graph will grow illustrating trends within the drug category as they  emerge.

Medicare Part D: Pitting Brands Against Generics?

There’s more to drug price transparency than meets the eye.

Last month a study by Wolter Kluwer reported that 63% of the Part D market was now going to generic drugs, up 13% since the program began in 2006.  The authors of the study concluded that it represented “clear evidence of a growing affinity for generics and a continual slide away from brands.”  Another interesting note from the study was that only 6% of seniors switch back to the brand when they leave their coverage gap and more seniors are selecting plan designs to avoid the gap entirely.

But is the matter as simple as brands versus generics.

This data speaks to two possible trends.  First, the Part D drug benefit appears to be driving the type of consumer behavior its proponents intended: when seniors are exposed to the cost of their drugs, they are making choices.  It is important to keep in mind that Part D is a very young program and this type of behavior, choice and responsibility are relatively new to seniors.  Second, this data indicates that perhaps seniors don’t view prescription drugs as true brands and do not have the same level of affinity that American consumers show for their cars, television, beer and soft drinks.  Pharmaceutical consumerism is still in its very early stages, and has yet to take hold in the way that other, more established consumer brands have.

When Medicare Part D was first introduced it was criticized as a “giveaway” to pharmaceutical companies, at the expense of the government as well as seniors, who would be exposed to more out-of-pocket drug costs.  Now, as consumerism has begun to take hold there is speculation that Part D will drive seniors away from brands.  Again, this is a very simplistic way of looking at this issue.  A long term view would be that we are entering a new era for pharmaceutical brands, where consumerism and price transparency will replace formularies and co-pays.  Ultimately this is will be a challenge for the pharmaceutical companies, but it is also an incredible opportunity to engage consumers on the value of their products – in much the same way that the BMWs, Sonys, Budweisers and Coca-Colas of the world already do.

Expanded Options for Proton Pump Inhibitors: Brand, Generic or OTC?

                                                          *CVS did not offer prescription Prilosec at the time of this posting.

The above chart compares pricing for available forms of Proton Pump Inhibitors for the treatment of heartburn during the month of June.

Gassing Up for the Road to Drug-Pricing Transparency

Convenience stores once looked to drugstore chains as a model or profitability.  At some point, drugstores may need to take a page or two from the convenience store playbook.

A simple drive down the highway offers a glimpse of the extreme variability of gasoline prices.  Consumers do not have the luxury of driving by their local pharmacies to compare prescription drug prices at a glance, but as the market drives towards greater transparency in drug pricing, drugstores that rely on traditional PBM pricing strategies are getting caught in the headlights - and the similarities between convenience stores that sell gasoline and the corner pharmacy or drugstore chain - as well as the inherent challenges - are becoming all too clear.

Gasoline and prescriptions: volatile loss-leaders

Despite getting customers in the door, gasoline is not a profitable product for convenience stores.  Although the typical convenience store sells mainly gasoline (71.3 percent of revenue, the most profitable products range from contributing 60-70% gross margins (tobacco and beer) down to gasoline, contributing less than 6% gross margins.  For the best-run convenience store chains, non-gasoline products have contributed nearly all of the net profit in the past few years, with merchandise sales geared toward high-margin impulse buys by walk-in customers.¹

Prescription drugs perform the same role for drugstores that gasoline does for convenience stores – they get customers to stop in and load up on other items (such as tobacco, alcohol, over-the-counter products, and personal care items) that are more profitable than the drugs themselves.

Drugstores: the transition to transparency

The risks of a highly volatile loss leader can't be underestimated.  Pricing gasoline so that it moves into cars is important since it draws in customers and covers the considrable fixed cost of the gasoline infrastructure.  If a station sets its gas prices too high, it loses money - not so much from the lack of customers fueling up as from the other products that go unsold when fewer drivers stop in for fuel.

As drugstore customers are pushed to consider healthcare costs and online cost comparison tools become more prevalent, a similar situation will arise when local pricing of drugs becomes more transparent.  The share of pharmacy revenue at drugstore chains is comparable to that of gasoline at convenience stores (CVS, for example, derives over 68% of revenue from pharmacy, whereas Rite Aid claims closer to 64%²), so the attendant effect is likely to be the same. Considerable fixed costs will remain in a store (e.g., licensed pharmacist, equipment, floor space, security), even if another chain or mail-order pharmacy siphons off drug sales.

The gas-pricing scenario – considering the amount of effort involved in managing just one product at three price points – when applied against thousands of prescription drug products, would be a nightmare for any drugstore chain to manage. Drugstores have been operating under the PBM reimbursement regime for decades. They clearly prefer this to setting prices according to consumer demand given the operational issues that any chain would face in moving to a consumer-driven, highly-transparent market for scripts. The danger comes as consumers, armed with appropriate knowledge, gain greater power in the market – the ability to compare and choose the best-priced option.

We are already starting to see a changeover in drugstore pricing strategy, especially for generic drugs, with the advent of discount pricing through such retailers as Costco, Wal-Mart and Walgreen – and many others entering the fray with similar programs of their own, placing generic drugs as a major growth-driver for the retail pharmacy market.

___________________

Sources:

1. National Association of Convenience Stores, 2006

2. CVS and Rite Aid Web sites, June 2007

Top Ten Searched Drugs on DRx.com - June 2008

The above chart illustrates the potential annual savings for the top ten searched drugs on www.drx.com should consumers switch to the lowest-cost option.