More on generic Viagra: inefficiency within healthcare

I have been surprised that consumers have not discovered that a low-cost generic Viagra alternative is available, especially given that branded Viagra costs about $10 to $12 per pill and is generally not covered by insurance. Data on dispensed prescriptions suggests that less than 1% of erectile dysfunction medicines are dispensed as generic sildenafil (the active ingredient in Viagra). For background on generic sildenafil, see my prior posts here and here (this background is important).

In this post, I contemplate why generic penetration might be low.

First, it is worth defining the term ‘efficient’ market. In economics, an “efficient” market is one where markets are rational and use information appropriately and correctly. In theory, if two manufacturers sell the same product at different prices, customers should be expected to buy the lower price product, and the high price seller should eventually reduce price to get some market share. I have written about inefficiencies in the delivery of healthcare here.

There are several drivers of inefficiency in healthcare. These include:

  • consumers often don’t have the information to make informed decisions
  • pricing is opaque with actual prices often kept as guarded secrets
  • consumers are not the decision makers
  • decision makers (generally physicians) do not immediately know or feel the costs borne by patients

All of these are relevant to prescription drugs. As it pertains to Viagra, I learned recently that one of the bottlenecks is availability of low cost Viagra from pharmacies. A friend of mine who knew of the availability of generic sildenafil called me and informed me that a local pharmacy wanted to charge him $900 for 90 tabs. I estimate the actual cost to be about 25 cents (or possibly less) per pill, or about $23 for 90 tablets. $900 is an unconscionable mark-up. I was incredulous, so I did a little research and, on calling several pharmacies in the NY area, here is what I found for the cost of 90 tabs of generic sildenafil, 20 mg:

Duane Reade – (212) 687-8642 — $1,628

CVS Pharmacy – (917) 369-8688 — $1,420

Kings Pharmacy – (212) 791-3100  — $900

Forever Health Pharmacy – (212) 966-7887 — $215

Windsor Pharmacy – (212) 247-1538 — $150

CT Health Castle Pharmacy – (212) 966-6039 — $100

Family Plus Pharmacy – (212) 732-3388  — $58

So first,why does this massive pricing disparity exist? In most cases, health insurance covers prescription medicines. A sub-arm of the insurance industry called pharmacy benefit managers, or PBMs, is generally responsible for drug insurance. PBMs (such as Medco, Express Scripts, Caremark, etc) issue drug insurance cards to beneficiaries. At the pharmacy, the druggist takes the info from the PBM card and tells the patient his or her co-pay (often $5 to $40, depending on the drug).

PBMs use formularies to keep costs low. If there are many types of similar medicines, say cholesterol lowering drugs, PBMs negotiate discounts. For example, Crestor list price may be If the patient pays $190 or so. However, there are great generic alternatives (especially now that Lipitor is generic). So the PBM might tell AstraZeneca (maker of Crestor) that in order for Crestor to be on formulary, AZN must give a massive discount. Otherwise, the PBM will tell patients it won’t pay for Crestor at all (and patients will inevitably ask their doctors to switch them to an alternative).

Another interesting nuance about PBMs pertains to generic drugs. PBMs are smart. They know how much drugs really cost. A prescription for a generic drug might cost the pharmacy as little as $1 for a full month supply. If the patient has a co-pay of $5-$10, the PBM could conceivably even make a profit from this prescription being dispensed.

Since Viagra is completely out-of-pocket, PBMs don’t intervene. (Presumably if they did, they would tell appropriately the pharmacist “we know the cost is about $10 and that’s what we’re going to reimburse you, plus a dispensing fee for your efforts.”) Here’s where the market inefficiency comes in: Pharmacists know that pricing of drugs is opaque, especially because most of the time PBMs are an intermediary. It seems, based on my checks, that some pharmacies take advantage of this lack of familiarity and charge exorbitant sums. Presumably pharmacies hope that people will not be savvy enough to shop around given that patients normally have the same co-pay regardless of the pharmacy they use.

I had once believed that the market would discover that cheap Viagra in the form of generic sildenafil is now available. Clearly this has not borne out in practice, which I attribute in large part to the obfuscation of information at multiple levels of the healthcare system.

Shame on you, Duane Reade and CVS, for your egregious price gouging. Conversely, thank you Family Plus Pharmacy for doing right by patients.

 

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2 comments for “More on generic Viagra: inefficiency within healthcare

  1. JimBob789
    April 8, 2014 at 10:02 am

    Presumably this specific medication deals with too sensitive a body part for the consumer to take a chance on generics, no matter how much information he gets…

  2. September 14, 2015 at 10:19 pm

    I love this informative article, enjoyed this 1 thank you adding.

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