Comments on Drug Channels: Drug Prices and Pharmacy Profits

Huh, interesting discussion about whole sale prici...

2009-12-07T11:25:04.933-05:00

Huh, interesting discussion about whole sale pricing and its relationship to gross margin per name brand prescription. Wasn't the article actually about drug manufacturer positioning / fixing of prices in the face of possible healthcare reform? Bait and switch?

Adam, You say that generic dispensing has saved t...

2009-11-19T15:48:57.728-05:00

Adam,

You say that generic dispensing has saved the day for pharmacies, but do you have any proof of this? At my pharmacy, our gross profit from brand name drugs is pretty much right at your estimation. But generic reimbursement has plummeted in recent years. We now make much more money on the average brand name rx than on the average generic rx.

We have:
1. Only slightly increasing reimbursement on brand name rxs.
2. Hugely increasing COGS on brand name rxs, which makes things very challenging when it comes to cash flow.
3. Increasing costs of dispenging - which are increasing at a higher rate than brand name reimbursement is increasing.
4. Rapidly shrinking gross profits on generic rxs (of course, this doesn't include mosst non-third party rxs).
5. An ever-increasing % of generic prescriptions (most of which hardly even cover our cost of dispensing).

Thanks for the clarification and detail. My real ...

2009-11-18T14:06:50.066-05:00

Thanks for the clarification and detail.

My real point is about the arbitrary and inconsistent nature of the AARP/Schondelmeyer conclusions. College costs are rising at 2-3X of the CPI, but I don't see any front-page stories in the NYT. Yet there is a reasonable analogy:

1. People spend money on college because it delivers more value than it costs...just like pharmaceuticals.

2. Many students (or their parents) don't pay "list price" tuition thanks to financial aid or loan forgiveness...just like pharmaceuticals. (In fact, the average person pays a much lower share of drug costs than college costs.)

3. As you point out, there are many valid reasons for organizations (for-profit companies and non-profit universities) to adjust pricing...just like pharmaceuticals.

Unfortunately, the AARP and Dr. Schondelmeyer seem more interested in getting their names in the newspaper rather than delivering an accurate assessment of the drug market. I have read some of Dr. Schondelmeyer's papers over the years and know that he is capable of more intellectually honest statements.

Adam

OK Adam, here's the lowdown on The U (Univ of ...

2009-11-18T13:46:55.996-05:00

OK Adam, here's the lowdown on The U (Univ of Minn-Twin Cities), tuition, and their new approach to pricing.....grab some coffee, sit down and read up.

About two years ago, Minn felt it was time to raise their "academic stature" in the Big Ten. Competing against Northwestern and Michigan (the two big guns), are Wisconsin and Illinois. Not that Minnesota is an average school, it's actually an awesome top tier "research" institution, but simply doesn't get the same level kids from across the country like Michigan does.

Last year Minn changed their pricing philosophy. At the expense of the in-state residents, they LOWERED their out-of-state tuition rate to only slightly above the in-state rate. Their goal was to bring in kids from the two coasts and raise up Minnesota's level to recruit smarter kids (spelled higher ACT scores). It's not in their literature or on their website, but their pricing clearly reflects the new model (and the student tour guides share this same story). It has clearly been a revolt with the in-state families as New Yorkers and Californians take the spots that were originally meant for that Hibbing, MN young man.

I think it's kind of like the WalMart pharmacy approach to pricing an education...well sort of. As long as WalMart can attract a higher level customer who will drop more dollars in the long run.

Well, I've heard the Minn pricing program is actually working. Their admission stats have become more restrictive, and the mix of kids from out-of-state is growing.

Yep, as a parent with 2 boys in college at the same time, I consider myself an expert in this field.

And as a retail pharmacist in a high pressure, margin shrinking industry, you can be certain that I watch every penny and am continually looking for the best "therapeutic" outcomes for the lowest price possible.

Oh also....my salary has decreased every year for the past four years.

Sorry, I meant "when their salaries are NOT o...

2009-11-18T11:55:58.257-05:00

Sorry, I meant "when their salaries are NOT on the line"

From your last comment, I guess price increases ab...

2009-11-18T10:39:54.736-05:00

From your last comment, I guess price increases above inflation only bother some people when their salaries are on the line!

My tuition is going up as well, what the heck? Al...

2009-11-18T10:35:11.654-05:00

My tuition is going up as well, what the heck?

Also, may I increase my price to my employer?

Wow. Great post Adam. Thanks for the clarity on ...

2009-11-18T10:17:11.547-05:00

Wow. Great post Adam. Thanks for the clarity on the calculations. I learned a lot from this post.