Tuesday, August 15, 2006

Is Walgreens trying to overcharge us for medicine?

I stopped by a Walgreens pharmacy at lunch today to see about getting a prescription refilled. As one might expect, the pharmacy was pretty busy, so I had some time to kill as I waited at the "Drop Off" window. I noticed a sign on the wall beside the pharmacist's station which read: "Cardinal (new line) Items to be Ordered (new line) Wait for the P.O. to finish printing (new line) Avoid generic items at all costs". Order days and times were printed below the "avoid generic items" line.

Someone had highlighted that "avoid generic items at all costs" directive. The highlighting could mean anything. Cardinal, for example, is capitalized like a proper name. Is there a company named "Cardinal" from whom Walgreens orders medicine? Do they avoid buying generic items from that compamy?

Does a directive to avoid ordering generics "at all costs" in any way reflect a general policy by Walgreens toward selling medication to the general public?

My prescription, so far as I know, is available as generic-only. It's an older medication and only costs $10. My insurance company won't pay for it, so I bear the burden of the cost out of pocket. This prescription replaced another prescription I felt better about, but my insurance company decided to stop paying for that medicine. They decided there were other medications I should be taking instead.

Doctors have a lot of leeway when it comes to prescribing medicine. Depending on what condition or illness they are treating, they may go with some very old, well-documented medications or they may try newer medications. They have to take into consideration what other medications you are on, as well as whether you drive or operate heavy machinery, drink, use illegal drugs, etc. Any otherwise safe medication can become toxic if you mix it with the wrong substance. Pharmacists, too, are supposed to check that you are aware of possible interactions and so forth.

Nonetheless, American medical treatment is now driven to some extent by the contracts negotiated between insurance companies and pharamceutical companies. Insurance companies don't just pay for every prescription. They actually exempt some medicines, unless a doctor provides written verification asserting that the prescription is medically necessary.

What does medically necessary mean? My doctor, careful to avoid incurring any liability, sort of shrugged and said, "It can mean that the doctor feels that is the best medicine for you regardless of cost. It may mean that the doctor has tried everything else and nothing else worked well enough for his or her satisfaction."

The doctor's job is to do whatever medical science and your insurance company and ability to pay will allow to restore you to desirable health. Technically, his job is to diagnose what is wrong with you and prescribe a treatment. But we have empowered our insurance companies to dictate treatments through negotiated contracts. Now, if an insurance company cannot get a discounted price on a particular medication, the insurance company can refuse to pay for a prescription unless a doctor says it's medically necessary (and even then I'm not sure if the insurance company is legally required to pay or if that's just a contractual arrangement).

So, what does Walgreens' policy have to do with all this? I don't know. But I do know that Walgreens, being a publicly traded company, is responsible to its shareholders (the largest of which may very well be mutual funds that represent you and me) to maintain a minimum level of profitability. That requirement for profitability means that Walgreens has to cut costs wherever possible. Maybe they only order generic medicines from certain companies because they get better prices from those companies. Financially, that's good for you, me, and our insurance companies.

But is Walgreens really getting the best deal possible?

What if my $10 medication could actually cost me $5 through a different provider? My doctor didn't think the pharmacy would matter, but there are thousands upon thousands of prescription medications and hundreds of corporate entities involved in the distribution of medicine. How can one doctor know if my $10 prescription always costs $10?

More importantly, is it possible for Walgreens, CVS, and other large pharmacy operators (including Wal-Mart, K-Mart, and KROGER to name just a few major retailers who dispense medicines) to increase their profits by negotiating favorable contracts for generic medicines?

The more money Walgreens charges for each medicine, the more potential profit it can make. That's good for shareholders, maybe good for store managers if they have any bonus incentives based on sales, but not so good for you and me.

Of course, the pharmaeceutical companies benefit from higher prices, too. Some of the pharmaceutical companies are publicly traded, or owned by publicly traded companies. So when the pharmaceutical companies make lots of money, the value of your and my stock or mutual fund portfolio increases. That's good for us. Except we're making money by charging people full price for prescriptions that their insurance companies don't pay for. That's you and me.

People often complain that the pharmaceutical companies charge too much for new medicines. The pharmaeceutical companies allege that they incur massive costs in developing new medicines. The process is painstakingly slow, given that they are evaluating thousands of substances for effects on various other substances, and eventually they begin to evaluate the effects of some of those substances on living creatures, and eventually on living people.

Someone has to be paid to fill the test tubes, write down what happens, to buy the test tubes, to clean the laboratories, to deliver supplies, etc. I can see where multitudes of little costs add up.

And the pharmaceutical manufacturing process complicates matters, adding to the costs. Did you know that pills, powders, and tablets are made in batches that have to be sample-tested? If the samples test below a certain quality, the whole batch has to be destroyed. So what our quality-control procedure ensures is that the medicine you buy is at least as good as the minimum standards for composition. You may actually get a little more medicine (in a statistically insignificant amount) than you're supposed to. Batch testing ensures uniform consistency of medicinal composition.

That means the pill you buy today is chemically identical to a similar pill you buy two years from now. But how many batches get thrown out because the sample tests don't measure up? Hopefully, not as many as used to be thrown out. But this is a critical reason for why pharmaceutical companies are interested in developing space-based facilities for mixing chemicals. The less gravity is involved, the easier it is to get uniform composition of compound substances. The fewer batches have to be thrown out.

Maybe Walgreens negotiates contracts with companies that throw out fewer batches than other companies for generic medicines. I don't know. But seeing that curious notice really set my mind to thinking. This doesn't necessarily happen every day, but I suppose we do actually have a good reason to continue going into space: it will save the insurance companies some money and increase the profits of the companies in our stock portfolios.


Anonymous Anonymous said...

I'm just a random blog reader who happened to stumble across your blog. I have worked at a Walgreens pharmacy for almost three years now. I can assure you that Walgreens LOVES generics.

When a drug is out of stock and is needed ASAP, we order it from Cardinal. For brand name medications, Cardinal charges the same as our regular warehouse order price. For generics, however, they charge Walgreens MUCHMUCHMUCH more. We still sell it to you at the regular price. The store loses money by ordering generics from Cardinal. That's why we try to keep most generics in stock OR try and get them from a neighboring store.

Hopefully that satisfies a little of your curiosity.

7:30 AM  

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