26 November 2011
Drug pricing by manufacturers and hospital retailers exploits the consumer
The common man continues to be pummelled by the more unscrupulous players of the banking, insurance, real estate and other sectors, and by less vigilant regulators. Another sector that can be added to this list is the health–pharmaceutical sector combine.
The heartlessness of hospitals has been all too evident in recent years. Thanks to 'modern' hospitals, General Practitioners have all but disappeared from our lives, and even for an uneasy stomach, we are constrained to visit these hospitals and pay through our nose. When two tests would suffice, six are recommended, as each test is high–margin cash for the institution. Hefty charges linked to the size of our pockets include the surgeon's charges, surgical charges and surgery charges, whatever such distinctions may mean!
All because we carry medical insurance, even though insurance companies may routinely reject many of these charges. An 85–year–old parent who breathed his last three days ago may be kept on a ventilator for three more days, because occupancy of ICU may mean more cash. And we are not even referring to the racket of referencing, involving doctors and touts alike, which is strictly a cash business in this world in which the Hippocratic Oath has been turned into a hypocritical one. All this is old hash, beyond any shock value anymore. But there is more to this industry that we should know. Most hospitals have a pharmacy on their premises, which typically sells branded medicines for outpatients, and generic drugs (which may also have brands of their own) for in–patients. Generics are identical to branded drugs in composition, but cost much less to the hospitals, because of lower marketing and distribution costs. Branded drugs are sold for the retail buyer at large, while generics are restricted to the hospitals. All drugs, branded and generic alike, are sold at the price printed on the medicine strips, but usually at 10% discount.
One would consider use of generic drugs for in–patients an excellent idea, if only these patients benefited from these lower costs of generic drugs. But, do they?
To confirm a queasy hunch, I asked a friend in a hospital for some quick data on the invoice price as well as the printed price of some typical branded medicines and their generic equivalents sold through their pharmacy.
The hospital sent the information for eight branded medicines (of their own choice) and their equivalent generics from three different manufacturers in each case. The eight drugs were Acelofenac + Paracetamol, Amoxycyllin + Clavulanate Potassium (625 mg), Cefixime (200 mg), Cephalaxin (500 mg), Pantoprazole + Domperidone, Pantaprazole (400 mg), Rabeprazole (20 mg) and Rabeprazole + Domperidone. As can be reasonably expected, the cost of the generic drugs (the invoice price) for the hospital was indeed significantly lower than their branded counterparts: on average, about one–third that of the branded medicines. Now, the big question: did in–patients benefit from the lower cost of the generic drugs? Consider this. The average selling price of six out of eight generic drugs – which on average cost the hospital only a third of a corresponding branded drug – was priced only about 6% below the price of their branded equivalents, even though the hospitals were benefiting to the tune of 66% on their costs. Taking all eight drugs together, the average price of the generics drugs turned out to be about 35% higher than that of branded drugs!
The two culprits distorting statistics here were two drugs: Amoxycyllin + and Cefixime. Paradoxically, Amoxycyllin+, the branded version of which manufactured by three different manufacturers carried a retail price of . 241, . 87 and . 108 respectively, while its generic sibling, manufactured by three other parties (not necessarily the same as before), was priced at . 260, . 270 and . 267 respectively (however, the drug priced . 87 for branded and . 270 for the generic were by the same manufacturer)! The same was true of Cefixime, for which retail prices of the branded version by three manufacturers were . 69, . 83 and . 115 respectively, while their generic counterparts were priced at . 225, . 250 and . 190 respectively!
Why were Amoxycillin+ and Cefixime priced much higher in their generic versions? Were their costs much higher? Not all. Invoice prices of the former were . 57, . 50 and . 57 respectively, while that of the latter . 50, . 43 and . 53 respectively! Worse, there are some drugs whose cost price to the hospital is a measly . 6, while its printed price is around . 90! In brief, it turns out that the average margin on the generics is nearly 400%, while average margin on the equivalent branded drugs, a more sedate 30–35%! It is not as if all the hospitals are necessarily extortionists. Even if they want to, it is not easy for them to discount a drug with a printed price of . 90 down to . 10, just because their own cost is a mere . 6. Doing so has many other repercussions, including patients suspecting the motive of the hospital and hence the quality of a drug so heavily discounted.
Clearly, this issue needs much cleaning up. Because pricing in the pharmaceutical industry makes airline pricing appear a paragon of virtue in comparison!