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Cover Story April 26th, 2007

  Untitled Document


It’s the secret the drug store chains don’t want you to know about. Their wholesale cost for prescription drugs are minimal. The markup they add when they sell them to you is phenomenal. It is not un-common to see markups of 2000, 3000, even 5000%!

With the skyrocketing costs of prescription medications, more and more people are turning to generic medications to try to save a few dollars. They are medications that, in some cases, cost the drug store chains only pennies. So why are those savings not being passed on to consumers?

The Paper has undertaken an independent study of costs on the generic brands of commonly purchased prescription drugs. We will show you who is charging what for the prescription drugs you are likely to be using. You be the judge as to whether you’re being gouged or not. The facts pretty much speak for themselves.

In analyzing these figures to set this study, we turned to several well-respected news organizations to use as a model. They had conducted their own separate and independent investigations.

Steve Wilson, an investigative reporter for Channel 7 News (WXYZ) in Detroit, did a story on generic drug price gouging by pharmacies.

Generic drugs are just as safe and effective as their brand-name counterparts but they cost only a fraction as much. That is because companies that produce the generic versions simply copy the formula developed by the drug's inventor years before and whose patent has expired. Wilson found in his investigation that some of these generic drugs were marked up as much as 3,000% or more. Yes, that's not a typo - three thousand percent! We found even higher.

So often we blame the drug companies for the high cost of drugs, and usually rightfully so. But in this case, the fault clearly lies with the pharmacies themselves.

For example, if you had to buy a prescription drug, and bought the name brand, you might pay $100 for 100 pills. The pharmacist might tell you that if you get the generic equivalent, they would only cost $80, making you think you are "saving" $20. What the pharmacist is not telling you is that those 100 generic pills may have only cost him less than $5!

How High Are the Markups and Who Pays?

While your drugstore charges you less for a generic drug than a brand name version, that price difference is nothing compared to the markup most druggists place on the generics. Your pharmacy most likely paid a wholesale price of only pennies for that generic medicine. They then charge you a markup of 3,000%, 4,000%, even 5,000% or more, pocketing most of your savings

Who's paying sky-high prices? People who can least afford to get ripped off - the elderly, the unemployed, and everybody who has to pay for their prescription medicine out of their own pocket. People who often have to cut back on food so they can afford their medicines, people who sometimes cut their pills in half, to economize!

Wilson, in an interview with a Detroit pharmacist said, "You pay $2.16 for Prozac and you sell it for $92!"

Longs, Sav-On and Walgreen’s are still pocketing some of the biggest profit margins in town. And now, as then, the big drug chains like Longs have the cost of generic Prozac marked up at least 55 times what the drug cost wholesale. It is a 5,710% markup. And in our survey of more than a dozen popular generic drugs, Longs leads the pack with average markups of 1,643%, Rite-Aid is close behind with 1,446%, Sav-On is just a shade behind at an even 1,313%. Walgreen’s is at 1,295% and Costco, clearly the least expensive, with the least markup of those pharmacies studied, comes in at 287% average markup.

You can go to the Costco website and get its online price. It says that the in-store prices are consistent with the online prices. We found that to be generally true, with some minor variance from store to store.

Although we can't guarantee that Costco always has the lowest prices on generic drugs, it is generally true that their pharmacy does have the lowest percentage of markup and will fill prescriptions for non-members (but be prepared to pay by cash or ATM card rather than check).

Though Costco is a membership store, you do not have to be a member to buy prescriptions there, as it is a federally regulated substance. You just tell them at the door that you wish to use the pharmacy, and they will let you in. The same is true of Sam’s Club.

Remember, shopping can make a big difference. For 60 pills, a popular diabetes generic prescription, Metformin, costs nearly $43 at Rite-Aid, $39.95 at Longs, $39.69 at Sav-On, $31.99 at Walgreens, and only $10.79 at Costco. That’s a difference of $32.21 from top to bottom. Take Prozac, as another example. The generic for this drug cost $74.95 at Longs. The same generic drug cost $44.69 at Sav-On, $41.99 at Walgreen’s, $34.99 at Rite-Aid but only $6.59 at Costco! That’s a difference of $68.36 for exactly the same generic drug, in the exact same dosage and exact same number of pills! The strong suggestion is made by the experts that you need to shop around when it comes to buying prescription drugs. First, they say, be sure you know exactly what your prescription is, the amount of pills needed and their strength. And don't be afraid to haggle with the price, most pharmacists can negotiate.

“But,” say the pharmaceutical firms, “we’re only charging what we need to in order to recover the heavy costs of investment in research and development to give the public these miracle drugs.”


At the top 10 pharmaceutical firms, one-and-a-half times as much money was collected in profit in 1998 as was put into research and development, according to independent reports. The prescription drug business was ranked the most profitable industry in 1998 by Fortune Magazine -- and the industry's huge profits exist after R&D costs are paid. CEOs of the top 10 pharmaceutical companies last year averaged $20 million each in annual compensation, including stock options, and together held nearly $1 billion in stock options.

"The pharmaceutical giants are generating their profits on the backs of America's seniors," said Frank Clemente, Director of Public Citizen's Congress Watch. "The drug companies are resorting to price-gouging California seniors to enhance their unnaturally high profits."

The pharmaceutical industry doesn't find it necessary to charge everyone high prices, however. Foreign customers get U.S.-made drugs at a fraction of the price paid by American seniors because their governments negotiate fair prices with prescription drug makers. Many seniors are forced to travel to Mexico or Canada to get reasonably priced medication. However, within the past several years The Paper ran a cover story detailing some of the nightmarish treatment American consumers can experience by trying to buy prescription drugs in Mexico.

Slowly but surely the national, regional, and now, local media, have taken an interest in this price gouging. CBS’s “60 Minutes” in one of its profiles pointed out that so many consumers were sick of being gouged by pharmacies and pharmaceutical companies that they were chartering buses and going up to Canada for the sole purpose of buying prescription drugs. Canada is a long bus ride from North San Diego county but we sure prefer dealing with our northern neighbors to trying to buy prescriptions in Mexico (see the issue of 8/12/04 to see why “Guilty, Until Proven Innocent” You can review back copies of The Paper at our website:

The state of Illinois has announced it will help its residents buy drugs from Canada, and Vermont announced it's going to sue the Food and Drug Administration (FDA) for the right of its citizens to buy drugs in Canada.

It may come as no surprise that the pharmaceutical industry is the most profitable business in America. American drug prices are the highest in the world, so more than a million Americans now buy their medications in Canada.

Mayors and governors from North Dakota to Alabama are helping their citizens get Canadian drugs by mail. Such purchases are technically illegal, but so far, the federal government has declined to prosecute.

But the FDA has raised the specter of safety and has been waging a campaign against Canadian importation.

From “60 Minutes”:

"That's a lot of hooey. There is no reason that buying drugs in Canada is any less safe than buying them in the United States," says Dr. Marcia Angell, who was executive editor of The New England Journal of Medicine for 11 years. She's just published a book called "The Truth About the Drug Companies."

"Pfizer, for example, has manufacturing sites in 32 countries. So the drugs are made all over the world. They're sold all over the world."

Familiar drugs like Zocor, Nexium, and Prevacid are the same as the ones sold in Canada. They're much cheaper there because the drug companies must abide by Canadian government price controls.

Do the drug companies still make a profit?

"Oh, sure. Why else would they sell them in Canada? They're not charities. Of course they make a profit," says Angell.

The United States is the only industrialized country without some form of control on the prices of drugs. The U.S. also accounts for more than half of the industry's profits.

One Canadian pharmacy, “60 Minutes” pointed out, supplies drugs to municipal workers in the city of Springfield, Mass., through a program set up by former Springfield Mayor Michael Albano.

When Albano was faced with a budget crunch last year, he had to lay off firefighters, police officers, and teachers. By arranging for 3,000 city employees, retirees, and family members to buy Canadian drugs, the city can make substantial savings.

"We can save anywhere from $4 to $9 million on an annual basis if I get everybody enrolled and everybody goes to Canada. And that's a huge amount of money right now," says Albano. "If I can save $9 million for my city and put it back, redirect it back into police and fire and to public education, it'll make a world of difference. So it's a huge savings."

Does he do it himself?

"I do it for my family's use. My son Mikey is diabetic. And we get his insulin and related products for diabetes from Canada," says Albano.

The FDA says importing drugs from Canada or buying drugs from Canada is unsafe. Does Albano agree?

"The American public is not buying that safety issue. The fact is that it is getting insulting for the FDA to say that. I view myself as a responsible father," says Albano. "And I could tell you that I would not let my son inject insulin into his body three times a day if I thought there was a safety factor here."

"The FDA has become a pawn of the pharmaceutical industry, that they are protecting those high profit margins. If the FDA wanted to put a plan together similar to what we're doing in Springfield, that would be good for all Americans, they can do it in 15 minutes, relative to safety," says Albano.

"We get all our medications from certified, regulated pharmacies in Canada. It's no different than going to your neighborhood pharmacy. And it's the exact same medication."

So what would motivate the FDA, which is not in the business of profiting from drugs, to put out an alarm about Canadian drugs?

"The influence of the pharmaceutical industry on our government is huge. And the FDA is a part of the executive branch of the government. And this is just the propaganda that's put out to do the drug company's bidding, to make sure that Americans don't have access to cheaper drugs," says Angell.

"Because then they'll come to know what's going on. And what's going on is that these drugs, while they're made by global companies all over the world, are sold in this country for about double what they're sold for everywhere else. And that they wanna keep secret."

Of course, the whole controversy over Canadian drugs would be moot if Republican Congressman Dan Burton of Indiana had his way, says “60 Minutes.” During the recent debate over the Medicare bill, he co-sponsored a provision that would have legalized bringing in Canadian drugs with safeguards.

But Burton says he ran into two brick walls: the drug industry and the U.S. government: "This is a perfect example, in my opinion, of where a special interest, the pharmaceutical industry, has been able to manipulate the Congress and the government of the United States to their benefit, and to the detriment of the American taxpayer and the American people."

Since 1999, the drug industry has given more than 45 million dollars in political contributions, and it's spent hundreds of millions more on an army of more than 600 lobbyists to work its will on Capitol Hill.

Congressman Burton says the new Medicare act makes it clear the industry got its money's worth. He says billions of dollars are in it for drug companies in this new Medicare Prescription Drug Benefit.

"In the new Medicare Act, the federal government is specifically prohibited from negotiating prices with drug companies," says Safer.

"That is unconscionable. The government of the United States negotiates prices in the Defense Department, in every area of government," says Burton. "And here we are, going to spend billions and billions and billions and probably trillions of dollars on pharmaceutical products. And we cannot negotiate the prices with the pharmaceutical industry. That's just not right."

Surrounded by members of Congress, President Bush signed the new Medicare Act in December of 2004. Since 1999, these legislators have accepted more than a million and a half dollars in campaign contributions from people working in the pharmaceutical industry. President Bush alone has received more than half a million dollars.

But now, the new Medicare prescription drug benefit is being billed as a big victory for America's seniors.

"You gotta be kidding me," says Burton. "Seniors, when they find out what's in that bill, are gonna be very angry."

Does Burton think the plan, that was implemented in 2006, will reduce the attraction of importing drugs from Canada?

"Oh, I don't think so," says Burton. "Because even when you talk about the discount cards and the other things, you're gonna find that seniors are gonna be paying, in many cases, more than they are paying for Canadian imports right now."

"This is a kind of blackmail. What they're saying is, 'Don't mess with us. Let us charge whatever we want for our drugs. Otherwise, you won't get the miracles," says Angell. "And the truth is that they spend less in R&D than they make in profits. And far less than they spend on marketing. And they don't make that many miracles in the first place … The problem is that we're no longer getting our money's worth."

Adds Albano: "The pharmaceutical industry is gouging the American consumer. There's no other conclusion one can draw. And why should we, in this country, have to pay the highest prices in the world? Why isn't the president doing something? Why isn't Congress doing something? Someone has to wage this battle. So we're prepared to do it here."

And so are others. Since “60 Minutes” first broadcast this story, at least five more cities and two states are helping people buy drugs from Canada.

So what can we do locally?

First, do some comparison shopping whenever you are buying prescription drugs.

Secondly, the pharmaceutical industry, including the pharmacy associations as well as the major drug companies, all have highly paid lobbyists who wine and dine and charm your legislators into supporting their monopoly. But lobbyists don’t have the vote. You do. And you have a telephone, perhaps a computer with access to the Internet, and you have writing materials and postage. You probably have friends and relatives as well, who have the same concerns about paying too much money for prescription drugs, just as you do.

You need to get busy and contact your legislators. You may even want to send them a copy of this edition of The Paper.

Legislators are political people. They respond to their constituency. If enough of the electorate contact them and let them know they’re unhappy about something, all that wining and dining from the lobbyists goes for naught. The legislator knows s/he must listen to the constituency if they are to both remain in office and remain an effective legislator.

Here’s how to contact them:

Federal Legislators

U.S. Representative Brian Bilbray
District Office
Christy Guerin, District Director
462 Stevens Avenue, Suite 107
Solana Beach, CA 92075
Phone: 858-350-1150
Fax: 858-350-0750
Washington D.C. Office
U.S. Representative Brian Bilbray
227 Cannon House Office Building
Washington, D.C. 20515
Phone: 202-225-0508
Fax: 202-225-2558

Barbara Boxer - Democrat
619 239 3884
Caridad Sanchez, District Caridad_Sanchez@boxer.senate.gov

Diane Feinstein - Democrat
619 231 9712
202 224 9629 (Washington)
District Director: James Peterson

Bob Filner - Democrat
Humberto Peraza, District Director

Darrell Issa - Republican
760.599 5000
FAX: 599.1178
Attn: Phil Paule - District Director

State Legislators

Governor Arnold Schwarzenegger
State Capitol Building
Sacramento, CA 95814
Phone: 916-445-2841
Fax: 916-445-4633

Senator Mark Wyland
1910 Palomar Point Way, #105
Carlsbad, CA 92008
Phone: (760) 931-2455
Fax: (760) 931-2477
District Director: Paul Webster
Sacramento office:
State Capitol #4066
Sacramento, CA 95814
Phone: (916) 651-4038
Fax: (916) 446-7382

Assemblyman Martin Garrick
Carlsbad District Office
1910 Palomar Point Way
Suite 106
Carlsbad, CA 92008
Phone: (760) 929-7998
Fax: (760) 929-7999
Capitol Office
State Capitol
Room 2016
Sacramento, CA 95814
Phone: (916) 319-2074
Fax: (916) 319-2174

Assemblyman George Plescia
760.434 7930
email: George.plescia@sen.ca.gov
FAX 760.434 8223

You may also wish to contact the pharmacies we contacted for this study and ask them how they justify such high markups and ask for the names, phone numbers and addresses of the corporate officials and offices.

They are:

Drug Stores Serving Escondido, San Marcos, Valley Center

Costco 480 9932
Walgreens 839 7932
Long’s 738 9835
Rite-Aid 737 7455
Sav-On 489 1505

You may wish to explore on-line shopping and purchase of prescription drugs. We have no recommendation to make for or against at this point as we have not had the time nor opportunity to research the issue. That may be one of our next special reports.







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