Paying The Price: An Analysis of Prescription Drug Prices in California and 19 other states

2004-03-31

Executive Summary

From seniors trekking to Canada for affordable prescriptions to labor strikes over healthcare benefits, headlines across the country are dominated by stories about the effects of soaring healthcare and prescription drug prices. The prescription drug was has hit the prime time because members of the public have decided to fight back against the astronomical rise in drug prices.

Yet, as consumers struggle to manage the weight of their massive drug bills, the pharmaceutical industry remains the most profitable industry in the world. Drug companies continue to heavily promote their most expensive, big name drugs and rely on litigation and Congressional action to delay the entrance of more affordable generic competition.

These tactics hit the uninsured and underinsured populations hardest. While the federal government is able to use its buying power to negotiate fairer prices for its beneficiaries—including veterans, government employees and retirees— the un- and underinsured have no one negotiating on their behalf. They remain at the pricing whim of the pharmaceutical industry.

Frustrated by years of gridlock at the federal level and facing their own escalating drug costs, states across the nation are now starting to fill that negotiating role for their citizens by establishing state-run buying pools and using their buying power to achieve fairer drug prices for uninsured or underinsured consumers of all ages.

The need for state governments to act to lower drug prices has never been greater. The prices of the 50 most popular drugs rose three times higher than the rate of inflation in 2001. As drug prices have climbed, some employers have dropped or reduced the prescription drug coverage offered to their employees. The recent wave of corporate bankruptcies and layoffs has left many consumers without any health insurance at all. Medicare recipients—seniors most likely to take prescription medications—still lack meaningful prescription drug coverage. The new Medicare Reform Act fails to address the root cause of skyrocketing costs of prescription drugs. It also includes substantial premium and deductible requirements and limits the federal government's ability to negotiate better prices on recipients' behalf.

In the spring of 2003, the National Association of State Public Interest Research Groups (PIRGs) conducted a survey of more than 500 pharmacies in 18 states and Washington, D.C. to determine how much uninsured consumers are paying for eight common prescription drugs. In the fall of 2003, prices from 50 California pharmacies were added to the national survey. The authors then compared these prices with the prices pharmaceutical companies charge one of their most favored customers, the federal government.

In each of the surveyed locations, researchers found that uninsured citizens are paying much more than the federal government for these eight common prescription medications. Among the key findings from this survey:

Nationally:

- Based on the results of our 20-state survey, uninsured Americans pay on average 68% more than the federal government for these eight common prescription medications. The price differences ranged from 35% for Celebrex to 110% for K-Dur 20.

- Many of the drugs featured in the PIRG survey treat chronic conditions—meaning that the percent difference between the retail and the discounted prices quickly adds up because patients are continually refilling prescriptions. An uninsured person regularly taking Zocor for his high cholesterol, for example, would pay at least $1,672 for a year's supply of Zocor. The government, on the other hand, must pay only $814 for the same quantity of Zocor—a savings of $858.

- Prices varied sharply amongst surveyed regions. Prescription drugs cost substantially more for uninsured consumers in the urban areas in the Northeast, California and the Middle Atlantic states; somewhat less in the Midwest and Mid-South; and substantially less in the Southeast and South/Southwest.

- Of the major metropolitan areas surveyed, the four most expensive cities in which to buy medication were Baltimore, San Diego, Washington, D.C. and Philadelphia. Prescription drugs were least expensive, but still significantly above the federal supply price, in New Orleans, Denver, Grand Rapids, Tampa and Houston.

Statewide:

- Based on the survey of pharmacies in Sacramento, San Francisco, Fresno, Los Angeles and San Diego, uninsured consumers in California pay 72% more than the federal government for the eight common prescription medications. This is higher than the average found across the 20-state survey sample.

- The price differences ranged from 39% for Celebrex to 111% for Norvasc. This means that Californians without prescription drug coverage suffering from hypertension pay more than twice as much as the federal government for Norvasc.

In Sacramento:

- On average, uninsured consumers in Sacramento pay 69% more than the federal government for the eight common prescription medications. This is slightly higher than the average found across the 20-state survey sample, but slightly lower than the California average.

- The price differences ranged from 39% for Celebrex and Plavix to 110% for Norvasc. This means that Sacramento residents without prescription drug coverage suffering from hypertension pay more than twice as much as the federal government for Norvasc.

In San Francisco:

- On average, uninsured consumers in San Francisco pay 73% more than the federal government for the eight common prescription medications. This is higher than the average found across the 20-state survey sample.

- The price differences ranged from 40% for Celebrex to 110% for Zocor. This means that San Francisco residents without prescription drug coverage suffering from high cholesterol pay more than twice as much as the federal government for Zocor.

In Fresno:

- On average, uninsured consumers in Fresno pay 73% more than the federal government for the eight common prescription medications. This is higher than the average found across the 20-state survey sample.

- The price differences ranged from 40% for Celebrex to 125% for K-Dur 20. This means that Fresno residents without prescription drug coverage suffering from potassium deficiency pay more than twice as much as the federal government for K-Dur 20.

In Los Angeles:

- On average, uninsured consumers in Los Angeles pay 69% more than the federal government for the eight common prescription medications. This is slightly higher than the average found across the 20-state survey sample, but along with Sacramento, slightly lower than the California average.

- The price differences ranged from 37% for Celebrex and Plavix to 110% for Prevacid. This means that Los Angeles residents without prescription drug coverage suffering from acid reflux disease pay more than twice as much as the federal government for Prevacid.

In San Diego:

- On average, uninsured consumers in San Diego pay 78% more than the federal government for the eight common prescription medications. This is significantly higher than the average found across the 20-state survey sample and the highest average found in the state.

- The price differences ranged from 41% for Celebrex to 147% for K-Dur 20. This means that San Diego residents without prescription drug coverage suffering from potassium deficiency pay more than twice as much as the federal government for K-Dur 20.