Years ago, I wrote about two very costly prescription drugs, both made from cheap, over the counter ingredients for The Health Care Blog. I also wrote a 2-page brief analysis explaining how to make your own version for a 99% discount. At the time, around 2015, a daily dose of Vimovo (Aleve and Nexium) or Duexis (ibuprofen and Pepcid) cost around $100, or about $3,000 a month. The investigative news organization, Pro Publica quoted me and this is what Marshal Allen, a Pro Publica reporter, had to say:
You can walk into your local drugstore and buy a month’s supply of Aleve and Nexium for about $40. For Vimovo, the pharmacy billed my insurance company $3,252. This doesn’t mean the drug company ultimately gets paid that much. The pharmaceutical world is rife with rebates and side deals — all designed to elbow ahead of the competition. But apparently the price of convenience comes at a steep mark-up.
How can the manufacturer of Vimovo and Duexis charge such high prices for two pain relievers made from OTC ingredients? The answer is because Mimovo and Duexis are FDA-approved drugs. Thus, health plans cover much of the cost. Patients on the two drugs are often provide copay gift cards or have copays waived. When people are insulated from the cost they don’t care about the price. However, if patients are required to pay the full cost of Vimovo and Duexis, the odds are they would opt to take the OTC pain reliever and stomach acid reducer separately to save $99 dollars a day.
Price sensitive consumers and price competition by retailers are what keep the price of OTC mediations down. However, in rare cases price competition does occur in the pharmaceutical market. The Wall Street Journal reports competition among weight loss drugs is heating up as more enter the market. The number of GLP-1 weight-loss drugs is growing and drug makers want their products on health plan formularies. In addition, many health plans limit coverage for weight-loss, forcing drug makers to compete on price if they want to attract consumers willing to pay out of pocket.
Novo Nordisk rolled out Wegovy in 2021 at a (list) price of nearly $1,350 a month. Few consumers can afford to pay $16,200 a year. Rebates reduce the list price health plans pay. In 2023 the Wegovy’s rebate was about 35% of list price. The drug is in such demand that there has been an ongoing shortage. Eli Lilly introduced a competing drug, Zepbound at a 20% discount off what Wegovy was listed for. In response Novo Nordisk increased the rebate on Wegovy to 51% of the list price. The company reports that the net price of Wegovy has fallen about 40% since its launch three years ago. The reason for the decrease in net price isn’t benevolent, it’s competition from similar drugs. In response Eli Lilly further reduced its net price for Zepbound to $750 a month. For customers who pay out of pocket, the monthly price for drug vials is $399 a month. Vials are less convenient but equally effective to the plastic auto injectors. GLP-1 weight loss drugs are peptides, which must be injected to be effective. Analysts predict that if a GLP-1 becomes available in pill form, it will be 25% cheaper than the injections.
With many GLP-1 drugs classified in shortage, compounding pharmacy are free to make their own versions, at least temporarily. Some of these have been selling for as little as $300 a month, sometimes lower. Indeed, go online and google weight loss and you will find a plethora of telemedicine website selling compounded versions of GLP-1 weight loss drugs at a steep discount. I’ve even found deals on Groupon for as little as $150 for the first month. Deals like these put a lot of pressure on the name brands to be competitive.
Why are drugs so expensive? Because consumers only pay about 10% of the cost out of pocket, on average while health plans pay 90%. Simple math suggests consumers are only about 10% as price sensitive as if they were paying the entire bill. Thus drug prices are often 10 times higher than they need be.