If a company offered “prescription drugs for $4,” you’d probably think it was a scam — like some Internet pharmacy importing fake Viagra from Bangladesh. After all, it sounds just too good to be true. But $4 drugs are now available across the country. And they’re being sold, not through fly-by-night web sites, but by top-name retailers like Wal-Mart and Target.
While the prices seem unbelievable at first glance, consumers are discovering there?s no catch.
What?s behind this dramatic price decline? Did Congress solve the problem somehow? Did legislators finally impose price controls on the drug market, as so many have been clamoring to do?
Actually, the plummeting prices have absolutely nothing — zero, nada, zilch — to do with politicians, bureaucrats, legislation or regulation.
Rather, the cheap drugs are simply the result of private-sector competition.
Anyone who still believes that government “negotiations” — or price controls — are the solution to the high cost of drugs should take a trip to the local Wegman’s, BJ’s, Target or Wal-Mart. There’s never been a better example of how market competition lowers prices on a scale — and with an effectiveness — that blows away any government solution.
Here’s what happened.
Realizing that there was an enormous unmet demand for cheaper prescription drugs, Wal-Mart announced that it was dropping its prices on hundreds of generic drugs to only $4 for a 30-day supply.
The giant retailer initially offered the discount plan only as a pilot program in Florida. But the positive response was overwhelming: In the first 10 days alone, Wal-Mart took in more than 88,000 new prescriptions. The discounts were so successful at driving sales volume that the company has rushed to expand the program to all of the other states.
Not to be outdone, other stores quickly followed suit. Target has already lowered prices –and announced that it will match Wal-Mart?s discounts.
Two other large retailers –Wegman?s and BJ?s — have slashed prices as well.
Medco, which provides drugs through the mail, said that it will start offering mid-size businesses a 90-day supply of generic drugs for about $10.
Meanwhile, some regional retailers — such as Giant Eagle and Meijer — have taken it one step further. They’re offering free prescriptions on certain antibiotics and cold remedies.
Competition between stores produced this drug bonanza for U.S. customers.
Those who say that the United States should adopt a Canadian-style single-payer system should take note that none of this would have been possible up north.
When developing a new drug, the largest cost — by far — is the research involved in designing and then testing the new compound through rigorous and expensive clinical trials to make sure it works and is safe.
These new, patented drugs are pricier because companies must recoup not only the costs of manufacturing the drug but also their significant investments in research and development. But this investment is the reason we even have the drug in the first place.
Companies generally have about 10 to 12 years to sell the new drug themselves before the patent expires. After that, the company must make its formulas available to generic manufacturers. These companies then can just stamp out generic versions of the pills, using the formula that might have cost a billion dollars for the brand-name pharmaceutical company to develop.
Because the U.S. market it relatively free from government price controls, it is profitable to develop new cures. And it’s also profitable to produce generics once the brand-name patents expire.
By contrast, Canada’s drug industry is swamped in government red-tape. It’s true that some Canadian drugs are artificially cheaper because they are sold under a strict regimen of price controls. But it’s also true that many of the newer, most advanced drugs aren’t available to Canadians, as rationing is the inevitable side-effect of price controls.
Meanwhile, generics in Canada are often more expensive than in the United States because Canadians pay a surcharge to subsidize their generic manufacturing industry.
Nevertheless, some members of Congress insist that the U.S. health care system — including the new Medicare prescription drug program — should be federalized like Canada’s.
Apparently, they don’t shop at Wal-Mart.
Grace-Marie Turner is president of the Galen Institute, a non-profit research organization in Alexandria, VA, that specialized in consumer-centered health reform. She can be reached at email@example.com or at P.O. Box 19080, Alexandria, VA 22320.