Legislation designed to enable pharmacists to substitute inexpensive unbranded drugs for expensive brand names, once described as a major consumer victory of the 1970s, has provided only marginal savings for consumers and major profits for drugstores, a survey of area pharmacies shows.
A Washington Post survey of chain and independent pharmacies representing three-fourths of the market in this area also reveals loopholes in local laws and paractices that in effect thwart the intention of the legislation.
Virginia law has required since 1975 that drugstores pass on savings in full to consumers. But many Virginia drugstores routinely dodge the requirements. t
In the District it is difficult to be certain that patients are receiving the drugs their doctors prescribed. For example, pharmacists don't have to tell customers that their prescriptions are being filled with cheaper unbranded durgs instead of the brand names prescribed by their physicians.
Some District pharmacies violate D.C. law mandating that pharmacies disclose price information over the telephone. In addition, pharmacies in all three jurisdictions sometimes misquote prices, citing the lower unbranded drug price instead of a brand name that was requested.
A generic drug is the nonbrand chemical equivalent of the brandname drug. Aspirin, for example, is a generic drug. Bayer Aspirin is a brand name.
The Food and Drug Administration has concluded that "there is no general difference in quality, safety or medical efficacy" between most brandname drugs and their generic equivalents. The exceptions, when they exist, are limited.
If there is a difference, the physician can write "medically necessarily" on his prescription to ensure that the patient gets what is best for him -- be it brand name or generic drugs.
Drug companies traditionally have charged higher wholesale prices -- from two to ten times as much -- for brand names than for generics. The additional revenues finance research for new drugs and pay for brand name promotions and advertising, industry officials say.
Throughout the late 1960s and 1970s political leaders both at the local level and in the federal government -- including then-secretary of Health, Education and Welfare Joseph Califano -- gained legislative support for so-called geneic drug legislation by promising that consumers would save enormous amounts of money without sacrificing medical quality.
Advocates of substitution predicted that it could save more than $500 million annually for consumers who now spend an estimated $8 billion on prescription drugs each year.
"For a rheumatic fever victim who is required to take penicillin daily for 20 years, the difference in price would be $1,650 for one [the brand name durg] versus $375 for the other [the unbranded drug]," Sen. Gaylord Nelson (D-Wis.) said in 1967 at the Senate's opening hearing on drug pricing.
What has happened instead is that drugstore markups today absorb a substantial portion of the savings originally intended for consumers. Consumers do pay less for unbranded prescriptions in most cases -- but not nearly as much less as was predicted.
"I fear that a great many consumers are being exploited," said Barbara Pequet, legislative director of the National Consumers League.
Retailers defend their markups and their profits on unbranded drugs, contending that the extra wide margins give them an incentive for stocking the cheaper drugs and provide the additional money needed to offset the cost of carrying both the generic and the name brand drugs.
"If the retailer doesn't benefit, the consumer doesn't benefit," said Myron Gerber, chairman of Drugfair, one of the three largest chains in the Washington area. The other two are Peoples Drug Stores and Dart Drug Corp.
Those three chains, which collectively have 299 and 73.7 percent of the market in the Washington are, were included in the Washington Post survey. Fifteen independently operated pharmacies -- five in each of the three local jurisdictions -- also were sampled.
Here is an example of how drugstore markup practices work today:
The brand name Librium has a wholesale price of $2.81 per 50 5-milligram capsules, when purchased in bulk by a major chain. The wholesale price for the generic equivalent is 48 cents.
To cover the cost of doing business -- electric bills, insurance, salaries -- and to make a profit, drugstores add a markup to the wholesale cost of the drug. Those two elements -- the wholesale plus the markup -- become the retail price paid by the consumer.
For the brand name Librium in this example, the chain added a markup of 96 cents, raising the price of the pills to $3.77. But for the generic equivalent pills, which cost 48 cents, the store added a markup of $2.14, for a retail price of $2.62.
The chain in this case choose to apply a narrow markup of 96 cents -- about 34 percent -- to the brand name.For the unbranded equivalent the markup was a whopping 446 percent.
A second but less visible way that the drugstores make money on generic drugs results from the smaller investment needed to acquire them.
"The company doesn't have to tie up as much in inventory for generics," said a Drugfair official, Paul S. Forbes. So even if the dollar markup on the unbranded drugs were identical to the dollar markup on the brands, the pharmacies can make a higher rate of return on generics, Forbes said.
An estimated 90 percent of prescrimptions written by doctors specifies a name brand drug, medical authorities agree. But in most states today, including Virginia, Maryland and the District of Columbia unless the doctor objects, the pharmacist usually is permitted to substitute an unbranded generic equivalent.
The laws and pricing policies in each local jurisdiction are different.
Virginia has required since 1976 that drugstores pass on the savings to the consumer in full. But many drugstores in the Northern Virginia sububs routinely get around the requirement by telephoning the prescription customer's doctor and asking for a new one for the generic drug.
Explains Drugfair's Gerber: "That allows us to charge our usual and customary [unbranded] price" with the higher markup than would be allowed otherwise. Virginia State pharmacy director James Thomson said he was surprised to learn of this practice but said he believed it would be permissible.
In the District of Columbia, under a 1977 law, pharmacies are required to dispense the lowest-priced generic equivalent available in their stores. They are not required, however, to stock any generics, if they choose not to. There are no rules on how much their markups on generics can be.
Maryland, which has allowed substitution since 1977, required drugstores to pass on the entire savings, just as Virginia does today. But the Maryland law was revised last year and now says only that stores must charge less for the unbranded equivalents. How much less is not specified.
The law in Maryland was changed because stores, faced with the old mandate to pass on all of the savings to consumers, were not stocking unbranded generic substitutes.
Gerber calls the Maryland law to day "the best of all possible worlds -- because everybody is getting something. The consumer enjoys significant savings and the store enjoys better profits."
Chain drugstores sometimes charge more for drugs sold at their District of Columbia outlets than at their stores in suburban Maryland and Northern Virginia. A prescription for 50 5-milligram chlordiazepoxide, 5 common unbranded tranquilizer, sells for $2.85 at seven Drugfair stores in the District. The same prescription is 30 cents less at Drugfairs across the state line in Maryland and Virginia. A Drugfair spokesman said the 30-cent surcharge is necessary to defray the higher cost of doing business in District office buildings.
Prescriptions for the same drug cost nearly twice as much at some drugstores as at others, which makes it possible for customers to save money by shopping. The brand name antibiotic V-Cillin-K sells for $4.95 at Hawthorne's, a pharmacy in Vienna. Compared to $7.95 at the Alexandria Medical Arts Pharmacy, about 10 miles away.
Brand name drugs occasionally cost less at some pharmacies than the unbranded drugs at others. A prescription for Librium sells for $3.18 for 50 5-milligram capsules at Giant Pharmacies. That is slightly less than the $3.30 price that Peoples Durg Stores charge for the unbranded generic tranquilizer chlorodiazepoxide.
Contrary to District law mandating that pharmacies disclose price information over the telephone, some refuse to do so. The professional Pharmacy, 2917 Georgia Ave. NW, has a policy against giving price information over the phone because "customers misread their prescriptions and then when they come into the store they say the price they got on the phone was different from the one we charged them," said Martin Gibson, the pharmacy owner. Asked if he was aware of the legal requirement to disclose prices over the phone, Gibson hung up.
Pharmacies in all three jurisdictions sometimes misquote prices, citing the lower unbranded drug price instead of the brand price requested. The Apothecary, 5415 Cedar Lane, Bethesda, said its price was $5.90 for a prescription for V-Cillin-K. Asked for the price for the unbranded substitute, the pharmacy clerk left the telephone line for a moment and the returned, saying that the $5.90 price was for the unbranded generic. The clerk said the store didn't have any V-CillinK.
Unbranded drugs are more readily available at some pharmacies than at others. In the past, for example, Peoples Drug Stores did not substitute drugs aggresively in the District of Columbia, because of the pass-through savings requirement.
However, the chain has begun a major effort to increase its generic drug sales. The Peoples campaign includes stocking its stores with a "Consumer's Guide" to prescription information listing the generic and brand names of about 200 common drugs, the purpose of the drugs and any side effects they may have.
Other pharmacies, meanwhile, have been advertising unbranded drugs heavily all along. Giant Pharmacies has been among the most active in stocking and promoting generics. The chain's most recent ads boast of a 44 percent savings on genenrics, compared to its brand names.
Morris Bartnick, vice president in charge of Pharmacy services for the 25 Giant drugstores, said the company has passed on savings to consumers in compliance with local laws.
In fact, Giant's reputation for willingness to sell unbranded drugs is noted even among its competitors. One pharmacist at a Peoples Drug Store in Gaithersburg, when asked for the price of a particular drug, said she didn't have it.
"But you might call Giant," she said. "The substitute for anything."