Have you ever been outraged by drug prices at your local pharmacy, such as a Walgreens or CVS? Then, you walk across the street to another pharmacy and find that same drug at a much lower price? What a relief! But, also, what an outrage! Why are drug prices so drastically different at pharmacies located just a stone’s throw away from each other?

The generic version of the cholesterol drug Lipitor, called atorvastatin, can cost $9 at a Walmart in your town, but $226 at the local Walgreens.

For brand-name drugs, prices can also vary. Thirty pills of Januvia, which treats type 2 diabetes, sell for about $573 at one pharmacy but $477 at another. At a Canadian pharmacy, the same amount of Januvia can cost $128.98. That’s over a 70% discount for the exact same medication.

SAVINGS TIP: Try your local mom & pop pharmacies to see if they’ll give you a better price. You can actually negotiate your medication prices at these local, independently-owned pharmacies.

As you can see, the prices are all over the place for both generic and brand-name drugs. This is the reality for many Americans seeking affordable medication. But what is it all about?

Reasons Why Drug Prices Vary at Different Pharmacies for the Exact Same Medication

The short answer is that pharmacies can charge what they want for a prescription drug. Some pharmacies will seek the highest profit possible on a drug and others won’t.

Lack of Government Regulation Leads to Lack of Uniformity

Drug price variations as jarring as those found at your local pharmacies are unique to the United States, and generally not found in other high-income countries, and most countries worldwide. Prescription drug prices are far more uniform outside the U.S. due to government regulations.

Huge price discrepancies at U.S. pharmacies are result of the fact that our market is relatively unregulated. Government programs, such as Medicaid and the Veteran’s Health Administration do have cost controls, which means far lower prices in those programs. Those regulations don’t’ apply to Medicare, the private health insurance market and, of course, the uninsured.

The Cost of Doing Business

There are also commonsense reasons for drug price variations, similar to those of other businesses. They reflect the costs of doing business, such as rent, insurance, salaries, professional services and, last but certainly not least, the prescription drug acquisition costs. For a pharmacy to make a profit, or even stay in businesses, it understandably has to sell drugs at a markup over the wholesale acquisition cost of those drugs.

Co-Pays and The Complicated World of Insurance and Pharmacy Benefit Managers (PBMs)

People usually have no idea how much their medicines actually cost because they only make co-payments for their prescription drugs.

The real drug prices are initially set by the drug companies that make them. These are called list prices. List prices are paid by wholesale pharmacies (Wholesale Acquisition Costs). But for most medicine purchases at your local pharmacy, lower prices are negotiated by pharmacy benefit managers (PBMs) on behalf of health insurance companies. The results of those negotiations end up determining the price charged to your health insurance company, which in turn determines your actual payment at the pharmacy counter. Each PBM has a drug formulary that will show you what your co-pays or co-insurance will be on a particular drug. Co-pays are usually broken out into Tiers:

          Tier 1, mostly generics: $0 to $25
          Tier 2, “preferred” brands and expensive generics: $15 to $50
          Tier 3, “non-preferred” brands: $25 to $150
          Tier 4, specialty drugs, often called biologics: usually require co-insurance payments 10 to 60% of costs

You can see the actual price paid by your insurance company on your monthly statements that are sent. Some people—about 30 million Americans and millions more whose insurance doesn’t cover a particular drug—are exposed to the full force of these list prices and the markups charged by pharmacies. That’s when shopping around, domestically and internationally, can really save people money.

Lack of Transparency in the Drug Price Market

Lack of transparency is a major cause of the price differentials. For example: you don’t know how much the PBM made off of your transaction because that information is confidential. You also have no idea what the actual acquisition costs were for the pharmacy. Worst of all, perhaps, not everyone knows that they could potentially pay $9 at a Walmart down the street instead of the $225 they were quoted at the Walgreens pharmacy counter, as is the case for generic Lipitor (atorvastatin).

Because they do not have generic drug competition, brand-name drugs are not just expensive for patients, but also expensive for the pharmacy to acquire. That usually means low profit margins for pharmacies – but high profit margins for drug companies.  These prices also vary between pharmacies because PBMs again negotiate a discount for the insured.

Pharmacies generally make much higher profit margins on generic drugs. That’s because there are many manufacturers producing the same medication. The cost of these generic versions is much lower for pharmacies and allows more room for price fluctuation between pharmacies. Returning to the example at the beginning of this post: this is why atorvastatin can be $100 or $10 for the same amount. Both pharmacies could acquire it from a wholesaler for $5. One could mark it up by $5, the other by $95. That’s why its critical to shop around for your generic drugs!

Lower Drug Prices in Canada and Other Countries

Due to different types of government regulations in Canada and other countries, prices are usually much lower, especially for brand-name drugs.

Let’s look at those same drugs from before when compared to prices at online pharmacies that only dispense medication from Canada:

The drug prices above aren’t even the cheapest prices you can find through verified online pharmacies—those are just from Canadian pharmacies. You can find even lower prices in other countries from verified pharmacies, ones located in Australia, Turkey, India, Mauritius, New Zealand, Singapore, and the U.K.  

You may be interested in reading our Ask PharmacyChecker answers:

Why are drug prices so high in the U.S.?

Is medicine in Canada cheaper?