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I recently read an article in a pharmacy trade publication bemoaning the cheaper prices Walgreens, CVS, and other large pharmacy chains pay wholesale drug suppliers compared to their independent and small chain brethren. Even when these smaller pharmacies form buying groups that order in quantities as large as the big chains, the author says, the price cuts magically disappear.
Allow me to correct the author's misconception. The price cuts do in fact disappear, but I'd attribute it more to economics than magic.
Assume arguendo that Walgreens orders 100 bottles of Lipitor. Assume also that twenty small pharmacies form a buying group that also orders 100 bottles of Lipitor, 5 bottles per pharmacy. If you were the supplier, would you charge Walgreens and the buying group the same price? I wouldn't; here's why:
By selling 100 bottles of Lipitor to Walgreens, the supplier prepares and sends one shipment and one bill. By selling 100 bottles of Lipitor to the members of the buying group, the supplier prepares and sends twenty shipments and twenty bills. So even before the first Lipitor is sold to the first customer, the supplier has already incurred twenty times the cost of doing business with the small pharmacies versus doing business with Walgreens. Who should bear the extra cost?
1 Response to Correcting Misconceptions about Wholesale Drug Pricing
What's bizarre is that even when the government does have competition (e.g. USPS vs UPS/FedEx) they still don't bother to improve their service. They just jack up prices to protect their bottom line.
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