The Price May Not Be Right: The Value of Comparison Shopping for Prescription Drugs

Price shopping for medications within a small geographic area can yield considerable cost savings for uninsured and insured consumers in high-deductible health plans.
Published Online: July 28, 2017
Sanjay Arora, MD; Neeraj Sood, PhD; Sophie Terp, MD; and Geoffrey Joyce, PhD
ABSTRACT

Objectives:
To measure variations in drug prices across and within zip codes that may reveal simple strategies to improve patients’ access to prescribed medications.

Study Design: We compared drug prices at different types of pharmacies across and within local markets. In-store prices were compared with a Web-based service providing discount coupons for prescription medications. Prices were collected for 2 generic antibiotics because most patients have limited experience with them and are less likely to know the price ranges for them.

Methods: Drug prices were obtained via telephone from 528 pharmacies in Los Angeles (LA) County, California, from July to August 2014. Online prices were collected from GoodRx, a popular Web-based service that aggregates available discounts and directly negotiates with retail outlets.

Results: Drug prices found at independent pharmacies and by using discount coupons available online were lower on average than at grocery, big-box, or chain drug stores for 2 widely prescribed antibiotics. The lowest-price prescription was offered at a grocery, big-box, or chain drug store in 6% of zip codes within the LA County area. Drug prices varied dramatically within a zip code, however, and were less expensive in lower-income areas. The average price difference within a zip code was $52 for levofloxacin and $17 for azithromycin.

Conclusions: Price shopping for medications within a small geographic area can yield considerable cost savings for the uninsured and consumers in high-deductible health plans with high negotiated prices. Clinicians and patient advocates have an incentive to convey this information to patients to improve adherence to prescribed medicines and lower the financial burden of purchasing prescription drugs.

Am J Manag Care. 2017;23(7):410-415
Takeaway Points

The high costs of prescription drugs and lack of price transparency suggest that many patients might be overpaying for medications. We found that: 
  • Drug prices were lowest at independent pharmacies and when using online coupons compared with grocery, big-box, or chain drug stores. 
  • The average price difference within a zip code was $52 for levofloxacin and $17 for azithromycin. 
  • Medications were less expensive when purchased in lower-income areas. 
Clinicians and patient advocates have an incentive to convey this information to their patients or members to improve adherence to prescribed medicines and lower the financial burden of purchasing prescription drugs. 
Consumers typically know the price of a product and have some information about its quality before purchasing. This information makes comparison shopping possible and is a key tenet of well-functioning markets. However, healthcare markets are different. Patients rarely know the price of a medical product or service before using it and sometimes even after the service is provided.

A lack of price transparency and difficulty in assessing its quality are the likely key reasons the price of medical care varies so widely. A primary care doctor visit in San Francisco ($251) is twice as expensive as in Miami ($95), and a lipid panel in Pittsburgh ($19) is one-fourth of the price in Indianapolis ($89), which is just a fraction of the cost in Dallas ($343). Even within the same market, New Yorkers seeking magnetic resonance imaging (MRI) can pay anywhere between $416 and $4527 for the same service.1

Although millions of Americans gained coverage through the Affordable Care Act (ACA), more than 32 million consumers remain uninsured and exposed to the full cost of services.2 Many of the uninsured are low-income consumers, who lack coverage as a result of states’ decisions not to expand Medicaid under the ACA. In addition, an increasing number of Americans are enrolled in health plans with high annual deductibles and face potentially high out-of-pocket costs. Four of 5 workers who now receive insurance through an employer pay a deductible, and 1 in 5 faces a deductible of $2000 or more.3 Plan members can purchase covered medications at a negotiated rate that might not vary much across in-network pharmacies; however, the plan’s negotiated price can be significantly greater than what consumers would pay using a store’s proprietary discount card or with online coupons. As such, both the uninsured and an increasing number of insured consumers have incentives to use price information and discount programs to comparison shop for their prescription medications.

Several states have passed laws and private-sector initiatives are underway to encourage or require greater price transparency for medical services.4 Recent work suggests that providing employees with price information is associated with lower total claims payments for common medical services.5 In this paper, we examined the potential benefit of comparison shopping for prescription drug prices and pharmacy characteristics that patients should consider when shopping for medications. Prescription drugs provide a good test case because, unlike most medical services, the quality of the product is constant across providers, making it easy for patients to comparison shop. Further, the market for prescription drugs is generally local: the majority of Americans live within 5 miles of a pharmacy and about 80% of the population uses only 1 pharmacy for outpatient prescriptions.6 We compared drug prices from different types of pharmacies (ie, chain drug stores, independent pharmacies, grocery stores, big-box stores) within local markets and described how they compare with the prices of Web-based services offering discount coupons for prescription medications. We measured the extent to which prices vary within a zip code and whether drug prices vary in high- versus low-income areas. The extent of price variation within a market is an implicit measure of the benefit of price shopping and may reveal simple strategies that health plans and providers can use to help patients access prescribed medications. 

METHODS

We conducted a cross-sectional analysis of drug prices from July to August 2014 from all outpatient prescription drug outlets in a selected set of zip codes in Los Angeles (LA) County. We focused on the prices of 2 commonly prescribed generic antibiotics for community-acquired pneumonia: levofloxacin and azithromycin. They are relatively equally prescribed and can be used as substitutes for each other in most areas. We purposely selected medications used for an acute medical condition because patients typically have limited experience with them and are less likely to know the range of prices for these products. Further, the consequences of not filling medications for acute infections, such as pneumonia, may lead to sepsis, resulting in otherwise preventable hospitalizations, increased healthcare costs, and greater risk of mortality. The acute nature of their use and limited time to price shop after diagnosis may result in greater price variation than for chronic medications, although there is limited evidence on this point.

We used the American Community Survey to obtain zip code–level measures of population and median household income for LA County. As low-density areas have few pharmacies, we restricted the study sample to zip codes with at least 10,000 residents. We ranked the 164 remaining zip codes by median household income and selected the top (high-income) and bottom (low-income) quartiles for inclusion.

We obtained a complete list of pharmacies operating in these 82 zip codes from the California Board of Pharmacy. We excluded hospital-based pharmacies and membership clubs (eg, Sam’s Club, Costco) and categorized outpatient pharmacies in the following way: chain drug store (eg, CVS), independent pharmacy, grocery store (eg, Safeway), or big-box store (eg, Target). Prices at these pharmacies were obtained via telephone. Three trained research assistants (RAs) called all pharmacies on the list over a 1-month period from July to August 2014. They followed a standardized script informing pharmacy staff that they were calling from LA County Hospital on behalf of a hypothetical uninsured patient with pneumonia.

They then requested quotes for the cash prices for the generic forms of 7 tablets of 500-mg levofloxacin and 6 tablets of 250-mg azithromycin. Once a price was given, they asked about any available discounts that could lower the price of the drug (ie, “discounted price.”) If there was no answer, the pharmacy staff was too busy to run a price check, or the RA was put on hold for more than 10 minutes, the RA would call back every hour with the same request until 5 pm that day and then resume hourly calls the next day at 8 am. Phone prices for both medications were recorded on a standardized data collection sheet.

Given the growth in internet use and online purchases of prescription drugs, we simultaneously collected prices for the 2 medications obtained at the same set of pharmacies from GoodRx, a popular Web-based service that aggregates available discounts and directly negotiates with retail outlets to provide consumers with coupons for discounted drug prices. Patients can enter a medication name and zip code and the website will list prices at most pharmacies operating in or near that zip code. To test the acceptance of the GoodRx coupons, we physically presented them at 5% of the pharmacies to ensure their prices would be honored. The study protocol was reviewed by the University of Southern California’s institutional review board prior to initiation. We examined the distribution of discounted drug prices by pharmacy type, as well as the extent of price variation in high- versus low-income areas, and then explored how prices varied across pharmacies in the same zip code. Given that most individuals purchase medications near home, examining prices within a zip code is an implicit measure of the potential cost savings from price shopping.

RESULTS

We obtained drug prices from 528 of 535 eligible pharmacies (98.7% response rate). The sample consisted of 170 chain drug stores, 49 grocery stores, 39 big-box stores, and 270 independent pharmacies. Independent pharmacies accounted for a larger proportion of the total number of pharmacies in low-income zip codes (65%) than in high-income areas (37%).

Table 1 shows the variation in drug prices by pharmacy type, categorized as chain, independent, grocery store, big-box, and online (GoodRx). This captures variation in prices both across and within zip codes and reflects the discounted price. The average price of generic levofloxacin purchased with a GoodRx coupon or at an independent pharmacy was less than half the price versus a grocery or big-box store and less than one-fourth of the discounted price obtained over the phone at chain drug stores. Although prices were highest at chain drug stores, there was far less variation in price at this type of location (interquartile ratio [IQR], 1.05) compared with the other retail outlets (IQRs, ~2.0).

Prices varied less for azithromycin than levofloxacin, but relative prices followed a similar pattern. The lowest average prices were found via GoodRx ($20) and at independent pharmacies ($23); chain drug stores charged the most ($37). There was little variation in price for chain drug stores (IQR, 1.05), particularly in comparison with independent pharmacies (IQR, 2.47) and grocery stores (IQR, 4.30). Asking for a discount had the largest effect at chain drug stores in the case of levofloxacin (lowering the average price by $11, or 10%) and at grocery stores in the case of azithromycin (by $8, or about 25%).

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