The High Cost of Health Care: Why Some Pay $240 for a $9 Bottle of Pills

By Jonathan J. Darrow

An earlier post discussed the equivocal efficacy of Propecia (finasteride) as a baldness remedy, ending with the provocative assertion that, efficacy aside, “there is little reason for anyone ever to buy or consume Propecia (finasteride), or any doctor ever to prescribe it, since a much cheaper and identical chemical sold under the trade name Proscar (finasteride), is available.” This post continues the discussion, addressing one small component of the rising cost of healthcare—the cost of finasteride.  It explores why consumers pay as much as $240 for a bottle of Propecia (finasteride) when a $9 bottle of an equivalent, FDA-approved supply of the identical chemical is readily and legally available at nearby stores.

In the exorbitantly priced landscape of prescription drugs, there is at least one low-cost oasis: Wal*Mart.  Though some find reason to criticize the discount store, few would disapprove of the dozens of prescription medications Wal*Mart offers for an unbeatable $4 for a 30-day supply.  Cost-sensitive consumers can purchase everything from blood thinners to antidepressants to antibiotics at this price, while a 90-day supply is only $10 (and this price includes shipping to your doorstep).  A handful of drugs that cannot be sold at $4 per month sell for a still-modest $9.  For the 300 or so drugs on Wal*Mart’s list, this means there is no longer a need for $10 co-pays or snowy treks to the pharmacy in 15 degree weather.  That’s right: the Wal*Mart total price is less than most insurance company co-pays.  Finally, a major industry player seems to have put effective downward pressure on prescription drug prices. 

The Case of Finasteride

Despite this cost-effective, convenient solution, there is at least one drug for which there is a hitch . . . and this time Wal*Mart is not to blame.  One of the drugs on Wal*Mart’s list is finasteride, used to treat androgenetic alopecia (male pattern hair loss), which can be obtained for a bargain price of $9 at Wal*Mart (or at Target, which has a nearly identical program).  However, patients in one major health care system (which will be referred to as “Big HMO”) will not have access to the Wal*Mart price, and may have to pay up to $240 dollars for an equivalent supply. This unexpected state of affairs can be explained by the complex interplay between drug industry tactics, state and federal laws, insurance company reimbursement policies, and Big HMO’s prescription policies.

Industry Tactics

In the 1980’s, the drug giant Merck was studying a chemical substance called finasteride for the treatment of benign prostatic hyperplasia, or enlarged prostate, when it observed a serendipitous side effect: the drug caused some study participants to grow hair.  In light of Upjohn’s then-recent success with Rogaine in carving out a $143 million per year market for the treatment of baldness, Merck seized the opportunity.  After securing FDA approval for a 5 mg version of finasteride for the treatment of enlarged prostate (branded as Proscar), Merck obtained separate FDA approval for a 1 mg version as a baldness treatment, calling it “Propecia.”

The name Propecia had at least two advantages. First it would be recognized by doctors as a derivative of “alopecia,” the scientific name for hair loss.  Second, it would make it more difficult for consumers to realize that a cheaper 5 mg version of the identical chemical substance was available. At an eye-popping $240 for a 4 month supply at some pharmacies, however, Propecia is 27 times the price of Wal*Mart’s generic version of Proscar, at $9 for an equivalent supply.

State & Federal Laws

Normally, savvy consumers facing the choice between two essentially identical products are free to buy the less expensive option.  For safety and other reasons, however, federal law prohibits the dispensing of certain drugs (including finasteride, in either of its dosage levels) without a prescription.  Recognizing the tremendous cost savings to patients, many doctors have prescribed 5 mg Proscar (see, e.g., here, here and here) to patients with alopecia, who then can easily cut the 5 mg pill into quarters (the extra quarter of a milligram per day has no clinical significance).

Most states statutorily allow (or even require) pharmacists to substitute cheaper generic medicines where physicians write a prescription for a branded drug, unless the doctor specifically instructs otherwise.  “Different drugs,” however, cannot be substituted, and under federal law different dosages of the identical chemical substance are considered, with some amount of legal fiction, to be “different drugs” (21 C.F.R. § 310.3(h)(4)). So in this case, the substitution of branded 1mg finasteride (Propecia) with generic 5mg finasteride cannot come from the pharmacist alone.  A doctor’s contribution is required.

Big HMO’s Prescription Policies & Insurance

It would seem a simple matter for doctors to prescribe 5 mg finasteride in order enable patients to enjoy a 96% price savings (from $240 to $9).  Surprisingly, however, Big HMO prohibits its physicians from prescribing 5 mg Proscar for the treatment of alopecia. Why? According to a representative of Big HMO, the policy is in force because alopecia is a cosmetic condition, and the only way to ensure that patients are not using their prescription drug benefit for cosmetic purposes is to prohibit the prescription of 5 mg Proscar for alopecia in the first instance (the same official would later provide a different reason, see Note 2 below).

Controlling health care costs is an important task, and it is quite sensible that serious medical conditions should receive priority over cosmetic ones.  However, it is not immediately obvious why this can only be accomplished by limiting a doctor’s prescription discretion, as the Big HMO policy (and apparently, some others) does. If doctors consider the intended use of the drug at the time of prescription, as they must, this information could be transmitted to the insurance company so as to ensure that only non-cosmetic uses are reimbursed.  Such a policy could function as a less restrictive means to achieve the same result.

In any event, preventing physicians from prescribing the drug that best meets their patients’ needs, including financial ones, is at best questionable, and at worst interferes with the doctor-patient relationship. “I must consider my patient’s ability to pay for the medication I am prescribing each time I write a script.  If they cannot afford a medication, I am not effectively treating the patient,” said Lori Hergan, M.D., a urologist at San Diego’s Sharp HealthCare and frequent prescriber of finasteride.

One has to wonder why Big HMO does not instruct its physicians to simply guide patients to Wal*Mart, Target, or elsewhere rather than prohibiting doctors from providing the best assistance to their patients.  After all, the Wal*Mart price of $9 is less than one fourth of a $10 co-pay for a four-month supply of generic Propecia ($40, or $10 per month).  (That would be the savings if insurance covered Propecia, which it usually does not.)

If consumers were to be guided to Wal*Mart’s $9 offering, whether by doctors’ suggestions or through the economic motivation of a non-reimbursement policy, not only would those consumers save up to 96%, but it would cost Big HMO (or insurance) nothing, since the $9 would come directly out of patients’ pockets.  Instead, as a result of federal law, industry tactics, Big HMO prescription policies, and insurance reimbursement policies, the opposite occurs. A drug company wins big. An insurance company pays nothing. All on the backs of the follicly-challenged, for whom this whole business is a bitter pill to swallow.

Note 1: It was reported that doctors prescribed $136 million of Propecia in 2012 (according to another source, $400 million), despite both equivocal efficacy and the availability of much cheaper Proscar or its generic equivalent.

Note 2: An alternate reason sometimes given for the use of 1mg Propecia rather than 5mg Proscar is the safety risk to a pregnant female that comes in contact with the powder created when a 5mg pill is cut into four pieces, which is a recognized concern in the FDA labeling and elsewhere.  However, as noted above, doctors have long prescribed the 5mg version with the intention that patients cut it into four pieces (Propecia was approved in 1997). Despite relatively long use and theoretical possibility of harm, the author is aware of no reported cases of actual harm to a fetus, other than in pregnant rats to which the substance was deliberately administered. Some doctors even prescribe finasteride off-label for women.  Readers aware of actual cases of human birth defects known to be caused by inadvertent exposure to finasteride are invited to post links or citation information below.

The author gratefully acknowledges the contributions and input of Aaron Kesselheim, Joshua Cohen, Stephen Darrow, Katherine King, Lori Hergan, [anonymous physician], [anonymous nurse], [anonymous PBM administrator] and [anonymous Big HMO administrator].  All opinions and any errors remain the author’s own.

    This entry was posted in Animal Research, Antitrust, Bioethics, Doctor-patient relationship, Enhancement, FDA, Health Care Finance, Health Care Reform, Health Law Policy, Intellectual Property, Jonathan Darrow, Market Design, Public Health, Reimbursement, Resource allocation by jdarrow. Bookmark the permalink.

    About jdarrow

    Dr. Jonathan J. Darrow is a research fellow at Harvard Medical School and a post-doctoral fellow in the Program on Regulation, Therapeutics and Law at Brigham & Women’s Hospital. He holds a BS in biological sciences from Cornell, a JD from University, an MBA from Boston College, and an SJD (a dissertation-based doctorate and the law discipline’s highest degree) from Harvard, where he also completed the LLM program in 2009. After admission to the bar, Dr. Darrow practiced law in the Silicon Valley offices of Cooley Godward and later worked on patent litigation matters at Wiley Rein & Fielding in Washington, DC. He is admitted to practice before the USPTO and has served on the business law faculties of Boston College, Plymouth State University, and Bentley University (current). His legal scholarship on technology, intellectual property, and health has appeared in numerous publications including the New England Journal of Medicine, the Journal of Law, Medicine & Ethics, the Stanford Technology Law Review, the NYU Journal of Legislation & Public Policy, the Northwestern Journal of Technology & Intellectual Property, and the Harvard Journal of Law & Technology, among many others. He is a co-author of two major law textbooks: Cyberlaw: Text and Cases and The Legal and Ethical Environment of Business. Dr. Darrow previously explored the impact of intellectual property on global health during stints at both the World Trade Organization and World Health Organization in Geneva, Switzerland.

    One thought on “The High Cost of Health Care: Why Some Pay $240 for a $9 Bottle of Pills

    1. Nice post, Jonathan. I don’t understand this part though: “Surprisingly, however, Big HMO prohibits its physicians from prescribing 5 mg Proscar for the treatment of alopecia.” The insurer is saying that, even for this drug we won’t pay for, the physician may not prescribe it? This seems like the HMO practicing medicine. And, presumably this isn’t a problem for PPOs and other forms of insurance?