State Prescription Drug Price Web Sites: How Useful to Consumers?

HSC Research Brief No. 1

February 2008

Ha T. Tu, Catherine Corey

In an effort to help consumers compare the costs of prescription medications, numerous states have created Web sites that publish drug prices from local retail pharmacies. This ongoing push to make pharmacy pricing more accessible to the public represents one facet of a larger movement toward greater price transparency across the entire health care system. Initiatives encouraging consumers to shop based on price for hospital and physician services have faced significant criticism, both because prices for complex medical services are hard to measure and compare reliably and because quality differs markedly among providers. Most experts concur, however, that prescription drugs lend themselves to price-based comparison shopping far more readily than other, more complicated health care services.

Yet significant gaps in the price data that is available -- a direct consequence of dependence on Medicaid claims information -- seriously undermine the effectiveness of state drug price comparison Web sites, according to a new analysis by the Center for Studying Health System Change (HSC).

An alternative strategy -- compelling pharmacies to submit their price lists directly to the states -- would make the price information more useful, but pharmacies generally resist such a requirement. A further shortcoming of most state Web sites is that they limit price data to brick-and-mortar pharmacies within the state, even though online pharmacies, including both domestic and foreign-based options, frequently offer prescription medications at significantly lower prices. To improve consumer shopping tools further, states could consider broadening the scope of information they provide, such as incorporating online pharmacy comparison features, lists of deeply discounted generic drugs from major discount retailers, and directories of local pharmacies willing to match competitors' prices.

States Seek to Boost Price Transparency at Retail Pharmacy Level

As prescription drug costs continue to climb and the ranks of uninsured Americans grow, policy makers have been exploring various strategies to help consumers better manage their medication expenses. Many state governments have turned their attention to boosting price transparency within retail pharmacy markets. These states have built Web sites that display prices charged by local pharmacies for widely prescribed medications, enabling consumers to identify and patronize the pharmacies with the most competitive prices.

The current drive to make retail pharmacy pricing visible to consumers is part of a wider effort to promote price transparency throughout the health care system. Attempts to foster price-based shopping for hospital and physician services have drawn considerable concern -- both because prices for complex medical services are difficult to measure and compare with precision, and because quality varies greatly from one provider to the next. Experts widely agree, though, that prescription drugs are far more amenable to comparison shopping than other, more complicated health services. For one thing, the price of any given prescription is entirely comparable across pharmacies. For another, quality differences among retail pharmacies do not appear to be a significant concern to those who study this market. Pharmacies do differ in important ways -- such as location and level of customer service -- but these are qualities consumers can generally evaluate on their own.

Some observers have raised a concern about one dimension of drug shopping: if a consumer requires multiple medications and purchases each one at a different pharmacy in order to maximize savings, no single pharmacy will have access to the consumer's complete medication list, meaning the consumer may not be alerted to potentially harmful drug interactions.[1] A prominent consumer advocacy organization, however, has pointed out that while these concerns are legitimate, they should not discourage consumers from shopping at multiple pharmacies, provided that consumers share their full medication list and inquire about possible drug interactions at every pharmacy they visit.[2]

Although conditions in the retail pharmacy market are generally favorable for consumer comparison shopping, certain features of this market may constrain the usefulness or applicability of state-sponsored drug price comparison programs. First, initiatives that only compare prices at pharmacies physically located within a state do not account for online pharmacies -- both domestic and international -- that frequently sell medications at substantially lower prices than local retailers.

Second, the retail prices faced by insured and uninsured consumers differ substantially, and the usual and customary prices displayed on state drug price comparison sites are generally applicable only to those without insurance.[3] Consumers with insurance coverage typically benefit from prescription drug prices that have been negotiated by pharmacy benefit managers (PBMs), which use their volume purchasing leverage to secure lower prices. Even insured individuals who are paying entirely out of pocket -- because they have yet to satisfy a deductible -- are usually eligible for these negotiated rates and often have access to PBM-provided online price comparison tools. It would therefore be more precise to view the true target audience for these state programs as the subset of uninsured individuals who need prescription drugs, rather than the broader population of all consumers or all state residents that most state programs have designated as their intended audience.

Additionally, the degree to which state drug price comparison initiatives prove useful and relevant to consumers depends largely on how effectively each state implements its program -- particularly how comprehensive, accurate, and current the price data is, and how easy the Web site is to find, navigate, and understand. This study presents the results of an evaluation of state drug price comparison programs (see Data Source), identifies several critical factors that limit the programs' value to consumers, and outlines key policy options for states looking to help consumers lower their prescription drug expenses.

State Web Sites Share Key Limitations on Price Information

As of late 2007, 10 states were actively operating Web sites that published prescription drug prices available at retail pharmacies within their borders (see Table 1). Additional states, including California, were on the verge of launching their own sites, while a handful of states, including Ohio and Washington, had discontinued earlier programs. The 10 active state Web sites differed considerably across several key dimensions: the number of drugs for which prices were reported, the number of formulations listed per drug, the length of the data reporting period, and how often price data was refreshed.

Data Source and Data Comprehensiveness. Most states operating drug price comparison Web sites determined which medications to include by consulting lists of commonly prescribed drugs -- either a state-specific list from the state Medicaid agency or a national list sourced from commercial providers. The number of drugs with price information available on state Web sites varied widely, from as few as 26 drugs in Maryland to as many as 400 drugs in Minnesota. Two states, Missouri and New Hampshire, included any drug for which a Medicaid claim had been filed during the reporting window.[4] Some states chose to exclude drugs with potential for abuse -- including painkillers such as hydrocodone and lifestyle medications like Viagra -- regardless of how frequently they were prescribed.

Most state Web sites offered price data for multiple formulations of the same medication, which can often be prescribed at several dosage levels and in various forms (e.g., capsule, liquid). Florida, for instance, presented price data for 650 distinct drug formulations, covering 100 different drugs.[5] Maryland, by contrast, provided price data for only a single formulation per drug -- a limitation that reduced the site's overall utility.

The comprehensiveness of drug price data depends not only on the number of drugs and formulations covered but also on how complete the pricing information is for those drugs. A Web site with an extensive drug list but substantial amounts of missing price data would still offer consumers limited comparison shopping opportunities. The analysis revealed that none of the states with drug price comparison Web sites had a data collection methodology that yielded complete pharmacy pricing information, because none required pharmacies to report their drug prices directly.

All but one of the states operating drug price comparison Web sites relied on Medicaid claims data to obtain pricing information. Specifically, usual and customary price data were extracted from claim forms that pharmacies submitted for prescription drug transactions involving Medicaid patients. The usual and customary price does not reflect the actual price Medicaid pays for prescription drugs; it generally represents the retail price a pharmacy charges a cash-paying customer without any discount. In many states, this price is routinely reported on Medicaid claim forms. States have favored using these prices from Medicaid claims for their transparency initiatives largely because the data are already available to state governments, which face minimal additional costs in publishing the information on state-hosted Web sites. Moreover, this data collection approach imposes no extra reporting burden or expense on retail pharmacies, and therefore does not provoke opposition from pharmacies or their industry groups. The obvious drawback of relying on Medicaid claims data, however, is that price information will only appear on the Web site when a pharmacy has submitted a Medicaid claim containing usual and customary price data for a specific drug during the applicable reporting period.

New York stands alone among the states in not depending on Medicaid claims data for retail prescription drug pricing.[6] A 2002 state statute requires retail pharmacies to provide walk-in customers with prescription price lists upon request. New York's drug price comparison program currently relies on volunteers to gather these price lists from retail pharmacies. So far, this data collection method has yielded severely limited pricing information. A search of the New York Web site revealed, for instance, that price data for the most widely prescribed drugs, such as Lipitor, were available from only four pharmacies in Manhattan. Furthermore, the price information was not particularly timely: a search conducted in October 2007 returned price data that dated to April 2007.

Timeliness of Price Information. Most states with drug comparison Web sites used a one-month reporting period and updated their data on a monthly basis. This schedule, if maintained, would give consumers access to reasonably current price data. An examination of state Web sites, however, found that some states' data updates had fallen behind schedule by several months, leaving the posted price information less current than intended. This lag may stem, at least partly, from the fact that these Web sites generally lack dedicated staff and funding, and that responsibility for maintaining them tends to be split between two agencies (often with the state Medicaid agency providing price data and pharmacy information while the Attorney General's office develops and manages the Web site).

A reporting window of just one month creates challenges for data comprehensiveness -- specifically, the number of pharmacies reporting a price for each medication. To address this issue, some states have opted for longer reporting periods -- for instance, six months (Michigan, Missouri), one year (New Jersey), or even dating back to the site's inception (Minnesota) -- in order to reduce the volume of missing price data. In an effort to keep prices as current as possible while still preserving comprehensiveness, most of these states adopted frequent update schedules -- weekly updates in New Jersey and biweekly updates in Michigan and Minnesota. With each update, if new drug price data became available, the new data replaced older entries; if no new price data were available, existing data remained on the site until the data collection period expired.

This approach -- an attempt to balance the competing goals of data comprehensiveness and timeliness -- generates a much more complete set of price data than a shorter reporting period would allow. But it can mislead consumers, since the prices listed for the same drug at competing pharmacies may have been collected at different points across an extended reporting window, and older prices are less likely to still be valid. Among the states using this approach, only New Jersey displayed the date on which each price was reported. Michigan and Missouri offered general disclaimers that posted price information might be outdated and urged consumers to contact pharmacies directly to confirm current prices.

Noteworthy Features of State Web Sites. Several state sites included features of particular value to consumers (see Table 2). These features enhanced flexibility and usability across multiple dimensions: search capabilities, information display, and consumer shopping options. States looking to create new Web sites or enhance existing ones may want to consider incorporating some of these features.

Regarding search capabilities, two features stand out. The first involves geographic area selection. Three states allowed consumers to define a search area within a specified radius (e.g., 5 or 10 miles) from the center point of a zip code; one of those states also permitted this radius-based search from the center of a city. This feature gives consumers greater flexibility, since they can specify a travel distance they consider reasonable, which may not align with the boundaries of any single county, city, or zip code. The second noteworthy search feature relates to drug selection. Two Web sites allowed consumers to specify multiple drugs for simultaneous price searches (6 drugs in Maryland; 5 in Michigan). For consumers shopping for several medications, this feature produces an especially useful price table that presents side-by-side comparisons of each requested drug's price at every pharmacy.

After a drug price search is completed and a price table generated, several display features prove helpful to consumers. The first two assist consumers in evaluating the accuracy of the price information. One feature, absent from most state sites, displays the date each drug price was obtained, allowing consumers to judge how current the data is. A second feature, offered by several states, displays pharmacy contact information, making it convenient for consumers to call and verify prices. Additional display features that may benefit consumers include the ability to sort the price table by various fields (e.g., drug prices) and the inclusion of mapping tools to help consumers locate pharmacies.

Beyond the standard information most Web sites provide, three features further enhance consumers' drug shopping options. First, one state (New York) identifies which pharmacies will match prices offered by other local stores; this feature would enable consumers to obtain the lowest local prices through one-stop shopping. Second, another state (Michigan) provides a price table showing which generic drugs are available at steeply discounted prices at specific pharmacies (including Wal-Mart, Sam's Club, Target, Kmart, and Meijer, a regional discount chain). This price list gives consumers a straightforward, easy-to-use tool for finding low prices on many generics. Third, Minnesota and New Hampshire offer a feature that extends drug comparison shopping beyond the local geographic area by providing links from their sites to Canadian online pharmacies along with instructions for placing orders. For consumers who need brand-name medications, Canadian sites represent potentially significant savings.

Finally, Florida and New Jersey offer Spanish-language versions of their Web sites, which may help broaden the reach of these programs.

A Closer Look at Florida's Web Site, MyFloridaRx.com

Florida's program was chosen for detailed analysis because it is the most prominent and widely recognized, as well as one of the longest-running, state pharmacy price transparency initiatives. Florida's Web site, MyFloridaRx.com, was evaluated across multiple dimensions, including availability and accuracy of price information and overall usability. The analysis began in mid-2007, using price data that was then posted on MyFloridaRx.com and reflected prices reported as in effect during April 2007. The prices displayed on MyFloridaRx.com are usual and customary prices derived from Medicaid claims forms. To carry out the analysis, drug price searches were performed using two strategies -- a Top 10 drug list and a set of consumer drug profiles -- applied across different geographic markets: urban, suburban, and rural.

Price Availability: Top 10 Drug List. The Top 10 drug list, obtained from a major pharmacy benefit manager, was used to gauge the comprehensiveness of price information available on MyFloridaRx.com. If the Web site was missing price data from a large proportion of pharmacies for these heavily prescribed drugs, then the problem of missing data was likely to be at least as severe for other, less commonly prescribed medications. The central finding from the Top 10 drug analysis was that missing price data was extensive and pervasive across the urban, suburban, and rural markets examined.

The urban market in this analysis covers a radius of approximately 2.5 miles centered on the city of Hialeah in Miami-Dade County. This market was selected because it contained an unusually high number of retail pharmacies (70) within a relatively compact geographic area, and thus appeared to present conditions especially conducive to consumer shopping and pharmacy competition.

In the urban Hialeah market, none of the Top 10 drugs had price information available from every local pharmacy (see Table 3). The three drugs with the most complete price data were still missing information for 20 percent to 29 percent of the 70 pharmacies in the city. The remaining seven drugs were missing price data from at least half of the market's pharmacies. Among those seven drugs, two were missing at least three-quarters of their price data, and one drug (hydrocodone/acetaminophen) was excluded entirely from MyFloridaRx.com because it is a pain medication considered susceptible to abuse.

When the Top 10 drug price availability analysis was replicated in a suburban market -- Leon County in the Tallahassee area -- the missing data problems were even more pronounced. In this suburban market, which contained 29 pharmacies within an approximate 5-mile radius, all 10 of the most common drugs had missing data for more than half of the pharmacies; all but one drug had missing data for two-thirds or more of the pharmacies; and several drugs had nearly complete data gaps (see Table 4). This problem appeared to result from low volumes of Medicaid pharmacy transactions in this suburban market, which produced very sparse price information.

In rural Putnam County -- a market with 11 pharmacies within an approximate 15-mile radius from the county's center -- missing price data for the Top 10 drugs was less of a problem than in suburban Leon County (see Table 5), because pharmacies in rural Putnam County processed greater concentrations of Medicaid pharmacy transactions. Nevertheless, the proportion of Putnam County pharmacies with missing price information remained substantial, ranging from 18 percent to 100 percent across the Top 10 drugs. Compared to the urban Hialeah market, Putnam County showed lower proportions of missing data for some Top 10 drugs. However, the far smaller number of pharmacies (11 vs. 70) distributed over a much larger travel distance (15-mile vs. 2.5-mile radius) likely makes missing price information a more serious obstacle for would-be comparison shoppers in rural areas than in urban ones.

Price Availability and Web Site Usability: Consumer Profiles. In a separate evaluation of price availability on MyFloridaRx.com, drug profiles were constructed for five consumers with varying medical conditions and prescription drug needs (see Table 6). Consumers 1 and 2 each require only a single prescription, while Consumers 3, 4, and 5 each need at least two medications for multiple health conditions. Consumer 1 has a one-time medication need for an acute condition, while the other four consumers have ongoing drug needs for chronic conditions. The consumer profile analysis was conducted in the same 2.5-mile-radius urban market, Hialeah, used in the Top 10 drug analysis.

Of the five consumers, Consumer 2, who takes Advair for asthma, would find MyFloridaRx.com most useful in locating price information relevant to her medication needs (see Table 7). Price data for Advair is far from complete, with fewer than half (32 of 70) of the pharmacies reporting Advair prices. However, both the number of pharmacies with available data and the price range among those pharmacies are large enough that Consumer 2 could potentially achieve substantial savings by using the Web site to compare Advair prices.

Consumer 4, who needs three prescriptions for three chronic conditions, would find MyFloridaRx.com helpful for comparing prices on two of his drugs but less so for the third. Both atenolol (for high blood pressure) and metformin (for diabetes) had price data available from approximately three-quarters of Hialeah pharmacies, and the price ranges for both medications were wide enough to suggest considerable savings from comparison shopping.[7] The third drug prescribed for Consumer 4, Zetia (for high cholesterol), had far less price information -- with only 10 of 70 Hialeah pharmacies reporting a price -- and a narrower price range among available pharmacies, so the Web site's usefulness for comparing Zetia prices was substantially more limited. To secure the lowest available prices for Consumer 4's three drugs as reported by MyFloridaRx.com, the consumer would need to visit three different pharmacies, traveling eight miles among them (not including any travel from home or work to reach the pharmacies).

Consumer 5, who likewise requires three prescriptions for three distinct chronic conditions, would find the Florida Web site useful for comparing prices on only one of his three prescribed medications -- sertraline (for depression), which had price information from 42 of Hialeah's 70 pharmacies and a significant price spread among pharmacies.[8] The other two drugs this consumer needs, omeprazole (for gastroesophageal reflux) and clonazepam (for anxiety disorder), were not available at all on MyFloridaRx.com. On the whole, Consumer 5 would find the Web site's usefulness quite limited.

The two remaining consumers would not find MyFloridaRx.com helpful for comparing prices on the medications they need. Even though Consumer 1 has only a single prescription need -- the brand-name antibiotic Levaquin (for an acute infection) -- the drug would not appear in a search within Hialeah because no Medicaid claims for this medication were submitted by Hialeah pharmacies for April 2007. MyFloridaRx.com advises users to broaden their geographic search area if a drug is not available in the initial search area. In this case, Consumer 1 could have expanded the search to all of Miami-Dade County and would have found the nearest pharmacy quoting a price to be 8 miles from central Hialeah and the nearest pharmacy offering the lowest county-wide price to be 10 miles away. It is unclear whether a consumer with a one-time need for a seven-day prescription would be motivated to comparison shop, particularly if obtaining a lower price requires significant travel.

The other consumer whose needs would not be served by MyFloridaRx.com is Consumer 3, who is prescribed Fosamax (for osteoporosis) and hydrocodone/acetaminophen (for chronic back pain). Of the 70 pharmacies in Hialeah, only one had a price listed for Fosamax, while none had a price for hydrocodone/acetaminophen, which was excluded from the Web site due to concerns about potential abuse. If Consumer 3 had expanded her Fosamax search to all of Miami-Dade County, she could have traveled approximately 8 miles from central Hialeah to the nearest pharmacy in Miami and saved nearly $100 on her prescription. The sparse data for Fosamax on MyFloridaRx.com highlights one of the weaknesses of using Medicaid transactions as a data source: certain population subgroups, such as women in their 50s, are underrepresented in the Medicaid population, and consequently the drugs they commonly take are underrepresented as well.

Of the five consumers profiled, only one would find her information needs substantially met by using MyFloridaRx.com. The other four consumers each had at least one medication for which the Web site provided little or no price information. This finding aligns with results from the Top 10 drug analysis, which demonstrated that missing price information is a serious issue that significantly limits the Web site's usefulness.

Price Accuracy: Top 10 Drug List. Telephone calls were placed to a subset of pharmacies to spot-check how closely the prices listed on MyFloridaRx.com for the Top 10 drugs matched the prices pharmacies quoted to callers who identified themselves as cash-paying customers. The results showed that MyFloridaRx.com prices were generally quite accurate for chain drugstores and for pharmacies located in supermarkets and mass-market retailers. For independent pharmacies, however, the prices quoted by phone differed from the MyFloridaRx.com prices in every case checked. Where prices diverged, the telephone quote was almost always lower than the published price. While this analysis was only a random spot check and was not intended to be definitive, a pattern emerged suggesting that drug prices posted for independent pharmacies are substantially less reliable than those for major retailers.

In addition to these random price checks, selected outlier prices were examined in the suburban Leon County market. For three of the Top 10 drugs, prices listed on MyFloridaRx.com for one pharmacy were so extreme (10 to 30 times the median price) that they appeared to be data errors. Telephone calls to that pharmacy confirmed that its actual usual and customary prices were much lower than those reported on MyFloridaRx.com and were, in fact, below the median prices for those drugs. In a follow-up interview, state Medicaid agency staff acknowledged that the Web site did not have a system in place for identifying data outliers and verifying the underlying price data.

Price Variation: Top 10 Drug List. The substantial amount of missing price data on MyFloridaRx.com, combined with the presence of price data outliers, means that the Web site cannot be used to assess the extent of drug price variations in a definitive manner. Instead, an effort was made to explore different dimensions of price variation to the degree possible given the incomplete price data.

First, available price data for the Top 10 drugs were examined for any discernible patterns in median prices and price ranges across markets. Some drugs (e.g., Synthroid) showed relatively modest price dispersion, while others (e.g., lisinopril) exhibited a much wider price range across pharmacies. One pattern that emerged was that rural Putnam County tended to have lower median prices and smaller price ranges than the urban Hialeah and suburban Leon County markets.

Second, an analysis was conducted to determine whether pharmacies tended to be consistently low-priced or high-priced relative to local competitors, or whether their price rankings shifted from one drug to another. A subset of Hialeah pharmacies with relatively complete price data for the Top 10 drugs was identified (defined as pharmacies having prices for at least seven drugs). These pharmacies were then ranked by quartile based on their prices for each drug relative to other pharmacies' prices. The analysis found that pharmacies were not consistently high- or low-priced relative to competitors in the market. Instead, pharmacies in the lowest price bracket for some drugs tended to fall in the highest price bracket for others. This finding is consistent with prior research, which found that retail pharmacies in upstate New York markets similarly tended not to be consistently high- or low-priced relative to local competitors.[9] A key implication is that savings for consumers inclined to fill multiple prescriptions at a single pharmacy will be limited.

The analysis presented in this study captures only a single point in time; it does not examine what may have happened to average price levels or the extent of price dispersion over time. Managers of MyFloridaRx.com at Florida's Agency for Health Care Administration did conduct their own analysis comparing price spreads for certain drugs at two points in time: at the Web site's launch and approximately six months later. The state's analysis focused on drugs that displayed a broad price range in the pre-launch period and found that this price range had narrowed substantially in the post-launch period. MyFloridaRx.com managers concluded that the sunshine effect of having their prices made public on the Web site led high-priced pharmacies to lower their prices considerably, yielding significant benefits to consumers. It is important to note several caveats to that conclusion, however: (1) The posted prices on MyFloridaRx.com do not represent actual transaction prices paid by consumers, so it is not possible to quantify any savings consumers may have realized; (2) MyFloridaRx.com does not have a system for identifying and removing data outliers -- the high prices in the pre-launch period may have been data errors that were corrected in subsequent reporting periods; and (3) The analysis did not examine what happened to price ranges for those drugs in other markets outside of Florida, leaving open the possibility that external factors -- rather than the price transparency initiative itself -- may have been responsible for reductions in price dispersion across all markets.

Usability Features of MyFloridaRx.com. Relative to some other states' Web sites, MyFloridaRx.com's search capabilities are less flexible and powerful: it does not allow consumers to specify a radius-distance search area or perform simultaneous price searches for multiple drugs. The site also does not provide information on local pharmacy price matching or generic discount lists. Additionally, MyFloridaRx.com does not report the date each price was obtained; however, pharmacy contact information is provided so consumers can call to verify prices.

Compared to other states, MyFloridaRx.com offers relatively more information display features that enhance usability, including the ability to sort price tables, export price tables as spreadsheets, and link to maps of pharmacy locations. MyFloridaRx.com is also one of the few state Web sites available in a Spanish-language version.

Sources and Further Reading

CMS: Medicare Part B Drug Pricing — Federal data on prescription drug pricing under Medicare, providing context for state-level price transparency efforts.

AHRQ: Prescription Drug Research — Agency for Healthcare Research and Quality resources on prescription drug costs, utilization, and consumer decision-making.

KFF: Prescription Drug Policy and Costs — Kaiser Family Foundation analysis of prescription drug pricing trends, consumer costs, and policy options for improving affordability.

CMS National Health Expenditure Data — Comprehensive federal data on health care spending, including prescription drug expenditures as a share of total health costs.

Health Affairs: Health Care Costs Research — Peer-reviewed research on health care costs and price transparency initiatives, including drug pricing policy analysis.