Why Do Some Drugs Cost More Than Others?

It's about choice.

Gary has a sinus infection. He goes to the doctor and gets a prescription decongestant and an antibiotic. Now he has a choice to make.

See, prescription drug manufacturers are allowed to set their own prices. And they often build large profit margins into name brand drugs to recoup the costs of researching, manufacturing and advertising those drugs.

To help consumers get the most bang for their buck, Gary's health insurer analyzes each drug on the market and decides which ones offer the most clinical benefit per dollar. Gary can also talk to his doctor to learn the differences in effectiveness between medications.

Health insurers divide all drugs into categories, or "tiers," based on cost and use. For example, if a plan has four tiers, it might break down like this.

Tier 1 Drugs

Tier 1 drugs, also known as "generics," are just that; generic versions of name brand medicines. They offer the same clinical benefits as name brand drugs, but cost less because they aren't advertised or marketed.

Tier 2 Drugs

Tier 2 drugs, also known as "preferred" drugs, are often name brands with no generic equivalent, so they cost a little more.

Tier 3 Drugs

Drugs on Tier 3 cost the most because there are usually cheaper alternatives found on Tier 2 or Tier 1.

Tier 4 Drugs

The fourth tier includes specialty drugs, which could be high-cost medications that are often used to treat complex clinical conditions. These drugs could also have the highest copay.

Mail Order Drugs

If Gary is on any medications he takes on a regular schedule, he also has the option of purchasing his medicine from any tier via mail order, sometimes known as "home delivery," If he does, he will receive a monthly supply of his medicines in the mail every 90 days. He'll usually pay less, too, because the economy of scale often makes mail order drugs cheaper than a visit to the pharmacy. And a lot more convenient.

So now you know. Until next time, stay smart and stay healthy.