Healthcare Hullabaloo: Bizarro #5

Ouch. I just heard that they think gasoline might soon reach 5 bucks a gallon. Oh joy.

I just paid $3.35 for a gallon of regular on the Turnpike today. Actually, I’m secretly thrilled about this – it’s actually quite a bargain.

Here’s how I see it:

The cost of a barrel of crude oil has just topped $105.00. Since that barrel consists of 42 gallons of the brown sticky stuff, this means that crude oil itself is selling at $2.50 cents a gallon. After refining, that barrel will yield about 20 gallons of gasoline. The remainder of that barrel will be made into other valuable products, such as diesel fuel, #2 heating oil, and lubricants. Most of these products are actually more costly than gasoline, but let’s not quibble – for the sake of argument, let’s just say that the cost of ‘raw’ gasoline is $2.50 a gallon.

If Big Oil starts selling it for 5 bucks a gallon, this would mean that they are marking up the raw materials by 100% - doubling the price of the raw product. The actual mark up is much less, because the 5 buck purchase price includes things like state and federal taxes, but for the sake of argument, we’ll say that Big Oils’ markup is a healthy 100%.

So, how do you think that Americans are going to react to that $5.00 gallon of gas? Do you think that we’ll be dancing in the streets singing ‘I’m so Glad we’re Living in the USA’? Or do you think that there will be protests and general bitchiness about the price of gas and how Big Oil is raping the American public? Based upon recent history, I’d bet on the second scenario.

I think that America will no longer tolerate outrageous profits made by big petrochemical companies. Good for us.

So, how come we put up with mark ups from other giant chemical companies that make the profit margin in gasoline look like the bargain of the century?

(Note: By other ‘giant chemical companies’, I am referring to, of course, America’s pharmaceutical industry.) These guys make Exxon look like an also-ran in the arena of ludicrous mark up. Just because they are part of the health care industry, Big Pharm gets a pass from the American public when it comes to outrageous markups.

Bizarro.

Let me elaborate.

A recent investigation by Channel 7 News in Detroit showed that Generic Drugs enjoy a markup from the cost of the raw materials of as much as 3,000 percent. If gasoline were marked up at the same rate, that gallon of gas would run you a cool $75.00. Now you know why WalMart is hawking those $10 generic prescriptions – they’re probably the highest profit margin item in the entire store.

Keep in mind that this is for the ‘no-name’ generic drugs – what’s the profit margin on our favorite ‘branded’ prescription drugs?

Glad you asked.

Let’s look at the markups for some of our ‘Rock Star’ drugs – America’s best sellers. We’ll start with Lipitor, the Bono of prescription medicine.

According to the NJ Attorney general’s web site, a 90 day supply of the #1 selling drug would run me about $460.00 bucks. The raw material cost to make those pills is a whopping $5.80. This translates to a markup of 7,931%. Our $5 gallon of gas, at this markup, would run us around $198.00 per gallon.

Does this revelation driving you crazy? Why not take some Prozac?

At about $250 for a 90 day supply, this little helper contains just 11 cents of raw materials which translates to a nice healthy markup of 227,272%. At this rate, that gallon of regular is going to sell for $5,682.50.

Almost a quarter-million percent markup. I never realized that percentages went that high. As astronomical as the number is, Prozac isn’t even the markup king.

In fact, it isn’t even close.

So far, the current champ is Xanax, which runs about $140.00 for a 90 day supply. Here, the raw ingredient cost is just under 2.5 cents, for an industry leading markup of 568,300%. At this rate, that gallon of regular would run you just over $14,200.00.

Oops – I forgot to add 9/10’s to the end of all those projected gas prices.gas prices. Mea culpa.

There is a positive side to all these gasoline markups – at these margins, our service stations would once again be able to give you a free steak knife when you fill your tank. At over a quarter million dollars to fill an averaged size tank, that steak knife will come in handy to slice your wrists with. Try not to get too much blood on the rich Corinthian leather.

Maybe they could start offering S&H Green Stamps again as well. If they do, I’m going to get enough stamps for a sailboat every time I fill up the Volvo. How exciting.

Of course, we’ll never see those kind of mark ups for gasoline. If gas was marked up that much, it would destroy the US economy. The government would never allow it.

Those crazy mark ups are allowed, of course, in the world of health care, especially with prescription medications. High drug prices are helping cripple the health care sector of the US economy, yet the US government has yet to step in and stop it. Instead, they’ve historically enacted legislation that helps ensure that that we continue to pay the highest prices for prescription medicines in the world.

Bizarro, indeed.

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