Prescription drug spending has been one of the bright spots in the effort to control health spending. Generally, drug costs have risen much more slowly than overall spending, largely due to rapid and growing penetration of generic medicines, coupled with few new blockbuster drugs being approved in recent years. Within that lower overall trend, however, prices for certain brand-name drugs have risen extremely rapidly and for the patients who need them, the costs of these drugs can impose a substantial financial hardship. The Government Accounting Office has analyzed brand-name drug pricing, specifically in regard to drugs with very large increases, to understand factors affecting price trends. (GAO Report)
The size of the increases is truly astounding in many cases. GAO looked at AWP as reported in Red Book from 2000 to 2008. An extraordinary price increase was defined as one of 100% or more and there were 321 drug brands that had one or more extraordinary increases. While this is a small percent of the brand-name drugs, the trend over the survey period was upward, with the number of these increases doubling by 2008. The median increase was 158% and 26 products had increases over 1000%. Seven products had increases of over 500% multiple times. Half of the products with increases were in three therapeutic classes–CNS, anti-infective and cardiovascular. Most of the products originally were $25 or less per unit. More than half the increases were for repackaged drugs, which typically are purchased from a wholesaler by a repackager and sold to health care providers for sale to patients.
While many of the drugs were relatively low-priced at the start, so the impact of a large increase is lessened, the total cost of a course of therapy rises significantly for a chronic disease or a treatment which requires many units. In the case of repackaged drugs, it was the repackager that most often initiated the price increase, not the manufacturer. Factors appearing to be correlated with price increases were limited competition or market exclusivity; small markets for the drug, costly manufacturing processes and a desire to increase price to match price of competing products. In addition, manufacturers cited the cost of Medicaid rebates or of patient assistance programs.
Whatever the rationales, these price increases probably don’t sit well with the average patient and undoubtedly do cause hardships for many of them. In the absence of comprehensive cost information, it is difficult to tell what the profit implications of these price increases are, but it would seem that raising prices this amount has to substantially raise profitability. Payers and PBMs must be focused on these drugs and it would be interesting to know if they pay anything like the nominal price increase. While total drug spending is in control, there may be opportunities for further limits among this set of products.