Drug Prices Still Climbing

Today’s Managing Health Care Costs Indicator is 29.3%

Click to Enlarge. Image from WSJ - article referenced below

When a drug becomes available as a generic, price drops of as much as 90% are expected within 18-24 months. 

However, the Wall Street Journal used a recent report by Barclays Capital to show what happens just before a drug loses its patent protection.  The drug price goes up – not just a bit – but a lot.  Daiichi Sankyo’s Benicar, used for high blood pressure and congestive heart failure, increased in price by 29.3% last year – a year when the overall inflation rate was negative.  The General Accounting Office reported last week that annual inflation rate for brand name medications was 8.3%, while generic priced decreased by 2.6% annually.

Why do brand name prices go up just before a medication goes generic?

When a drug is available only as a patented “brand name,” many benefit plans enforce higher member cost sharing, encouraging patients to use a similar generic, or a ‘preferred’ brand name – where there is a lower acquisition price, or a higher rebate.  Therefore, the pharmaceutical company will offer rebates and preferred pricing to increase market share.

However, as a drug loses its patent protection the manufacturer removes rebates and stops offering preferred pricing and discounts.  This could encourage patients to switch to another brand name medication – but the brand name drugs are almost always from another manufacturer, so this couldn’t drive pricing behavior.

What the pharmaceutical companies are doing is maximizing their overall yield.  When they have years of exclusivity left on a medication, they price competitively to increase the drug’s market share.  When the exclusivity is about to run out, pharmacy benefit managers are hard-pressed to engage in a campaign to demarket the medication, which will soon be available generically. Therefore, the pharmaceutical company prices the soon-to-be-generic medication price high to maximize ultimate revenue from the patent.

The pharmaceutical companies are doing exactly what we’d expect them to do in a relatively unregulated market to maximize their overall profits.

Speaking of interesting price tags, the pharmaceutical company that just gained FDA permission to market progesterone injections to prevent premature deliveries announced that the drug, which had previously been available for about $20 per injection, will now ship for $1500 per dose