The Rx Price Hikes

Who’s to blame: Bad business practices, unhealthy markets, or both?

JHC-Feb2016iStock_000048525068_LargePharmacists are used to the frequent price hikes of branded products, says Erin Fox, PharmD, FASHP, director, Drug Information Service, University of Utah Health Care, adjunct associate professor, University of Utah College of Pharmacy, Department of Pharmacotherapy. “I think what is so difficult recently are the high and unexpected price increases for off-patent medications.”

Price hikes of generics and branded pharmaceuticals are causing alarm among health systems and the public at large.

The U.S. Senate Special Committee on Aging held a public hearing on the topic in December. “Over the past several months, many [American Society of Health-System Pharmacists, or ASHP] members have brought to our attention an alarming trend in the generic drug market,” wrote the ASHP in a statement to the Committee. “Products that have been on the market for years and are largely considered essential to patient care have undergone dramatic price increases.

“ASHP is concerned that this trend may make some medications inaccessible to patients, and could have serious public health consequences. Furthermore, these price increases have placed enormous budgetary pressure on healthcare organizations, and long-term absorption of these rapid and unpredictable price increases is unsustainable.

“[W]e are eager to learn more about why these price spikes are occurring and to explore potential policy options and market-based solutions that may exist to prevent or minimize the likelihood of this occurring in the future.”

In its eagerness, ASHP is not alone.

‘Unhealthy markets’
“We’re seeing some of the biggest price jumps in decades, and they’re adding tremendous pressure to our members’ strained budgets,” says Michael Alkire, chief operating officer, Premier Inc. “We actually surveyed our member C-suite executives about the financial challenges their organizations are facing as a part of our most recent Economic Outlook publication. Drug price spikes were far and away the top area of concern, cited by 98 percent of respondents.”

The extreme price spikes making the headlines today are the result of a handful of bad actors seeking to maximize their profits, says Alkire. But the underlying cause is even bigger than that.

“Just about every price spike we have seen stems from unhealthy markets that lack competitive forces,” says Alkire. “For many drugs, there are only one or two companies in the U.S. responsible for the entire country’s supply. These market duopolies — or, more often, monopolies – give manufacturers pricing power with little competitive friction, [which] historically has kept pricing in check. This is why we’ve seen common 50-year-old drugs priced at a level equal to that of a breakthrough drug.

“Unfortunately, barriers to market entry exist that allow a company like Turing [whose former CEO, Martin Shkreli, achieved notoriety last year when the company raised the price of Daraprim, for parasite infection, by 5,000 percent] to hold market dominance. Although we’ve seen improvements, the Food and Drug Administration continues to dig out of a multiyear backlog of generic drug application approvals, some of which are for drugs that could offer competition to those that have experienced price spikes.

“Hospitals and health systems operate on a fixed Medicare service payment, so they’re left to absorb the added cost of price spikes at a time when they’re already saddled with $280 billion in payment cuts since 2010,” continues Alkire. “What’s more, in a population health environment, with providers increasingly going at financial risk for the total cost of care, price spikes can put ACOs at risk to pay Medicare for care costs beyond their control.

“The outlook remains extremely threatening, as more price spikes occur and new, high-cost drugs stream into the market.”

University of Utah
The rising prices for formerly inexpensive hospital medications is a new and critical issue for healthcare providers, says Fox, who directs the Drug Information Service, which provides drug-shortage content for the public website of the American Society of Health-System Pharmacists.

“Often these are medications that are used in an emergency, in the operating room, or for critically ill patients,” she says. “Hospitals typically get paid a capitated rate – a set amount – for a given patient. They can’t raise their prices and get paid more just because a drug company has suddenly raised theirs. These medications aren’t new – many of them have been around since the ’50s and are off-patent.”

In her testimony to the U.S. Senate Special Committee on Aging in December, Fox pointed out that in 2013, University of Utah Health Care paid approximately $50 a vial for nitroprusside and isoproterenol, which were sold by Hospira. Marathon purchased these products from Hospira in 2014, and raised the price of nitroprusside to about $215 and isoproterenol to about $440. In 2015, Valeant purchased these drugs from Marathon, and prices increased again – nitroprusside went from $215 to about $650, and isoproterenol went from $440 to about $2,700.

“When we became aware of these new price increases, we calculated the potential impact to our inpatient pharmacy budget and discovered that if we continued to purchase the same amount of each drug, it would cost our organization just over $1.6 million more for isoproterenol and approximately $290,000 more for nitroprusside compared to what we paid the previous year,” she said.

To address the situation, University of Utah Health Care started by educating its physicians on the drug price increases and developing cost-reduction strategies, said Fox. One such strategy was removing isoproterenol from approximately 100 crash carts.

“Our physicians reported that they rarely used isoproterenol, but that the medication can be very important in managing an emergency where a patient’s heart rate is extremely low,” she said. “With that in mind, our physicians decided that, instead of stocking isoproterenol in crash carts, we would only stock isoproterenol in the pharmacy backup boxes that our pharmacists bring to the codes. In this way, the physicians could still have access to a critically important medication, but we wouldn’t face the full burden of $1.6 million for just one medication.

“Unlike isoproterenol, we have not found a way to drastically reduce use of nitroprusside, a drug that is critically important for some patients,” Fox continued. “For now, we are working on educating our physicians on the higher costs associated with nitroprusside, and are providing suggestions for alternatives when it makes sense. But most of the time, the use of nitroprusside is clinically appropriate and there are no good alternatives.”

Geisinger experience
“Drug price increases are not new,” says Joel Meckley, vice president, Enterprise Supply Chain, Geisinger Health System, Danville, Pa. “However, the impact of the increases until now has been blunted because there had been numerous high-use products that have gone generic, such as Plavix, Lipitor and Singulair.

“Today we see the unprecedented increases in generic drug prices that represent upwards of 90 percent of prescriptions filled in pharmacies,” continues Meckley. “Also, new medications, such as those for the treatment of Hepatitis C and oncology, have added to the overall prescription medication inflation story, which has produced pharmaceutical trend rates we have not seen in quite some time. These changes, combined with the usual inflation in the market we typically see, have caused significant concerns for hospitals, payers and our patients.”

In FY15, the inflation and utilization rate for Geisinger inpatient drugs was 12 percent, while that for pharmacy outpatient and retail areas was 16 percent. For FY16, Geisinger estimates the overall percentage to be approximately 13.5 percent for inpatient medications. “These double-digit inflation rates are rapidly making pharmacy our most ‘expensive’ supply chain,” says Meckley.

That said, Geisinger reduced its pharmaceutical spending by over $20 million in FY15 by integrating pharmaceutical contracting for the Clinical Enterprise and Geisinger Health Plan® (with 480,000 members) under Supply Chain Services. The integration encourages standardized formulary management across the Clinical Enterprise and the Geisinger Health Plan, and “allows for more efficient and effective communication and treatment efforts with our patients as well as combining volumes to go to market in a much different way than previously done,” says Meckley.

“Today, most providers rely on their GPO contracts and their relationship with their pharmacy wholesaler. There are few direct relationships with manufacturers. We are building these relationships and making sure that the pharmaceutical manufacturers understand that we – provider and patients – are their customers, not the wholesalers. They need to work directly with us to break down things like antiquated classes of trade and utilization management. The new efforts with bundled payments and population health make this endeavor even more important than it was in the past.”

Compounding the problem for providers is the lack of transparency in the pharmaceutical market, according to those with whom the Journal of Healthcare Contracting spoke.

“Few things related to the pharmaceutical industry are transparent, and I think pricing is just one of those issues,” says Fox. “Most contracts that you sign with a pharmaceutical company contain language that the contracted price must not be disclosed. Another transparency issue is related to manufacturing. The true manufacturer of a product is often not disclosed, and even the list of products produced at a factory is considered proprietary by the manufacturers. This lack of transparency makes it difficult for hospitals to base purchasing decisions on the quality record of a company.

“FDA discloses warning letters and inspections by company, but when you don’t know what company makes a medication, purchasing on quality is extremely difficult,” continues Fox. “I think we absolutely need more transparency related to medications, but currently the pharmaceutical industry gets to decide what is or is not disclosed.”

Speaking at a November 2015 pharmaceutical forum hosted by the U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services Acting Administrator Andy Slavitt said, “There are list prices, wholesale prices, average wholesale prices, rebates, supplemental rebates, markups from hospitals, markups for physicians, different costs when a drug is administered outpatient than inpatient, formulary tiers, mail order prices, biosimilars prices and, of course, patent expirations, compounds, samples, and many other ways that end up obscuring the reality of the price paid, who pays it, and how all of it influences treatment decisions. And most of that information is not available or well-understood by the public, making it hard to have confidence that we have a truly functional and transparent market that delivers good value for patients.

“The truth is we don’t have enough public information on the effectiveness of new drugs in the real world or about prices and rebate structures,” he continued. “As a result, anecdotes – whether about pervasive generic price increases or other things – draw significant attention. And in order to avoid reacting to misinformation, we must increase the transparency of the information available about drug pricing and value.

“How do we make public the information that will allow us to understand prices and value? How do we educate the public on the cost of these medicines, the value chain, the measures of effectiveness? How do we create visibility into price increase? How do we help the public have an informed debate over the size of federal and state expenditures or the unit costs or patient value created? We want ideas on the best way to take steps to improve transparency.”

Creating competition
The federal government can take action to encourage competition in the pharmaceutical market, which could lead to lower prices, says Alkire.

“We need a more nimble FDA that can take action when only one or two manufacturers market a specific drug and when extreme price hikes occur. As such, Congress should give the agency authority to let companies cut to the front of the approval process if they have drugs providing competition to the duopolies or monopolies. This is particularly important at a time when there is a 42-month backlog in approval of new generic drugs.

“It’s an approach that will bring more competitors to the market while rationalizing pricing according to the laws of supply and demand. We believe it to be preferable to government-imposed price controls, which can have a chilling effect on market entrants and lead to some products leaving the market completely.”

In December, the Healthcare Supply Chain Association – which represents group purchasing organizations – urged Congress to address price spikes in the generic drug market by granting the FDA authority to expedite review and approval of new drug applications for products where there are two or fewer manufacturers, or in instances where there have already been price spikes.

2 Comments on "The Rx Price Hikes"

  1. Fred J. Pane RPh., FASHP, FABC | February 22, 2016 at 10:46 am |

    I don’t think there is any one answer, but many. With venture capitalists acquiring companies and this goes back to Ovation as one of the first, there is a lack of understanding of the generic/brand drug markets and impact on Medicaid Best Pricing, etc. and reimbursement models their drugs are in.
    I just attended a meeting and was told it is taking the FDA up to 48 months to now approve a generic drug, after adding 1000 staff? There are also more FDA inspections sighting manufacturing facilities with 483’s and this has an impact, but is needed to assure quality of manfucturing of products (GMP). There is also consolidation of companies, so instead of two or more manufacturers making a product, it means 1 less. As a CMO friend told me, the manufacturers deserve a Fare Market Value Profit, to meet the expectations of share holders, but to also raise funds for research, etc. (what that profit is needs to be determined). Lastly, and this mainly applies to Branded Drugs, but should with Bio-similars, there needs to be a Risk/Value Based Contracting model, that assures the drugs are achieving the efficacy/clinical outcomes and Value/ROI of the products being developed. Many payers are moving in this direction and contracting directly with device and pharma companies to control overall cost of care.

  2. Lone Puma | April 5, 2016 at 9:47 am |

    Most of these drugs are dangerous anyway, they have side effects which are more problems than not. And yet, these pharmaceutical companies find it necessary to spike prices. When God gives solutions to help people and you misuse it, you be sure there will be repercussions for such greed!! Therefore, we can expect the UK to come up with a cure for Cancer and Alzheimer in the next five years and sold at a reasonable price rather then in the United States. In short, God will deal with the corruption in American!!

Comments are closed.

safe online pharmacy for viagra cheap kamagra oral jelly online