In October of last year, doctors began noticing an unusual trend. They were getting resistance from insurance companies when prescribing certain medications for their patients. They would have to justify the use of the drug and explain why they weren’t prescribing a cheaper alternative. Patients were calling asking the doctors to prescribe a different medicine than what they had been using for years. This was common in the case of name brand named drugs. This time, however, these issues were happening for generic drugs that they had been prescribing for several years.
Pharmacists were also feeling the pinch. Like insurers, pharmacies negotiate with manufacturers on the prices at which they purchase the medications. The negotiations are based on the list price, and the pharmacies then include a (usually small) markup for their retail price. Suddenly, however, the list prices of generic drugs started increasing astronomically – some as much as 1000 percent.
While the price of generics overall have still remained low, most of the drugs seeing the largest spikes fell into specific categories, such as common heart medicines, antibiotics, and thyroid medications. The affected drugs are also those most often used by seniors. The price increases came without warning. A pharmacy in San Francisco noted that in a common heart medication, digoxin, cost $131 in September. The next month, the same drug cost $989 for the same dosage.
Industry experts are baffled.
Nearly 80 percent of prescription drugs sold in America are generics. Federal law requires that they have the same ingredients that their name brand counterparts contain. Pharmaceutical companies are given 20 years after filing their patent to maintain exclusive rights to manufacturing (for companies whose patents were filed prior to 1995, the term is 17 years). The patent protection is to give the companies time to recoup costs for research and development of the drugs, as well as any associated marketing costs. Once those patents expire, the market opens up to other companies to manufacture the drugs.
By the time they enter the generic market, the drugs are often lower in cost to produce, and there are no associated development or marketing costs. This allows companies to sell them at a dramatic discount, much to the benefit of patients. This process has not changed. For many of these drugs, they have been available as a generic for decades.
So why the sudden price increases?
The companies are being less than forthcoming. When pressed, representatives claim fluctuations in costs of raw materials, market forces such as supply and demand, or, as one CEO claimed, they were force to raise their prices because their competitors did. Since that’s the way free market works, you know, you offer higher prices when there’s competition.
The truth of the matter is that prices are rising because they can. There have been several mergers over the last few years, leaving fewer manufactures for the same drugs. In some cases, companies that owned the name brand drug also make the generic. The Federal Trade Commission claims there is little they can do if contraction in the market happens “naturally.” There is no regulation on the generics industry, other than the requirement that the drugs they produce are the same as the original.
The United States is the only nation that does not regulate prescription drug prices.
It is no coincidence that these increases occurred right before the Affordable Care Act went into effect. With a potential new market of millions of customers, manufacturers see a way to increase their bottom line. Insurance plans, including the government programs Medicaid and Medicare, have long offered consumers incentives to choose generics over name brands. In the case of seniors, they are also required to pay a larger copay for generics. Now there are millions of more customers that are being hand delivered to an industry that has saved consumers more than $1 trillion since 2002.
It is the consumers that will pay the price, both with their pocket and their health.
As with name brand drugs, people are now being forced to decide whether or not to fill prescriptions. Some of these drugs, such as the aforementioned digoxin, are listed as essential drugs by the World Health Organization. Patients with chronic conditions such as multiple sclerosis sometimes only have one choice because that is all that works for them. For seniors and others on a fixed income, they have to choose between basic needs and medications, risking their health and wellbeing.
It could also mean the end of the local pharmacy.
In addition to the higher prices, insurance companies have not increased their reimbursement to pharmacies to offset the change. Unlike large chain pharmacies which can afford to absorb some of the losses on reimbursements, smaller companies cannot afford to cover the difference, which can amount to as much as $100 per prescription. In the end, these companies are turning away customers and sending them into the arms of large chain pharmacies.
In January, the National Community of Pharmacists Association asked for a congressional hearing on the sudden spike in prices. In their letter to the U.S. House Energy and Commerce Committee, they pointed out how pharmacists are seeing a very significant impact on their ability to continue to operate unless something is done. The trade organization represents “community pharmacists” that represent nearly 40 percent of all retail prescriptions dispensed.
In other news, CVS Caremark announced in December a venture with a large drug distributor to make it the largest buyer of generic medicines in the United States.