The high price of prescription drugs: A hard pill to swallow

By Valerie Lapointe

A new hepatitis C drug that costs $750 per pill came on the market in 2015. Martin Shkreli acquired the rights to an AIDS medication and raised the price 5,556 percent in 2015.

“Does this represent a cultural shift in the orientation of pharmaceutical company executives and of the public’s tolerance to bear the burden of these kinds of possible abuses of the pricing power?” asked independent journalist Duncan Moore in a panel hosted at Columbia College by the Association of Healthcare Journalists. 

As one of the only nations that doesn’t currently practice pharmaceutical price regulation, retail prices for prescription drugs are outpacing the general rate of inflation in the U.S.

In 2015, the price increase in pharmaceuticals averaged 14 percent for Ascension Health, the largest hospital chain in the country. That beats the consumer price index (CPI) of 0.7 percent for the same year. The calendar year increase in the CPI, which tracks inflation, was the smallest since 2008. The core CPI adjusted for the drop in gasoline pricing and food is still only 2.1 percent.

Americans spend an average of nearly $1,000 a year each on pharmaceuticals, according to a 2014 PBS NewsHour story.

“The United States is one of the only nations who believes in a free market for drug pricing,” said Roy Guharoy, Pharm. D., and vice president and chief pharmacy officer at Ascension Health. “There are indications that this informal trade off has begun to swing out of control, as we are seeing price gouging and extreme profiteering,” he said on the panel.

Ascension, the nation’s largest nonprofit health system system, has measured the impact of 12 months of pharmaceutical price inflation at nearly $93 million for its pharmaceutical purchasing.

A report prepared for Ascension Health reviewing drug price increases between 2015 and 2016 showed that the brand name drug Humira, used to treat arthritis, increased 29 percent. That increase is modest when compared to the whopping 795 percent increase in the drug Glumetza, used in the treatment of type 2 diabetes.

Generic drugs fared no better. The price of succinylcholine chloride, used in the mix to administer general anesthesia, rose 56 percent, from $235 to $367, while Mitomycin, an injection used for cancer treatment, saw a 412 percent increase, going from $185 to $947 per vial. And proctosol-HC cream, used to treat minor discomforts caused by hemorrhoids, increased 1,700 percent from $3 a tube to $54.

While advocates for the continued free market regulation of drug pricing often say that the pricing of new drugs reflects the pharmaceutical company’s investment in research and development, doctors will often point to similar price increases in generic drugs which have been around many years, as debunking this assertion.

“There is a misconception that the drug price reflects the cost of research and development, but more often it is a reflection of the stock price of a drug company,” said Guharoy.  “If the stock price is down, they raise prices, which they can do because we have no price controls.”

Massive drug price increases present a host of problems for both patients and healthcare providers. “Drug prices change the way physicians practice medicine,” said Guharoy. “If a patient can’t afford a drug then a doctor doesn’t want to prescribe it.”  He added that “a consumer report survey came back showing that a fourth of all patients do not take their prescriptions. Either they don’t get them filled, or they skip doses to save money, which negatively affects the efficacy of treatment.”

An 2015 article in the Journal of the National Cancer Institute, “The financial toxicity of cancer, it’s time to intervene,” suggested that the financial stress that high drug prices cause may also worsen patient outcomes. “Evidence suggests that a considerably large proportion of cancer patients are affected by treatment-related financial harm. As medical debt grows for some with cancer, the downstream effects can be catastrophic, with a recent study suggesting a link between extreme financial distress and worse mortality,” wrote Yousuf Zafar of the Duke Cancer Institute

Another 2015 article from the same journal tackled “Minimizing the financial toxicity of cancer care.” The article by Reginald Tucker of the Dana-Farber Cancer Institute acknowledged that the financial symptoms of treatment cannot be overlooked in a patient’s overall well being. “If cancer care costs induce poverty and contribute to bankruptcies, these effects cannot be ignored by health care providers as such effects influence the timeliness of treatment as well as adherence to treatment .”

The high cost of drugs doesn’t just affect new and complex cancer treatments, it can affect even simple drug regimes. “Look at insulin usage, there are two insulin major brands, Lantus and Levemir,” said Guharoy. “In the last 5 years Lantus increased their price by 169 percent. Levemir increased by 169 percent. If it is really a free market with price competition then why would one company increase by 168 percent and the other by 169 percent?”

Single payer healthcare and public healthcare options have made headlines in recent years as solutions to curbing rising drug costs. But Craig Garthwaite, assistant professor at Northwestern University’s Kellogg School of Management argues that neither one is a cure-all.

“Just allowing Medicare to negotiate isn’t going to do much unless you allow exclusions to be paired with it,” said Garthwaite. “Which oncology products do we want to say, that’s too much money for, that six weeks of life isn’t worth $120,000, which is a profile you see with some of these drugs?”

The United States is among the only nations that do not control drug prices, and one of only two countries that allow direct-to-consumer advertising of pharmaceuticals. As a result, most drugs are developed for the U.S. market because that is where the largest profit can be made. Garthwaite argues that this explains why more resources aren’t directed towards developing a cure for malaria, or other neglected tropical diseases,”

“We give 20-year patents to pharmaceutical companies to make drugs, seven years to get through clinical trials, so a 13-year patent life, and you get monopoly pricing during that time, all the real money is made in the beginning,” said Garthwaite. “Patents provide a set of incentives for innovation, only 60 percent of drugs get out of phase three trials, if you make it you deserve to make a lot of money.”

Extolling the virtues of the free market incentives for innovation, Garthwaite mentioned the drug Sovaldi, hailed as a miracle drug for hepatitis C. “I think it’s good we’re actually curing hepatitis C,” Garthwaite said.

Nearly 20,000 Americans died of complications from hepatitis C in 2013 and 500,000 people died worldwide, according to the CDC. Until Sovaldi came on the market, the best course of treatment involved 48 weeks of immune-boosting injections that cured only half of patients and left others with life-threatening side effects. Then came Sovaldi. Patients on Sovaldi take one pill a day for 12 weeks and in 90 percent of cases are functionally cured of hepatitis C. The only catch is the price –  $1,000 a pill, with a full course of treatment running $84,000.

“We want cheap prices, the best care, and we want the competition that gives us the best care. But we don’t think pharma should make too much money,” said Garthwaite, advocating for the benefits of the free market. “We want the benefits of a capitalist system but at the same time, think that “Big Pharma” shouldn’t be in business for profits, but for the greater good.”

The FDA approval process by which a drug company establishes the efficacy of their product is another part of the pricing  problem. “I would expect that when a new drug comes out, its efficacy would be measured against existing drugs in the marketplace and there would be a metric by which you could see how much better or worse it is than already existing treatments,” said Guharoy. “But presently, FDA trial approval rests on how good a drug is against a placebo, not other similar drugs.”

While a free market economy spurs innovation, unchecked it can sometimes create circumstances for exploitation. When Martin Shkreli launched Turing Pharmaceuticals in 2015, his business strategy was a simple one. He didn’t want to develop any new drugs, but rather obtain licenses on out-of-patent medications and then reevaluate their pricing in pursuit of profit, according to Andrew Pollack, reporting for the New York Times. As markets for out-of-patent drugs are often small, Shkreli was able to acquire Daraprim, a drug approved since 1953 for use as an antimalarial and for treatment of toxoplasmosis in AIDS patients. The patent for Daraprim had long since expired by the time of Shkrelis’ acquisition, and no generic version existed. Overnight, he raised the U.S. price from $13.50 to $750 per pill, a 5,556 percent increase, and in doing so became the target of public outrage.

“What Shkreli did was to see a profitable arbitrage opportunity,” said Garthwaite. “This kind of opportunity is created by a market imperfection wherein no one wants to be the second drug in a market that serves 13,000 prescriptions a year. He saw that and raised the price. He caught a lot of heat for it, but drug companies do this all the time.”

In November Turing announced that it would not reduce the list price for Daraprim, but would instead negotiate volume discounts for up to 50 percent for hospitals.  In February, Shkreli was subpoenaed and appeared before the Committee on Oversight and Government Reform of the U.S. House of Representatives to answer questions about the price increase.

Currently, the U.S. doesn’t import drugs from overseas, a policy drug companies have long lobbied to uphold.  “What the government could do is to draw a line and say, if a drug price increases a certain amount in a given year then it is considered a drug shortage, and you start importing the drug from overseas, providing the competition necessary to bring down the price.”

Along with high drug price inflation rates, the U.S. is also experiencing an increasing frequency of drug shortages, which is causing difficulties for federal regulators, physicians, healthcare facilities and patients. The National Institutes of Health found that  “manufacturing problems and business decisions” caused 23 percent of drug shortages. This was further broken down into a variety of factors including, “insufficient profits, the introduction of generic products, market share, anticipated clinical demand, patent expiration, drug-approval status, regulatory compliance requirements, expenses to correct manufacturing problems or mergers.”

The FDA currently lists 62 drugs experiencing a shortage, 43 of which are hospital injections, many of which are for pediatric use.

“Many of the drugs in short supply also tend to be generic medications, which aren’t very profitable, so companies don’t plan for backup capacity.  Economic pressure on manufacturers can also lead manufacturers to maintain lower inventories of low-profit drugs or take them off the market,” according to the NIH report.

Drug shortages are especially problematic when it comes to antibiotics. “When the less powerful antibiotics run out, doctors are forced to prescribe the more powerful broad spectrum versions,” said Guharoy. “This causes the overuse of those drugs and, once resistance is built up against those drugs, we have nothing left to prescribe.”

Potential solutions to combat this problem are as varied as the problems, but virtually all camps agree that there should be more transparency in the pricing of drugs. President Barack Obama’s recently proposed budget addresses this. “The budget proposes to provide the Secretary of HHS with the authority to require drug manufacturers to publicly disclose certain information, including research and development costs, discounts, and other data as determined through regulation. It also includes three previously proposed reforms designed to increase access to generic drugs and biologics by stopping companies from entering into anti-competitive deals intended to block consumer access to safe and effective generics, by awarding brand biologic manufacturers seven years of exclusivity, rather than 12 years under current law, and by prohibiting additional periods of exclusivity for brand biologics due to minor changes in product formulations. These proposals would save the Federal Government $21 billion over 10 years.”

There also have been calls for the FDA approval process to be shortened for generic drugs, as this is often cited as an inhibiting factor for new, cheaper drugs to enter the marketplace.

Even if all these measures are passed and adopted, they may only take a small bite out of overall healthcare spending.  A study produced by the Commonwealth Fund foundation, “U.S. Health Care from a Global Perspective” found that “the U.S. spent 17.1 percent of its gross domestic product on healthcare in 2013. This was almost 50 percent more than the next-highest spender (France, 11.6 percent of GDP) and almost double what was spent in the U.K. (8.8 percent). U.S. spending per person was equivalent to $9,086 (not adjusted for inflation).”

“Pharmaceutical pricing is not the primary driver of healthcare spending in the United States,” said Garthwaite. “Hospital pricing is entirely obscured from the public, it’s not just pharmaceutical pricing that we don’t regulate, it’s all health spending, we are just more aware of drug spending because we are all going to the pharmacist.”

Editor’s note: Statistics on pharmaceutical inflation costs were corrected on March 9.

Photo at Top: Prescription drug prices continue to rise, but what is the best way to stop price gouging while preserving innovation?. (Bill Brooks/