Some Misbehavior, but Some Inevitable

Most of us have an opinion on drug prices.  Indeed, high drug prices were the top health care concern in 2016.  The older generic drugs are usually priced in an affordable range, but a more lasting impression is made by a handful of drugs that were repriced by opportunist investors.

Who does not recall the despicable 5,000% hike in price that Martin Shkreli imposed on Daraprim, a 62-year-old generic drug that fights a rare but severe parasitic infection?  The outrageous price persisted until Shkreli was charged with defrauding investors.  Shkreli was not charged with a crime for inflating the price of Daraprim.

Other profiteering at the expense of sick children and adults was seen at Mylan, the source for EpiPen.  In 2007, Mylan bought the epinephrine injector invented in the 1970s for treating severe allergic reactions.  Mylan raised the price from about $100 to $600 for a two-pen set, triggering “financial toxicity” for consumers.  Medicaid claims it was overcharged by $1.27 billion for EpiPens.  Mylan then employed the cynic’s tactic for repairing reputation damage – it gave away some EpiPens to low income patients.  The retail price remains near $600.

Criminal charges are not imposed merely because a generic drug price is unconscionable.  Generics lack patent protection, and can compete against the same drug formulation from multiple pharmaceutical manufacturers, hence the stuffy category name “Non-Innovator Multiple Source Drug.”  Generics are subjected to the pricing discipline of the marketplace, but when that discipline is lax, consumers really pay the price.

Consumers seldom have enough technical knowledge of their health disorders and the pharmaceuticals that could treat them.  That knowledge resides with their physicians, but US physicians are foremost dedicated to effective treatments, not to least-cost-but-adequate-treatments.

To make the generic marketplace even more complex, prescription benefit managers (PBMs) occupy the middlemen position between consumers, prescribing physicians and drug manufacturers.  PBMs decide which generics to put in the insurer’s formulary and how much to charge.  They profit through kickbacks from manufacturers, squeezing pharmacists, and forcing consumers to buy from the formulary when cheaper generics can be found at the pharmacy.  States further harm consumers when they forbid pharmacies from telling consumers about lower-cost generic equivalents.

The most effective pharmaceuticals are those which actually cure a disorder, rather than merely control some of its symptoms.  Gene therapies are highly effective for a narrowly defined disorder, but they are among the least affordable treatments and they are regularly featured in garish headlines that tout their six- and seven-digit prices.  Prices for breakthrough drugs can be as high as an average person’s annual income.  Gene therapies can be as high as a lifetime of earnings.

Hepatitis C cures (Sovaldi and Harvoni) are priced at about $70,000.  Leukemia treatment Gleevec costs $146,000 per year.  Melanoma treatment Keytruda costs $152,000 per year but has caused long term remission in some patients.  Eteplirsen, a gene therapy that plays a key role in treatment for Duchenne Muscular Dystrophy, is priced at $300,000 per year.  A rare, inherited retinal disease causing can be cured by Spark Pharmaceuticals’ Luxturna for a one-time cost of $850,000.  Spark estimates the entire US market for Luxturna to be between 1,000 to 2,000 people with mutations in a gene called RPE65 that lead to vision deteriorating over time.  The glory of curing cancer, Muscular Dystrophy or blindness is in stark contrast with the pain of a six-figure price.

In the high-priced drug market, there is evidence that competition reins in prices.  For example, a new drug called Zaltrap entered the field for treating colon cancer.  The incumbent drug was Avastin.  Both drugs achieved the same result – extending life by an average of 1.4 months.  Avastin cost $5,000 per month and Zaltrap cost $11,000 per month.  Zaltrap’s price caused it to miss out on some formularies, including Medicaid’s.

We can expect to continue seeing headlines on high price breakthrough drugs and gene therapies because there are about 7,000 rare diseases in the US.  On occasion, there will be some developments that can treat multiple disorders, allowing the developer a much larger consumer base and therefore the chance of setting a lower unit price.  For generics, some of the outrageous prices can be addressed through better rules governing PBMs.  Unfortunately, tarring and feathering has been outlawed.