Update September 21, 2015- The Healthcare Channel was the first to report in 2009 on the business strategy of acquiring cheap generic drugs, cornering the market, then raising price by thousands of percent (see below). Now, another case of price gouging of a generic drug after a company acquired sole manufacturing rights is in the news.
Daraprim, a drug used for more than 50-years to treat toxoplasmosis, was hiked from $13.50 a tablet to $750 after a baby-faced hedge fund manager started a company and acquired the rights to the drug, gaming the system.
Meanwhile, CMS still has no ability to negotiate drug prices. Senator Bernie Sanders has proposed a bill to change that.
Update December 13, 2014- CBS’ Dr. Lapook began investigating a similar Actavis business move as the one we first reported on in 2009, below. He looked into how the company removed from the market the drug Namenda, which will lose patent protection soon, forcing patients to instead buy the much more expensive Namenda XR that will still be protected by a patent. The New York Attorney General then sued Actavis and won.
May 26, 2009- By Steven E. Greer, MD
The most significant problem with the American healthcare system is cost inflation making insurance more and more unaffordable for many small companies and individuals. According to The White House, Medicare spending is the biggest budgetary crisis. “When it comes to healthcare spending, we are on an unsustainable course,” said President Obama on May 11.
The Healthcare Channel learned of a specific example of pharmaceutical price inflation that serves as a good case for discussing the merits of various healthcare reform measures being considered by Congress. The generic drug maker Actavis recently raised the price of a generic drug, Acetasol HC, by more than 1000%. The old price was approximately $20 USD. The new price is more than $230 USD.
We asked the company to explain this dramatic change in price. Actavis U.S. declined our invitation to appear on The HCC. According to a company spokesperson, the reason the price of Acetasol HC was raised more than 1000% was because Actavis is now the sole manufacturer of the drug. Other generic drug manufacturers stopped making it for reasons unrelated to Actavis. Actavis now has monopoly pricing power and raised the price to match what the drug was selling for as a branded patented drug, even though the drug is off patent and still generic.
Actavis can raise the price of Acetasol HC by more than 1000% and still sell the product due to major inefficiencies in the American healthcare system. Healthcare spending inflation far exceeds overall inflation because the private and government payers have either no ability to negotiate prices, or have little incentive to do so.
Medicare is prohibited from explicitly negotiating drug prices, although it uses many other tools to indirectly control prices. Private insurance companies simply pass on the cost of price inflation by raising premiums. Insurance companies are third parties in the delivery of care and make the patient, the actual consumer, far less concerned about drug prices than if the patient were directly paying for the products and services. This cycle has led to healthcare expenditures becoming 17% of the GDP ($2.7 Trillion, or nearly $8,000 per person according to the CBO).
What are some of the healthcare reform proposals being considered by Congress that would theoretically fix the problem of arbitrary drug price increases such as the Actavis Acetasol HC example, or the less dramatic annual 10% or more price increases seen every year on most branded drugs?
Comparative effectiveness research is one proposal and already has been funded by the economic stimulus package. The primary concern to the drug industry, according to an Ernst and Young biotechnology report issued this year, is the threat of tying cost effectiveness to clinical comparative effectiveness, as the U.K.’s NICE agency does now. The Actavis price hike of more than 1000% would likely not be allowed in the U.K. or most of Europe.
Another proposal is the A-bomb of healthcare reform that would allow Medicare to negotiate drug prices. Medicare is such a large purchaser that it would have the clout to dramatically lower the ASP of drugs. Under such a system, it would be unlikely that the Actavis price hikes would be tenable. However, this measure seems too draconian for Congress and is currently off the table of the proposed reforms being discussed by the Senate Finance Committee. The House plans are less clear (see our previous summits and stories).
The H-bomb of healthcare reform would be the single-payer system, or slightly less onerous, a nationally-run health insurance plan. The Senate Finance Committee is still considering the option of a federally-managed national insurance program to compete side-by-side with the private insurance plans. As seen with pricing of drugs in Canada and the U.K., each having similar systems, the Actavis price hike of more than 1000% on Acetasol HC would most likely be dead on arrival if attempted under an American single-payer system. However, it should be noted that critics of a single-payer system point out that more legitimate costly therapies, such as cancer drugs, hip surgery, cardiac surgery, dialysis, etc are also rationed in single-payer systems.