Some Generic Drugs See Huge Price Increases

Ken Terry

September 15, 2016

The prices of generic drugs covered under the Medicare Part D program dropped overall from 2010 to 2015, but a group of 315 drugs saw extraordinary price increases during that period, according to a new report from the US Government Accountability Office (GAO). The study was requested by members of Congress who were concerned about reports of spiking generic drug prices.

Prices for all generic drugs, including those that entered or exited the market during the study period, fell 59% from the first quarter of 2010 through the second quarter of 2015. This decline reflected a changing group of 2378 unique generic drugs.

GAO also analyzed the prices of 1441 "established" generic drugs that were available throughout the study period. The average prices of these drugs fell 14%. But the prices of established generics would have declined further, GAO said, if not for the "extraordinary" price increases of nearly a fifth of those drugs.

The price rises in this group of medications were at least 100% and, in some cases, 1000% or more. The number of drugs in this category shot up from 45 in 2010-2011 to 103 in 2014-2015. Altogether, the 315 drugs had 351 extraordinary price increases.

For example, erythromycin in 500-mg tablets had three increases of more than 100%. Its price increased from 24 cents per tablet in 2010 to $8.96 per tablet in 2015.

While most of the price hikes were between 100% and 200%, some were much higher. Forty-eight drugs had price increases of 500% or higher, and 15 had hikes of 1000% or more.

For example, the price of 50-mg capsules of the antidepressant clomipramine HCL, which is used to treat obsessive-compulsive disorder, increased over 2000% in 1 year, jumping from 34 cents per capsule in 2013 to $8.43 per capsule in 2014.

Similarly, the price of 20-mg capsules of piroxicam, used to treat arthritis, increased by over 2000% from 9 cents per capsule in 2010 to $1.94 in 2011. By 2015, the price was $1.82.

Nearly all of the extraordinary price increases remained in place for at least 1 year, GAO pointed out.

Some drugs kept increasing in price. For instance, a glaucoma drug, methazolamide, first experienced a price increase of 454%, from 33 cents per 50-mg tablet in 2010 to $1.85 in 2011. By 2015, the drug's price was $5.47 per tablet, 1538% above the original cost.

Most drugs with extraordinary price increases were not among the 100 most utilized generic drugs under Medicare Part D. Except for 2013-2014, when there were four, no more than one of those drugs was in the top 100 in any given year.

Overall, the percentage of generic drugs dispensed under Medicare Part D increased from 71.9% to 85.7% during the study period. The private drug plans that contracted with Medicare have long incentivized doctors and patients to use generic drugs through higher cost sharing for branded medications. Reacting to the price increases of some generic drugs, some health plans have created a nonpreferred generic drug tier that has higher copays than do preferred generic medications, GAO said.

Is Competition the Reason?

Pharmaceutical companies told GAO that competition is the primary driver of generic drug prices. For example, if a company introduces a new generic drug into the market, it typically offers it at a lower price than the current market price to build sales. Other firms then cut their prices to meet the new competition.

According to GAO, an analysis by the US Food and Drug Administration (FDA) has shown this to be the case. For products that attract a large number of generic manufacturers, the average price falls to 20% of the branded price or lower.

But this is not always the case. For instance, a recent Los Angeles Times article noted that the prices of some generic drugs can rise sharply even if multiple manufacturers compete for market share. Ursodiol for gallstones, for instance, is produced by eight companies. Two years ago, the drug could be purchased for as little as 45 cents a capsule. In May 2014, one manufacturer, Lannett Company, Inc, increased its price to $5.10 a capsule, and its competitors soon followed suit.

One of these competitors, the article added, is Mylan, which recently stirred national outrage by steeply raising the price of its EpiPen device, which is used to counter life-threatening allergic reactions.

In a commentary on The Health Care Blog, Uwe Reinhardt, PhD, a health economist at Princeton University, said that few economists would have predicted the price increases for ursodiol. The theory of oligopoly, he noted, holds that prices may rise when just a few competitors control a market. But with eight companies making this drug, he said, that should not have happened.

According to GAO, the drug manufacturers "noted that the level of competition in the generic drug market is influenced by a variety of factors, including raw material shortages, production difficulties, consolidation among manufacturers, and a backlog of new generic drug applications awaiting federal review."

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