Cost of Generic Drugs Soaring Due to Increased Demand from Obamacare
The pervasive use of generic over brand-name medications was anticipated to be a money-saver, but recently prices are soaring, even up 6,000 percent for some common drugs that were once fairly low-cost.
As National Journal reports, pharmacists are perplexed about the huge price hikes in many drugs and are asking Congress to hold a hearing to look into the matter.
Generic drugs such as Pravastatin, which treats high cholesterol, and the antibiotic Doxycycline spiked upwards of 1,000 percent in 2013, according to a survey by the National Community Pharmacists Association.
According to the survey, 77 percent of pharmacists said they experienced 26 or more instances of a large increase in the acquisition price of a generic drug within the last six months of 2013.
The survey found an additional 84 percent of pharmacists said price fluctuations prevented them from providing care and remaining in business due to the fact that filling prescriptions resulted in losses when some patients refused their prescriptions because of costs.
In addition, the National Journal report indicates that health care and pharmaceutical consulting firm Pembroke Consulting found that within the last year more than a dozen drugs increased ten times their standard rate.
Some pharmacists and physicians are pointing a finger of blame at drug companies for the price hikes.
For example, Dr. David Belk wrote in his blog in December that he observed price hikes in single doses of medication, where one dosage of a medication was very expensive, but other dosages of the same drug were more reasonable.
At Costco, for example, at one given time the generic high blood pressure medication Irbesartan was nearly $300 for a 90-day supply of the 150 mg tablet, yet the cost of the same supply of the 300 mg tablet was only $30.
“If you ask the pharmaceutical company, they’ll say, ‘Oh, we had a shortage,’ which makes no sense because they were making other milligrams,” Belk wrote. “By the time the pharmacy has figured out the price spiked, it’s dropped back down again.”
However, Dan Mendelson, CEO of consulting firm Avalere health, says prices of generic drugs have gone up because demand for them has risen.
“This is an unregulated market in the sense that no one is telling them what to charge,” Mendelson said. “You’re going to see them cozy up to the price of the brand name product for competition reasons.”
Mendelson objects to getting Congress involved in the price hikes because it suggests lawmakers should step into the market and impose price controls.
“I think people will continue to use these generic products because they’re cost effective and needed when prescribed,” Mendelson said. “There’s no question in my mind demand is going to go up because of the Affordable Care Act [ObamaCare], and these markets respond to demand.”
Since ObamaCare requires all health insurance plans in the exchanges to cover prescription drugs, the new health reform law may increase demand for drugs, causing prices for generic medications to rise even higher in the future.
Writing at The Motley Fool, Todd Campbell, owner of E.B. Capital Markets, has been observing the trends of the big drug manufacturers as they face the loss of patent protections.
Campbell notes, for example, that pharmaceutical giant Eli Lilly is facing significant challenges this year:
The company's blockbuster antidepressant drug Cymbalta, which generated sales of $4 billion in 2012 faces generic competition for the first time this year. And another $1 billion in sales goes up for grabs when Lilly's Evista loses patent protection in March.
Those high profile expirations will mean Lilly will have to rely more on its diabetes drugs and cost cutting to protect earnings this year. However stiff competition from diabetes drug makers AstraZeneca, Novo Nordisk, and Sanofi means there will plenty of obstacles to overcome for Lilly in 2014.
Pfizer, Campbell observes, is also going through a major transition. The “patent cliff” took its toll on the drug company when it lost protection for its bestseller Lipitor in November of 2011. Consequently, the percentage of prescriptions written for generics across the industry rose from 70 percent in 2011 to 77 percent in 2012:
That generic prescription growth took a heavy toll on Pfizer as U.S. sales dropped 17% and international sales fell 7% in 2012. But closing plants and cutting headcount in response to falling revenue likely better positions the company as year-over-year comparisons become easier.
Campbell writes that Pfizer has adapted by selling off its nutrition business to Nestle for over $11 billion in 2011, and spinning off its animal health business, Zoetis, early in 2013. Now the drug industry giant is restructuring its remaining business into three new units: one which focuses on immunology and metabolic disease; another on vaccines, oncology, and consumer products; and a third on drugs that have lost or will lose patent protection through 2015.
Campbell observes the significance of the patent cliff for a large pharmaceutical like Pfizer.
“After a breather in 2013, the patent cliff steepens this year and next year and Pfizer won’t escape unscathed,” Campbell writes. “As much as 20 percent of its sales is in jeopardy from generic competition over the next three years, including Celebrex and Enbrel.”