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News February 2015

Washington Watch

Generic Drug Prices Soaring Sky-High and No One Is Sure Why – Or What to Do About It

By Alan M. Schlein

New data released in connection with the hearing found that half of generic medicines went up in price between the summer of 2013 and summer 2014. The data also pointed out that about 10 percent more than doubled in cost in that time with some common medicines rising by over 500 percent.

Generic drugs were thought to be the cost-control protecting American consumers from the ever-skyrocketing cost of brand-name prescription drugs. Same benefits, lower cost – at least, that was the theory. Costing pennies on the dollar compared with a brand-name drug, generic drugs have long been a critical weapon in the fight to contain soaring health care costs.

But now countless Americans are feeling sticker shock at the pharmacy drug counter as the price of many generic drugs has shot up dramatically.

This price spike for generic drugs has the attention of Congressional lawmakers, the Justice Department, and attorneys general from several states, who want to understand why it’s happening and are trying to figure out what they can do about it.

At a recent Congressional hearing about the issue, new data released in connection with the hearing found that half of generic medicines went up in price between the summer of 2013 and summer 2014. The data also pointed out that about 10 percent more than doubled in cost in that time with some common medicines rising by over 500 percent.

Prices have gone up, but it’s all relative to what brand name drugs cost, argues Ralph Neas, who heads the Generic Pharmaceutical Association, the Washington, DC-based trade association representing generic drug makers and suppliers. While some prices have increased, Neas said, “if you put them in context, you’re still talking pennies, compared to very expensive brand medicines.” Generics in general, save consumers more than $200 billion in healthcare costs every year, he said.

More than 80 percent of U.S. prescriptions are filled with generic drugs, which are chemically identical to brand-name drugs, equally effective and prescribed for the same purposes, according to the Food and Drug Administration (FDA). It’s the large spikes in price that prompted a Congressional hearing in which lawmakers highlighted 10 specific drugs that have gone up dramatically.

In 2010, the average cost of one of the 50 most prescribed generics was $13. In 2013, that
same average hit $62, according to Catamaran, which manages pharmacy benefits for 32 million people.


Do You Depend on One or More of These? And Can You Afford Them Now?

Averages and stats are meaningless, though, to people who suddenly find themselves no longer able to afford medicines they need.  A few examples:

  • Divalproex, a migraine medication, went from $31 for a monthly dose to $234, more than a 700 percent increase.
  • Tetracylcine, another antibiotic that fights bacteria in the body for everything from gonorrhea and urinary tract infections to acne, rose from .06 cents a pill to $8.50 a pill –  a 17,000 percent increase.
  • Albuterol sulfate, the asthma drug went from $11 for a bottle of 100 pills last year to $434 for the same bottle in 2014.
  • Simvastatin, the generic equivalent of cholesterol drug Zocor, and clomipramine hydrochloride, the generic version of antidepressant Anafranil each rose more than 650 percent between last summer and this past summer.
  • Quinidine gluconate, a heart drug used to keep the heart beating normally in people with certain heart rhythm disorders, went from $85 per month to $398.
  • Doxycycline, which has been on the market for more than 40 years without a formula change, is used to treat common problems like pneumonia and urinary tract infections. It cost just $20 for a 500-pill supply in October 2013. By last April, that price was $1,849. Don’t bother doing the percentage increase. – it will just tick you off.
  • Digoxin, another heart drug, which used to sell for pennies a pill, usually sells now for about $50, according to, a website that tracks prices, but has sold for as much as $1,200 for a month’s supply.


Why Are Generic Prices Rising?

Digoxin is a telling case study. There is no drug shortage, according to the FDA, that might explain the increase. There is no new patent or new formulation and Digoxin is not hard to make. What has changed most, according to an analysis by the Wall Street Journal’s Pharmalot blog, which covers the pharmaceutical industry, are the financial rewards of selling an ancient, lifesaving drug and company strategies intended to reap the benefits.

By late 2013, several of the generic manufacturers had largely stopped producing and distributing digoxin, leaving only two companies to dominate the market. Those two companies, the Wall Street Journal reported, were Lannett Company and Global Pharmaceuticals, a division of Impax Laboratories, both small companies whose bottom line can rise and fall on the sales of a single drug.

Then in January, 2014, a Swiss manufacturer, Covis, began selling an “authorized generic,” which is a generic medicine made according to the specific formula of the company that makes the brand-name drug and holds the original patent – GlaxoSmithKline – in the case of digoxin. These authorized generics tend to be more expensive than typical generics.

So some of the companies began a price increase and the others followed, the Wall Street Journal reported.

It’s unclear if the digoxin example is typical of what is happening to several of the generic drugs. Other factors are definitely playing a role in the increased prices.  Experts say raw-material shortages, consolidation in the industry and medical advancements that make replicating brand-name drugs more expensive have all contributed to skyrocketing costs. Consolidation seems to be a key factor here.

Rather than the half dozen or so competitors that many economists believe are necessary to lead to lower prices, only two or three manufacturers now make some generic meds. Some of the biggest generic drug companies — Mylan, Actavis and Teva Pharmaceutical Industries — have been aggressively snapping up other manufacturers in recent years, reducing the number of players in the market. Mylan, for example, bought a controlling stake in Abbott Laboratories’ generics business outside the U.S. in a deal valued at more than $5 billion.

Another issue in the equation could be the shortages of raw materials. But that’s actually difficult to follow because the drug supply chains often begin in China and India, so it’s hard to know whether shortages are a result of deliberate moves or other factors.

Drug prices can rise for many reasons. Companies can leave the market, resulting in decreased supply and less competition. A factory that produces the drug may temporarily be closed for violations.

But another thing seems to be at play here. There is increasing concern, that, in some cases, prices have risen because of questionable business practices or market manipulation. Over the past few years, the Federal Trade Commission and state attorneys general have gone after a practice called “pay for delay,” in which brand manufacturers pay generic drug makers to hold off entering the market.

Another consideration in the generic drug price increases is the backlog of applications for generic drugs at the Food and Drug Administration. The FDA has a policy to expedite reviews to combat shortages, but there is a backlog of more than 3,500 applications for generic approvals, compared to 1,359 in October 2012, when legislation passed to create fees for speeding reviews.

In an article in the New England Journal of Medicine, Aaron Kesselheim, a professor of health economics at the Harvard School of Public Health, suggested the FDA should solicit companies to enter markets and waive user fees. “As long as we don’t have any sort of safety net for consumers, then there’s no reason why this won’t continue to affect certain drugs,” Kesselheim says. “I don’t think there’s a risk for this problem spreading across the board yet, but for the patients affected, it’s pretty traumatic.”


Yes, Those Price Hikes Are Being Passed on to You in Some Form

One thing is clear. If prices are going up, companies are going to pass them on to the consumer. According to Catamaran, the pharmacy-benefit manager, consumers and insurers paid an average of $41.88 for a generic drug prescription in recent years, up from a four-year average of $14.21 between 2005 and 2009.

Astonishingly, many consumers may not even notice this generic drug price issue. That’s because consumers whose insurance coverage has not changed, do not feel the higher prices paid by the pharmacies. There are two reasons for that. Most insurance companies almost never adjust prescription drug co-pays in the middle of a year, and some of the increases may be built into monthly premiums for the whole system.

What you may notice is that some insurers are responding by changing reimbursement coverage so that consumers must pay a larger share of the cost. Some plans are establishing two tiers, one for low-cost generics and one for high-cost generics, so that consumers can become aware of some of the drugs that may cost hundreds and thousands of dollars for a generic, versus the ones that are less than $10 or $15.


Can – Or Will --Capitol Hill Find a Solution?

Lawmakers on Capitol Hill have a few ideas of how to fix the problem, but political considerations may override bipartisan solutions. Senators Amy Klobuchar, D-Minn., and John McCain, R-Az., have revived stalled legislation to allow some prescription imports from Canada. Similar efforts have been made since the early 1990s, before generics were a big industry. But whether it was the Clinton, Bush or Obama administrations, the federal government always raises questions about the safety of drugs coming from another country, without U.S. supervision, and that legislation usually fails – despite having significant bipartisan support in both the House and the Senate.

The state of Maine is testing out a hotly contested new law that allows its residents to buy drugs from overseas, flouting U.S. policy.

Rep. Elijah Cummings, D-Md., the ranking Democrat on the House Oversight and Government Reform Committee, and Vermont Independent Sen. Bernie Sanders, who chaired the Senate Subcommittee on Primary Health and Aging in the last Congress which conducted the generic drugs hearings, have been aggressively trying to get answers from the drug industry about why prices are increasing.

But don’t count on lawmakers finding a workable solution to keeping drug prices in check. With Republicans now controlling both chambers of Congress, taking a swing at President Obama's biggest policy achievement, the Affordable Care Act, is at the top of the agenda for the new Republican Congressional majority.

Even though just about every Republican wants to scrap the entire health care law, there is little chance of doing so with President Barack Obama wielding a veto pen. Yet, legislators have a great opportunity to roll back portions of the law. So any health care-related legislation that might garner bipartisan support – like controlling prices of generic drugs – might find itself in the crossfire of Republican attempts to gut the president’s Affordable Care Act.


[Also contributing to this story were NBC News; LA Times, NPR; Chicago Tribune; WSJ; WITF TV]

Alan Schlein runs, an internet training and consulting firm. He is the author of the bestselling “Find It Online” books.

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