Global Insight Perspective | |
Significance | A total of 17 branded drugs have so far witnessed drug price rises of over 100% in the first half of 2008. As many as 50 branded single-source and 14 off-patent brand national drug codes (NDCs) were found to have experienced "extraordinary price increases" in 2008. |
Implications | The impacts of rising drug prices are driven by a host of factors, including unusual dosage forms, orphan drugs, and intellectual property rights. |
Outlook | The drug industry is expected to face renewed pressure to cap the rate of price increases while the link with rising health expenditure is established. |
Drug price increases in the United States have come under fresh scrutiny after a recent study conducted by the PRIME Institute at the University of Minnesota reported a rise in the number of national drug codes (NDCs) involved in "extraordinary price rises". In its study, the institute has defined "extraordinary price increases" as any price rise greater or equal to 100% at a single point in time. The study has tracked changes in prescription drugs through the American Association of Retired Persons (AARP) and other benchmark prices available through the average wholesale price (AWP) and wholesalers' acquisition cost (WAC) from 1998–2008. The findings of the study are as follows:
- For single-source brand products, six price increases of more than 1,000% were found, the largest being 3,436%.
- Six NDCs registered increases of 500–999%.
- Of all NDCs, 13.5% have had one or more extraordinary price increase.
- A total of 5.3% of single-source brand NDCs and 2.2% of off-patent brand NDCs have witnessed extraordinary price increases.
- Between 2004 and 2008, 163 branded single source drugs and 44 off-patent brand drugs have witnessed extraordinary price increases.
The study illustrates a range of factors driving drug price rises, finding that orphan drugs targeting small patient populations with small volumes are often subject to price increases. Additionally, factors such as unusual dosage forms, limited distribution channels, and short supply were associated with rising prices. The report also suggests that market conditions such as intellectual property (IP) and exclusivity status have fuelled price increases. Notably, the extraordinary price increases were found in products that are not among the top-100–500 products on the market.
Outlook and Implications
Although the findings from the study are preliminary, the research will strengthen the scrutiny over drug prices in the U.S. pharma market, further pressuring to firms to contain prices. In fact, the Joint Economic Committee is currently discussing the issue, expressing concern that "pharmaceutical companies are exploiting those in precarious medical positions", according to ABC News. Among the drug firms named in the PRIME Institute's report are Ovation Pharmaceuticals, QOL Medical, and Questcor. The General Accounting Office (GAO) has also been tasked with seeking further clarification on the issue. So far, the study's findings have indicated the extraordinary price increases in limited volume scope drugs such as "orphan drugs". However, the issue of intellectual property rights (IPR) and marketing exclusivity will bring in a wider segment of pharmaceutical players as each factor is examined by the lawmakers.
The pharmaceutical industry is already facing pressures on new drug approvals and generic competition affecting drug revenues, and the potential for any kind of cap or mandate on drug pricing norms will further push firms towards the edge—particularly branded pharma firms. Pharma major Abbott Laboratories (U.S.) recently settled a lawsuit that had alleged that the firm increased the price of its anti-retroviral (ARV) drug Norvir by 400%. Furthermore, the Federal Trade Commission and other agencies have been increasingly involved in scrutinising drug prices. Establishing a link between rising health expenditure and drug prices is expected to increase pressure on branded pharma firms.