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Drug Makers Raised Prices Sharply in ’09

April 20, 2010 By: Nadia Category: Medtipster, Prescription News

www.Medtipster.com Source: Wall Street Journal, April 20, 2010

Drug companies sharply raised prices last year, ahead of increased rebates they must pay to Medicaid and other expenses tied to the federal health overhaul passed last month.

Prices for brand-name pharmaceuticals rose 9.1% last year, the biggest increase in at least a decade, according to pharmacy-benefit manager Express Scripts Inc., which included the recent number in its annual drug-trend report. The boost for specialty drugs, a category that is largely biotech products, was even sharper: 11.5%. In 2008, the price rise had been 7.4% for traditional pharmaceuticals, and 9.4% for specialty drugs.

Some individual drugs saw double-digit increases in the first quarter compared with a year earlier, including 12.1% on Zetia, a cholesterol drug from Merck & Co., and 13.6% for Cymbalta, an antidepressant from Eli Lilly & Co., according to data from Credit Suisse. The firm, which tracks the pricing of brand-name drugs made by the biggest U.S. manufacturers, found wholesale prices went up 7.8% in the first quarter, compared with a year earlier.

The increases were “exacerbated by the health-care reform debate,” said Steve Miller, senior vice president and chief medical officer of Express Scripts, although drug makers disputed that notion.

An Eli Lilly spokesman said its pricing policies last year weren’t affected by the health bill, and such decisions take into account benefits for patients as well as “marketplace conditions and recovery of our R&D costs.”

But Lilly did caution shareholders Monday that rebates to Medicaid, as well as other provisions in the law, would lower its 2010 revenue by $350 million to $400 million, and 2011 revenue by $600 million to $700 million.

A Merck spokesman said its “price adjustments are independent of health-care reform,” and are instead driven by an approach that aims to “ensure patient access and enable Merck to invest in research and development.”

Zetia’s pricing for most of last year was controlled by an independent joint venture involving Merck and Schering-Plough Corp., which are now merged, the company added. Both Merck and Lilly said the pricing numbers didn’t reflect the effects of rebates and discounts granted to many health-care payers.

The health law will also require the drug industry to knock off half the price paid by Medicare beneficiaries in their “doughnut hole” coverage gap starting in 2011, among other expenses, though the pharmaceutical companies will also benefit from an influx of newly insured consumers that will kick in later.

The effects of the price increases on overall drug spending are being tempered by the availability and aggressive promotion of cheaper generic alternatives, among other factors.

In its report, which reflects the drug benefits it administers for corporate clients, Express Scripts also said drug spending went up only 6.4% in 2009, slightly more than last year but lower than five years earlier.

Indeed, a report this month from IMS Health said that the number of prescriptions dispensed for generic drugs rose 5.9% last year, but those for branded drugs fell 7.6%.

Overall spending on prescription drugs rose just 5.1% according to IMS, which looks at different data than Express Scripts.

Another reason for price increases is probably that insurers, employers and pharmacy-benefit managers have become “much more difficult gatekeepers,” said Credit Suisse analyst Catherine Arnold. Discounts and rebates used to promote branded drugs precipitate price increases to offset those marketing costs.

Also, as drugs go generic, companies mark up the prices of the brand-name versions, assuming that patients who stick with those “are the people for whom price doesn’t matter,” said Mark McClellan, who formerly oversaw the Medicare and Medicaid programs for the Bush administration and is now at the Brookings Institution.

Express Scripts, which is based in St. Louis and has 36 million people in its commercial client group, said the actual drug-spending increase — as opposed to the price markup — was 4.8% for traditional pharmaceuticals, to $800.23 per member per year, and 19.5% in specialty drugs, to $111.10 per member per year.

Big increases in spending occurred in several areas, including diabetes, driven by the growing number of people diagnosed with the disease, and antiviral drugs, due to flu concerns.

The pharmacy-benefit manager said its clients were able to help keep the increase in check through use of generics and other moves. But it argued that, across the entire U.S. market, there could be significantly greater health-care savings tied to how drugs are taken.

The company estimated the savings at $163 billion a year, which could be achieved with greater use of generics and better adherence by patients prescribed drugs, both tactics that Express Scripts pitches to clients as among services it can provide.

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