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Markups on Brand-Name Medication Strain Hospital Budgets

June 17, 2015

A revelatory article in a recent edition of the Wall Street Journal sheds light on one of the most important factors influencing prescription drug pricing: their brand labels. The authors of the story, which ran with the headline, “Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices,” tell just that story.

They lead with the example of Valeant Pharmaceuticals International, which in February bought two heart medications from competitors (Isuprel and Nitropress) only to raise their prices by 525 percent and 212 percent, respectively–from $215 to $1,346 for Isuprel and from $257 to $805 for Nitropress. On a broader scale, write the reporters, “[B]randed-drug prices have increased 127 percent, compared with an 11 percent rise in the consumer price index,” since 2008.

Americans’ spending on prescription medications totals only about a tenth of overall healthcare expenses, which is due in large part to the existence of generic drugs. As patents on big-name (and big-ticket) pharmaceuticals expire, other companies may begin to manufacture very similar products at lower costs. But, as the authors of this article note: “[T]here aren’t as many big patent expirations looming, which will mean fewer cheap generics to offset the rising prices of brand-name drugs.” This does not even take into account moves like those undertaken by Valeant, which cause very steep and abrupt markups for patients.

As the Cleveland Clinic hospital network laments, Valeant’s rebranding will tack on $8.6 million to its total budget for the year–nearly seven percent of its medication budget. Similarly, medication expenditures more than doubled at three Salt Lake City hospitals, leading one drug expert there to compare the scheme to “highway robbery.”

Another company, Horizon Pharma, jacked the cost of its pain medication Vimovo 597 percent to $959 in 2014 and then to $1,678 in 2015. Its sales, correspondingly, have shot up from $20 million in 2013 to $163 million last year, despite there having been fewer prescriptions written for the drug in 2014 than in 2013.

A medical consultant explains that while drug companies’ aim is not to make medications unaffordable for patients and hospitals, they are under intense pressure from shareholders to drive profits as high as possible. Critics of Valeant in particular beg to differ, pointing to the fact that Isuprel and Nitropress have been “staples of medical care for decades,” assisting both with “treating heart-rhythm problems” and helping patients “whose blood pressure has risen to life-threatening levels.” Unfortunately, this article’s authors point out, “Doctors say there are few good alternatives.” One heart doctor explains that this lack of other options “leaves him little choice but to keep using” these two products.

Overall, the strategy is simple: “For drug companies, price hikes offer an easy way to boost sales without years of costly, risky research to find new medicines.” The demand remains, but the supply becomes more expensive, which is great news for manufacturers and their shareholders, but terrible news for patients and hospitals, whose already-stretched budgets are now under an even more intense burden.

In light of our recent article about the inefficiencies and unnecessary expenditures in American hospitals, doctors’ offices, and clinics, these continuing price hikes make matters worse for everyone but Big Pharma.

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