Imagine for a moment that something as vital to your health as medicine suddenly jumped in price from $10 to $300.
It is no secret medical costs in general are on the rise, but a large portion of this growth can be attributed to the increase in prescription drug prices alone.
A Health Affairs article, which cited figures from the Centers for Medicare & Medicaid Services, noted drug costs increased 12.6 percent in 2014, significantly exceeding other medical expenses.
This trend continued this year, with an annual percentage increase of 4.7 percent in 2015 for prescription drugs, while hospital-care expenses rose by only 1 percent and physician and clinical services dropped by 1 percent.
The spike in drug costs comes not only from expensive new drugs for diseases like cancer, hepatitis C and high cholesterol, but also largely from a shifting in the market.
In a new business strategy, many pharmaceutical companies have purchased or earned sole selling rights to old neglected drugs, some of them generic, and turned them into high-priced “specialty drugs.”
Recent examples of this strategy are numerous. Turning Pharmaceuticals raised the price of Daraprim, which treats toxoplasmosis, from $13.50 to $750 immediately following the company’s acquisition of the drug in August.
Valeant Pharmaceuticals International, a specialty drug company based in Quebec, came under fire from Congress this year when it raised the price of the two heart medications it had bought the rights to sell: Nitropress and Isuprel. The company raised the price of Nitropress 212 percent and Isuprel 525 percent.
Many of these pharmaceutical companies claim the price hikes are necessary in order to be able to funnel more money into research and development for new drugs. But not all companies honor this commitment.
While some multinational pharmaceutical companies spend double digits as a percentage of sales, Valeant’s 2014 annual report shows the company spent $246 million on research. That is just 3 percent of overall sales.
One program created by the U.S. Food and Drug Administration is aimed at discourage such behavior and encouraging more research and development on old, generic drugs which pre-date the process of formal approval.
After testing common drugs and potentially improving them to decrease any side effects, companies are rewarded with a temporary monopoly on pricing power as most rival drugs are eased or kicked off the market.
While this program may be improving older drugs on the market, it comes at a cost. For example, rights to colchicine, a remedy for gout, were granted to URL Pharma, a small drug maker in Philadelphia, which was soon purchased by Asia’s largest drug maker, Takeda Pharmaceutical Co. Once in the hands of Takeda, the drug made the company $1.2 billion, as the commercial price spiked by 2,000 percent.
As this becomes a growing issue, it remains to be seen if the government will intervene to alleviate the problem. Small steps have been taken in Congress but no larger reforms are underway at the moment.
For now, it seems enough that these companies have gained attention in the news. Stock prices dipped for each of the companies spotlighted for their recent drug price hikes.