By Cliff Montgomery – Jan. 19th, 2010
In these days of slowed but continued economic depression, it’s good to discover such little-knowngovernment studies as the one quietly released in December 2009 by the U.S. Government AccountabilityOffice (GAO).
Perhaps the subject matter of the GAO report has something to do with the lack of fanfare upon its release.
The report’s title says it all: Brand-Name Prescription Drug Pricing: Lack of Therapeutically Equivalent Drugsand Limited Competition May Contribute to Extraordinary Price Increases.
The short, 40-page study puts a revealing light on America’s current economic system.
The simple truth? America does not live under a market-based economy–and in fact, it hasn’t for quite a longtime. As the GAO report makes clear, we have a monopoly-based economy–one that eliminates competition,rather than stimulating it.
The American Spark provides most of the study’s introduction below:
“The growing cost of brand-name prescription drugs—FDA-approved drug products that typically have patentprotection—is a concern for patients, payers, and providers of health care—particularly when price increasesare large and occur suddenly.
“A 2008 congressional hearing by the Joint Economic Committee drew attentionto some small market prescription drugs that had an extraordinary price increase—a price increase of 100percent or more at a single point in time.
“GAO was asked to examine extraordinary price increases for brand-name prescription drugs. Specifically,GAO examined the: (1) frequency of extraordinary price increases for brand-name prescription drugs from2000 to 2008, (2) characteristics of the brand-name prescription drugs that had extraordinary price increases,and (3) factors that contributed to the extraordinary price increases experienced by these brand-nameprescription drugs.”
What GAO Found
“From 2000 to 2008, 416 brand-name drug products—different drug strengths and dosage forms of the samedrug brands—had extraordinary price increases. These 416 brand-name drug products represented 321different drug brands. The number of brand-name drug products that had these extraordinary price increasesrepresents half of 1 percent of all brand-name drug products.
“The number of extraordinary price increases each year more than doubled from 2000 to 2008 and most of theextraordinary price increases ranged between 100 percent and 499 percent. Almost 90 percent of all brand-name drug products that had an extraordinary price increase sustained the new higher price—by either havinganother increase in price or remaining at the increased price.
“More than half of the brand-name drug products that had extraordinary price increases were in just threetherapeutic classes—central nervous system, anti-infective, and cardiovascular. These therapeutic classesinclude drugs used to treat conditions such as fungal or viral infections, and heart disease.
“About half of the extraordinary price increases were for brand-name drug products that were purchased fromdrug manufacturers or wholesalers, repackaged, and resold in smaller packages to health care providers suchas hospitals or physicians. However, some drug repackagers serve a niche in the drug market, and thereforemay have a small share of the market in a therapeutic class.
“The majority of all extraordinary price increases were for drugs priced less than $25 per unit. However, a fullcourse of treatment for some of these drugs could total several thousand dollars.
“Based on interviews with experts and industry representatives, a lack of therapeutically equivalent drugs—both generics and other brand-name drugs used to treat the same condition—and limited competition maycontribute to extraordinary price increases.
“The limited availability of therapeutically equivalent drugs may result from patent protection and marketexclusivity, and the size of the market for a given drug.
“Patent protection and market exclusivity temporarily limit competition and thereby allow a drug company torecoup research and development costs and earn a return on its financial investment.
“Two of six case study drugs that had extraordinary price increases were patented at the time of theextraordinary price increase. The transfer of the rights to a drug and corporate consolidations among drugcompanies may result in fewer drug options and contribute to extraordinary price increases, according toexperts.
“For example, the rights to four of the case-study drugs were obtained by a new drug company, and two ofthese drugs had an extraordinary price increase shortly after the rights to the drugs were purchased.
“Finally, experts and industry representatives noted that unusual events—such as disruptions in productiondue to shortages of raw materials—and other factors, including manufacturing issues, may also contribute tosome extraordinary price increases.”
