(Bloomberg) — Earl Harford, a retired professor, recently bought a month's worth of the pills he needs to keep his leukemia at bay. The cost: $7,676, or three times more than when he first began taking the pills in 2001. Over the years, he has paid more than $140,000 from his retirement savings to cover his share of the drug's price.
"People with this condition are being taken advantage of by the pharmaceutical industry," said Harford, 84, of Tucson, Arizona. "They haven't improved the drug; they haven't done anything but keep manufacturing it. How do they justify it?"
As the pharmaceutical industry, led by Pfizer Inc.'s proposed $100 billion takeover of AstraZeneca Plc, is in the throes of the greatest period of consolidation in a decade, one reality remains unchanged: Drug prices keep defying the law of gravity.
Since 2007, the cost of brand-name medicines has surged, with prices doubling for dozens of established drugs that target everything from multiple sclerosis to cancer, blood pressure and even erections, according to an analysis conducted for Bloomberg News. While the consumer price index rose just 12 percent in the period, one diabetes drug quadrupled in price and another rose by 160 percent, according to the analysis by Los-Angeles based DRX, a provider of comparison software for health plans.
Starting prices for new drugs are escalating as well. Today, a cholesterol-lowering treatment for certain rare cases costs $311,000 a year and a cystic fibrosis medicine — developed partly with funding from a charity — costs $300,000 annually. Fifteen cancer drugs introduced in the last five years cost more than $10,000 a month, according to data from Memorial Sloan Kettering Cancer Center.
Analysts, meanwhile, predict the first $1 million drug treatment may be just around the corner.
Pricing power
The recent wave of acquisitions may push prices even higher, suggests Robert Kemp, an economist at the University of Louisiana at Monroe. The more drugs a company has in a specific therapeutic area, he said, the more ability it may have to maintain higher prices when negotiating with payers.
"In general, concentration has been shown to lead to higher prices in most industries," Kemp said in a telephone interview. "That's just basic economics."
Desperation is one driver for the increases, with drugmakers raising prices on products that remain under patent to offset sales dropped from blockbusters that have lost patent protection. Opportunity is another, as companies with older drugs boost prices when rivals show up, either to match the price of the newer drug or to make up for lost prescriptions.
While generic drugs pushed by insurers and the government now make up 86 percent of all medicines used in the U.S., that hasn't reduced total spending on prescription medicines. In 2012, Americans spent $263 billion, or 11 percent more than the $236 billion spent in 2007, according to U.S. government data.
"We have been consistently noticing that as manufacturers near the end of their product's life cycle, they are seeking larger price hikes than they previously did," said Sharon Frazee, vice president for research at Express Scripts Holding Co., one of the country's largest pharmacy benefit managers.
Last year, increases in prices for existing branded prescription drugs accounted for $20 billion of the industry's 2013 sales growth, offsetting $19.3 billion in revenue declines due to patent expirations, according to the IMS Institute for Healthcare Informatics. Discounts and rebates counteracted some of the price increases, according to the report.
Spending 'in line'
Drug spending growth is "in line" with other medical spending, said Lori Reilly, executive vice president for policy at Pharmaceutical Research and Manufacturers of America, or PhRMA, an industry association. When generic and brand-name drugs are put together, drug price increases have been slower than the growth of other health-care prices, she said.
"You have to look at the significant contribution that many of these medicines make to improving outcomes" and the fact that revenue from existing brand name drugs help fund new drugs still in testing, she said.
The downside is financial strain on patients. "Every day in my clinic there are patients who start discussing they can't afford this drug or that drug" because it costs too much, said Hagop Kantarjian, a leukemia doctor at M.D. Anderson Cancer Center in Houston, who wrote an article in the medical journal Blood in which a group of 100 hematology doctors protested the "unsustainable" costs of leukemia drugs.
In some cases, insurers and pharmacy benefit managers are pushing back, by forcing some medicines onto reimbursement ledges that require patients to pick up more of their cost. Doctors, meanwhile, are for the first time exploring ways to better educate patients on the gains and costs they can expect from the drugs they prescribe.
Last month, Bloomberg News reported that the world's largest organization of cancer doctors, the American Society of Clinical Oncology, was working on an algorithm for rating the cost effectiveness of expensive oncology drugs, and will urge physicians to use the system to discuss the costs with their patients.
Numerous drugmakers had multiple drugs whose price rose at least 75 percent in the period analyzed by DRX, including Merck & Co., Novartis AG, and Eli Lilly & Co. Wholesale prices in the U.S. for some doses of nine drugs sold by New York-based Pfizer Inc. rose more than 75 percent since 2007, DRX found. That includes a former top-seller, the cholesterol medicine Lipitor which lost U.S. patent protection in 2011.
"We believe our prices reflect the value of our medicines and provide the necessary incentives for ongoing R&D investments," said Andrew Topen, a Pfizer spokesman, in an e-mail. "Drug prices reflect many factors such as development risk, the ever-increasing cost of doing business, and their value to the health system."
Additionally, Topen wrote that the list price doesn't reflect discounts to government, managed care organizations, and other commercial health plans.
