Wednesday, December 09, 2009

Myths and Facts about Drug Prices

The House Energy and Commerce Committee’s Subcommittee on Health held a hearing yesterday titled “Prescription Drug Price Inflation: Are Prices Rising Too Fast?” The hearing was sparked by the AARP’s recent report on prescription drug prices that I wrote about in Drug Prices and Pharmacy Profits.

The testimony revealed a major distortion in the AARP-Schondelmeyer price studies, which increasingly make climate research at the University of East Anglia seem like the pinnacle of accurate and unbiased scientific inquiry.

You can download the testimony of the five witnesses here. The two statements to read are from Stephen Schondelmeyer of the University of Minnesota and John Vernon of The University of North Carolina at Chapel Hill.

Dr. Schondelmeyer has co-authored multiple AARP reports on the growth in published list prices. The Testimony of Stephen Schondelmeyer rehashes the text from the most recent report. Surprisingly, he does concede that list prices may not measure actual market prices (on pages 9 and 10). Thanks, Captain Obvious!

The Testimony of John Vernon highlights numerous important flaws in the Schondelmeyer-AARP studies. Here’s the one that really caught my eye:
Another flaw with the recent AARP report on rising drug prices, and related to the previous point, is that it ignores the fact that 10 of the top 25 branded pharmaceuticals in their study have generic versions currently on the market.
Yep, you read that correctly. 40% of the top 25 drugs in the AARP study have minimal brand sales yet the brand price still gets fully weighted in the average price calculations! Nice way to distort the data, if you can get away with it.

Misleading facts didn’t stop the grandstanding. According to the Wall Street Journal:
“Panel member Rep. Jane Harman (D., Calif.) called the price increases ‘unconscionable and immoral’ and other Democrats on the panel questioned whether rising prices support lucrative pay packages for drug-company executives.”
So what have we learned? A fact-finding committee hearing is not necessarily a bad idea, but many people are just not that interested in the facts.


BTW, I’m still waiting for a report on why college tuition at the University of Minnesota is rising so much faster than consumer price inflation (as discussed in the bottom of this post and the comments below it.) Some might call the tuition price increases ‘unconscionable and immoral’ and may even question whether rising tuition prices support lucrative pay packages for professors.

I’m sure a Congressional hearing is forthcoming, right?


  1. Can I just give you one disgusting example of a price increase? Provigil, made by Cephalon, was already ridiculously expensive when I bought it for my store in November at $1023 for a bottle of 100 tablets. Wanna venture a guess what the November price is? How about $1320!!! That's a 29% increase!!!

  2. Hello Anonymous above.


    1. Single source product.
    2. More often than not, prior auth.
    3. This prior auth is usually declined.
    4. America is a free world.
    5. Pay to play.

    How about some generic Rit-lin, pal? Four bucks at your local mass merchant or supermarket!

    And Adam, re Minnesota, review the out of state tuition prices today vs 3 years ago. No price increases with this sector....only decreases.

    The "snubs Minn" article was from 1991. And be certain to review the graph from post 2007.

    Lastly, as a disclosure, I of course don't work for the U.

    Chairs up and stay warm!

  3. Um, you just submitted a link showing the number of news stories about tuition hikes, not a graph of actual tuition hikes. See this link for 2009 hikes.

    Again, my real (snarky) point is about the arbitrary and inconsistent nature of the AARP-Schondelmeyer conclusions. College costs are rising at 2-3X of the CPI, but I don't see any front-page stories in the NYT.

  4. My bad....difficult to do when searching web while filling 4 buck scripts. Best if we focus on the scripts at hand, while trying to fit in some patient counseling!

    Take care.

  5. REGARDING Schondelmeyer Statement: The part of his work I did agree with is that there should always be an inverse relationship between drug spend and medical cost. This is the most accurate method of auditing for an employers' health plan. If that inverse relationship does not exists there is always a problem, usually over pricing of Rx's by the plan itself not by distribution system.
    Jim ApproRx

  6. To Anonymous who "responded" to my comment about a 29% increase in price on Provigil. WTF are you talking about?? Pay To Play?? That's all you have to say?? How about giving just one GOOD reason for this price increase?? BTW just got tipped off that good old Colchicine is getting removed from the market, and there will be just ONE brand name product left called Colcrys, which will have a wholesale COST of about $476.00, which for those who don't know, is almost a hundred times the cost of the old generic colchicine, which cost about $5.00 a bottle!! I'm sure there's a great reason for this, I just don't know it.

  7. The problem is that America is not a free market and advocates of price controls (Harman, Frank and Democrat colleagues) want to use the hills and valleys of price increases to regulate this industry. We need a true free market, one based on market pricing mechanisms, instead of this wacky reimbursement scheme that exists today. If people or payors do not want to pay for expensive brand drugs, then don't pay for them. We all know that cost effectiveness should be a criteria in the physician and pharmacist's plan of care for a patient. Its not and everyone thinks they deserve a free "all you can eat" buffet of drugs in their formulary. That's insane.

    Yes, the manufacturers have a license to print money, but as well they should given the billions poured into R&D. Do they try to push their product over lower cost alternatives (or no therapy at all)? Yes of course, as they are trying to be capitalists. Maybe China and India will learn from our mistakes and replace the US as the premier locations for pharma development. Somebody needs to keep innovating (and making a huge return on hugely valuable drugs).

  8. Loved your latest blog. And I’ll bet the PhRMA boys in DC really loved that Congressional hearing, after putting $80 billion on the table for ObamaCare

  9. Loved the interaction today. Nice to see a little excitement on the Drug Channels.

  10. Yes, fun to read. Thanks to those who posted!

  11. Wow great stuffs. Most of us know someone personally who has been affected by drug addiction. Drug addiction doesn’t discriminate to what your zip code is, what type of job you have, or what your yearly income is – it can strike the poorest families to the most affluent. Holistic Drug Addiction Treatment

  12. Adam, you need to correct your "clickable link" setup. Currently when one clicks on an external link, it actually removes your reader from the site. Probably best if another window were to open up. This would prevent us readers with short attention spans the chance of getting lost in web space.

    Free advice...

  13. I don't understand your comment about links. Here's my link policy:

    - Links to other posts from Drug Channels open up in the same browser window

    - Links to other sites open up in a new browser window

    The links in the post above all follow these rules.

    Please send me an email if I misunderstood your comment or if there is something else going on.


  14. Great blog.

    The notion that transactional prices should be measured to determine Brand inflation instead of AWP or WAC price inflation is somewhat misguided.

    Most all reimbursement contracts price brand drugs at a AWP discount or WAC plus model, so any increase in the underlying WAC or AWP would have of course inflate the transactional price the proportionally.

    Branded products have become very aggressive in their pricing, especially within the least few 1-2 years of patent life. This will bring more Congresional scrutiny soon.

    Their favorite game right now is to inflate AWP and then simply accept third party payers default Tier 3 placement for their drug. Then refuse to pay rebates, but drop copay coupons to physicians and patients to mitigate any copay tier 3 barrier. At the end of the day, many third party plans that don't manage these games end up paying for products like Solodyne(a $5,000 a year minocycline for pimples....yeah thats right!) while the member basically gets the product for free.

    The basic fundamental flaw with our current system is that consumer purchasing decisions for pharmaceuticals are not rooted in basic economic princiles of price and value. Most benefits offer flat copayments for drugs which masks the true price of the drug.


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