Cost of Prescription Medications Rising

While Americans continue to feel the effects of soaring fuel prices, there is another consumer good enjoying a "quiet" price explosion-prescription drugs. We are accustomed to slight increases each year in the price of medication, along with everything else, but during the first half of this year alone the average wholesale price of 17 brand-name drugs increased 100 percent or more in a single cost adjustment, according to researchers at the University of Minnesota. And just as concerning is the prediction that prices on 64 drugs are expected to more than double by year's end, up from just 22 drugs in 2004.

Many of the drugs reflecting increased prices are used to treat rare but often serious or life-threatening conditions. For examples, Achtar, an infant spasm drug produced by Questcor Pharmaceuticals, skyrocketed from $1,650 per vial to over $23,000; Cosmegen, manufactured by Ovation and used to treat Wilms' tumor increased from $16.79 to $593.75; and Indocin IV, also by Ovation, used to treat heart problems in premature babies rose from $136.10 to $1,875. Researchers say the fact that these medications are seldom prescribed makes it easier for drug companies to increase the prices virtually unnoticed. "There is no simple explanation-some companies seem to figure no one is watching so they can get away with it," said Professor Stephen Schondelmeyer, director of the university's PRIME institute. "When you get past the top 500 drugs or so, most employers and payers just don't have time to monitor this information, and that creates an opportunity for extraordinary price increases."

Drug companies are defending the price increases, saying the cost adjustments are needed to keep the medication on the market. They say the drugs are still less costly than alternative ways of dealing with the condition, such as surgery or newer and more high-tech medicines. On its website, Questcor says it had to raise Acthar's price after struggling for years to "keep (it) financially viable." And Ovation spokeswoman Sally Benjamin Young explains that the rising prices were to cover its acquisition of the products from Merck in 2002 and for facility upgrades. "We feel we made an important investment in keeping these older products alive," she said. "Our products are relatively inexpensive and save lives."

However, other drugs with soaring price tags are used to treat more high-profile conditions, such as Abbott Laboratories' Norvir, which is used to treat HIV/AIDS. Abbott raised the drug's price by 400 percent to over $1,200. Last week, the drug maker agreed to pay up to $27.5 million to charities to settle charges that it raised Norvir's price to illegally thwart competition and boost sales of its own alternative, Kaletra. The decision now awaits approval by the 9th U.S. Circuit Court of Appeals. A company spokesman, Scott Stoffel, said the reason for the increase was that Abbott's scientists "discovered new uses for this drug (Norvir) and we re-priced it to capture its true value."

Regardless of the reasons for the price increases, they are helping to drive up costs for patients, insurers and government programs. "This does drive up the price of health care," said Alan Goldbloom, president of Children's Hospitals and Clinics in Minnesota. "Hospitals are either eating the cost or passing it along to insurers, so you and I are paying it in increased premiums."

The price increases have garnered Washington's attention as well. Last week, Senator Amy Klobuchar (D-Minn.) and Senator Charles Schumer (D-N.Y.) asked the Government Accountability Office to investigate cases of large price increases. In April, Sen. Klobuchar asked the Federal Trade Commission to investigate Ovation Pharmaceuticals, which had increased the average wholesale prices of four drugs in 2006 by up to 3,437 percent.

Drug costs have also been highlighted on the presidential campaign trail. Both Senators John McCain and Barack Obama say they would allow Americans to import cheaper medications from foreign countries. McCain has specifically cited the need for pharmaceutical companies to reveal more information on drug costs to consumers and insurers. The University of Minnesota researchers say requiring price disclosure would encourage competition among specialty drugs, keeping prices lower. "Most of those conditions necessary for an effective economic market aren't present in pharmaceuticals," said Schondelmeyer. "Markets don't work well when there's no information available."