Editor’s note: In order to give our readers the best information from which to make health care decisions, the Dayton Daily News is digging into what drives prescription drug prices with a multi-part series. The full investigation will run in Sunday and Monday’s papers and look for more from this investigation online this week.
Abigail Martin is grateful for the life-saving drugs her 22-month-old son Aston takes for his epileptic seizures, but the listed price — $180,000 for an eight-week treatment — leaves the Miami Twp. mother shaking her head.
“For Aston they are life-saving drugs that if he didn’t have them he’d be having seizures and that could kill him,” Martin said. “It’s not just, ‘I have heartburn and I need some Prilosec.’ It’s the fact that something that is saving my child is so expensive.”
Fortunately for Martin, her insurance plan covered most of the cost, leaving her to pay the $5,000 deductible. But the drug industry has drawn ire for the high cost of specialty drugs like the one Aston takes — injectable H.P. Acthar Gel.
Other examples that have caused public outrage:
» Mylan, manufacturer of the EpiPen, came under fire from consumers and Congress early this year after the cost of the anti-allergy drug injectors has rose more than 400 percent in a decade. A two-pack of EpiPens has a list price of more than $600.
» The CEO of Turing Pharmaceuticals, Martin Shkreli, earned the nickname “Pharma bro” in 2015 after making dismissive remarks about the 5,000 percent increase in the cost of Daraprim, a parasite-fighting drug used by cancer and HIV patients. Part of Shkreli’s explanation for the price increase was “I’m a capitalist.” He was later indicted on charges of securities fraud.
» Multiple Sclerosis patients have seen the cost of their medication go up from about $10,000 per year when the first-generation drugs were introduced in the 1990s to $60,000 per year today, according to a 2015 study. Newer drugs are entering the market with a cost 25 to 60 percent higher than existing options.
Even with insurance some drug prices are out of reach for those who need them.
In 2015 Medicare Part D, the federal government’s prescription program, spent more than $500 million on prescriptions for about 3,000 patients of H.P. Acthar Gel. The drug has the highest annual spending per user of any medication covered by Part D, or more than $162,000 per user annually. Despite that subsidy, Medicare patients still pay an average of $8,000 a year out-of-pocket for the drug.
“(Specialty drugs) have an average cost that’s 22 times higher than a conventional medication,” said Brian Lehman, manager of pharmacy benefits and policy for the Ohio Public Employees Retirement System, which provides health benefits to nearly 200,000 Ohio retirees and beneficiaries.
“Our specialty drug spend is projected to be 50 percent of our overall spend in 2018,” Lehman said. “That means half of the premium is tied into drugs that are used by just one to two percent of the people.”
Industry advocates say the high cost of developing drugs is partly responsible for the high sticker price.
When asked by Congress to explain Mylan’s price hikes on its EpiPen product in September, CEO Heather Bresch said the company must invest heavily in R&D to create hundreds of new products a year.
“This year, for example, we will spend approximately $1.2 billion on R&D and manufacturing facilities, or roughly $3 million per day,” she said, adding that the company’s 600 plus products have reduced U.S. health care costs by approximately $180 billion over the last decade.
Improvements in the EpiPen have cost the company more than $1 billion over eight years, she said. And she argued that the majority of consumers pay less than $50 out of pocket for the product.
H.P. Acthar Gel is known as an orphan drug, or a highly-specialized medication used to treat one or a handful of rare conditions affecting fewer than 200,000 patients.
“There’s one company that makes it,” Abigail Martin said. “They don’t have a competitor.”
The profit margins on these drugs are so slim — and the demand so small — there is little incentive for companies to develop cheaper generics, industry experts say. That means families often have little choice but to pay up. After all, if a life is at stake, not getting the drug is hardly an option.
Aston Martin is one of those patients whose life is at stake. His spasms, if left untreated, could cause developmental delays and even death. He was having 50 to 100 small seizures daily before the treatment, and is now down to just a few a day.
Legislation passed in the early 1980s was aimed at ensuring the flow of life-saving drugs that offer little profit potential.
In 1983 Congress passed the Orphan Drug Act. Under the law, the FDA can offer incentives, such as providing a 50 percent tax credit for research and development and granting seven years of exclusivity to companies that develop orphan drugs. During that seven-year period, no competing drugs, generics or biosimilars can be approved, paving the way for a company to own the market, at least for a time.
The hope was that armed with these incentives companies wouldn’t pull away from developing medications that some people desperately need. To that end, the law has been successful.
“It’s been wildly successful in bringing products to people who have rare diseases,” Lehman said.
The development of new and better drugs has an immeasurable benefit to Americans. Health care has shifted toward prevention, and innovative drugs to treat more diseases have been a big part of that. An expensive drug that prevents an even more expensive surgery or a stay in a nursing home is arguably a win, said Marc Sweeney, founding dean of the School of Pharmacy at Cedarville University.
But the exclusivity agreements have been controversial.
Some argue pharmaceutical companies have taken advantage of the lack of competition to both raise prices and expand the number of diseases treated by the government-protected orphan drugs. Because the law makes no restrictions on how many times manufacturers can seek orphan drug status, they can return to the FDA with the same drug again and again, testing for use against different rare diseases and potentially getting another seven years competition free.
In some cases, drugs that did not have orphan status had dramatic price increases after getting exclusivity. A recent Kaiser Health News investigation found more than 70 of the nearly 450 drugs the FDA has approved as orphans — including H.P. Acthar Gel — were originally mass market drugs that received orphan status late in their life cycle.
H.P. Acthar Gel was developed in the 1950s and at one time cost about $40 a vial. But after being granted orphan drug status in 2003, the price has skyrocketed. First one company and then another raised prices on the drug, which has had its exclusivity extended through 2017. The current manufacturer, Mallinckrodt, has applied to extend it again to treat other diseases.
The company reported net sales of $3.4 billion in fiscal year 2016, up 15.7 percent. The increase was primarily driven by volume in specialty brands, including Acthar, according to the company.
Mallinckrodt, like other manufacturers, offers a patient assistance program through which uninsured or under-insured individuals can get their high-priced drugs for free. They’ll also help insured patients with their co-pay.
Pharmaceutical companies have been criticized for these types of assistance programs because they put the burden of seeking out and qualifying for discounts on patients who often don’t know how to navigate the system. It also simply shifts the cost to health plans, which will eventually put that cost back on members.
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