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Justice Department, Senate investigating generic drug price hikes

Some generic drugs on the market have skyrocketed in price in the last 18 months.

David Sell, TribTown, Nov 24, 2014

PHILADELPHIA - The 1984 federal law that spawned the generic pharmaceutical industry was designed to use the basic idea of economic competition to lower the cost of prescription medicine for millions of Americans.

The law has largely served its intended purpose. The Centers for Medicare and Medicaid Services said in January that the national rate of retail prescription drug spending slowed in 2012, growing only 0.4 percent because of "numerous drugs losing patent protection, leading to increased sales of lower-cost generics."

But no market can be perfect, even good, for every participant all the time, and some of the 12,000 generic drugs on that market have skyrocketed in price in the last 18 months, according to people in the industry.

Generic drugs usually still cost less than their brand-name equivalents, but makers of generic drugs are in business to make money. Companies have stopped making certain products or stopped selling them in certain places because the competition is too great or the demand too low to make what they deem an acceptable profit. Companies have bought out competitors to pare the field.

"We are the only country in the world where drug companies can charge whatever they like because they can, and to me, it's not right," said Philadelphia resident Casimir Janczewski, who saw the out-of-pocket price of his generic prescription skin cream rise from about $26 in April to about $112 in October, even with insurance from Aetna. Janczewski's annoyance increased when he learned that the drug's manufacturer, Teva Pharmaceutical Industries Ltd., had increased its profits on generics.

Janczewski, 73, said this week he went to a neighborhood Rite Aid pharmacy and learned that the cash price of his fluocinonide cream had risen to $159. But by then, he had abandoned the product.

"When I went to get it refilled in October and the pharmacist said it was $112, I said, 'No way,'" Janczewski said. "I used antibiotic skin cream I bought off the shelf for $3. They lost a customer."

For patients with more serious conditions, that is not an option. And Janczewski is not alone in his concern. A federal grand jury in Philadelphia and the Connecticut attorney general are looking into possible antitrust violations by generic drugmakers. The U.S. Senate Subcommittee on Primary Care and Aging will held a hearing late last week in Washington in the hope of getting some answers.

"We've got to get to the bottom of these enormous price increases," the subcommittee chairman, Bernie Sanders, Indiana, Vermont, said in a statement. "It is unacceptable that Americans pay by far the highest prices in the world for prescription drugs. Generic drugs were meant to help make medications affordable for the millions of Americans who rely on prescriptions to manage their health needs, and now some of them are becoming unaffordable."

A spokesman for the Generic Pharmaceutical Association, an industry trade group, cited numerous articles and studies about how generic drugs have lowered the cost of health care and increased the availability of medicine. On Sept. 24, the 30th anniversary of the signing of the Drug Price Competition and Patent Term Restoration Act, the CEO of the GPhA, Ralph Neas, noted that studies suggest the law saved $239 billion in health-care costs in 2013 and created "a new framework allowing safe, affordable generic drugs to come to the market."

To reward innovation, brand-name drugs get a monopoly position in the U.S. market, which allows companies to charge more money until the patent expires. After that, assuming they have FDA approval, generic companies can sell their replica versions. The assumption is that the generic will be cheaper because most consumers would opt for the original if it were the same price - but there is no guarantee other market forces won't push generic prices higher than they were previously.

A few of the highest-price new drugs get a public price tag. However, throughout the circuitous drug supply chain, prices are often opaque. Manufacturers, wholesalers, pharmacy benefit managers, drugstore chains and insurers all negotiate the cost of drugs and payment terms. That applies to brand-name and generic drugs.

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