Drug list prices climb 8% annually in California

Drugmakers are only partially complying with a new California law that requires they disclose price increases; most ignored the requirement that they cite reasons for those increases.

Among the 1,020 drug price increase reports submitted to the Office of Statewide Health Planning and Development, or OSHPD, 68% did not give any explanations, despite the law's requirement that they show how expenses and drug improvements necessitated the price increases.

The industry has not had to justify price increases before, said Anna Kaltenboeck, program director and senior health economist in Memorial Sloan Kettering Cancer Center's Center for Health Policy and Outcomes. The questions companies left unanswered invite further inspection, she said.

"Those questions don't just go away," Kaltenboeck said. "They kind of stick around and continue to raise other questions. In that sense, transparency is doing what it's supposed to."

Nonetheless, OSHPD's first data release triggered by the 2017 drug price transparency law was eye opening. Drugmakers, whose trade group is currently suing OSHPD to stop the data releases, reported a 25.8% median increase in the wholesale acquisition cost, or list price, of prescription drugs in the first quarter of 2019 over the previous two calendar years, or roughly 8% per year. The inflation rate was 2% over the same period, OSHPD noted.

Some price hikes were far greater. The anti-anxiety, anti-seizure medication Ativan is the most expensive drug in OSHPD's data, with a list price of $32,336 as of January, a 370% increase from before Jan. 31, 2014. The drug, priced for a 1,000-pill package that pharmacies use to fill multiple prescriptions, jumped 134% in price in 2014 alone.

Lainie Keller, a spokeswoman for Bausch Health, the company that makes Ativan, wrote in an email that new leadership in May 2016 established its current pricing approach, which limits annual increases on branded prescription medications to single digits.

The drug Xenazine, used to treat a movement disorder caused by Huntington's disease, cost $28,200 as of January 2019 for 112, 25-milligram tablets, a 156% increase since before January 2014. The manufacturer, Lundbeck, said in a statement that the price adjustment reflects the cost of research and development, the small patient population that takes the medication, market conditions and patient assistance programs.

“The biological processes involved in brain diseases are very complicated,” Lundbeck spokeswoman Ashleigh Duchene wrote in an email. “This creates significant hurdles in R&D for diseases where there remains high unmet need for additional therapies.”

A course of the chemotherapy drug Afinitor costs $15,707 for a 5-milligram dose, a 94% increase from before January 2014. Novartis, the company that makes Afinitor, did not return a request for comment.

There are plenty of reasons drugmakers raise their list prices. Sometimes it's because they're having supply chain difficulty, Kaltenboeck said. It could also be they've managed to corner a market. Companies also might raise prices at the end of a drug's life cycle. They also raise prices in an effort to move people to a different product.

"All those things could be possible," Kaltenboeck said.

Drugmakers were required to report wholesale acquisition cost increases if the drug costs more than $40 for a course of therapy and its WAC increased by more than 16% including the proposed increase and cumulative increases within the previous two calendar years.

A report released Tuesday by the Institute for Clinical and Economic Review identified seven drugs whose unsupported price increases led to $5.1 billion in additional spending in the U.S. over two years. One of the drugs, Humira, had a wholesale acquisition cost increase of 19.1% between the fourth quarter of 2016 and the same period in 2018. The arthritis drug was not listed in OSHPD's data, and it's not clear whether it should have been. The wholesale acquisition cost of erectile dysfunction drug Cialis increased 26.2% in that time. It also did not appear in OSHPD's data.

California's drug price transparency law says manufacturers that fail to report the required information are liable for civil penalties of $1,000 per day for every day after the reporting period they don't report.

Nevada's Department of Health and Human Services imposed $17.4 million in fines against 21 diabetes drug manufacturers that either did not report or were late in reporting required price information under the state's drug pricing transparency law passed two years ago, according to the Nevada Independent. An OSHPD spokesman did not say whether the agency is aware of companies that did not report who should have done so.

The trade group for drugmakers, Pharmaceutical Research and Manufacturers of America, is suing OSHPD seeking to block the California law. In its complaint, PhRMA wrote that the law unfairly singles out drug manufacturers for public condemnation.

California's law requires drugmakers give purchasers 60 days' notice before increasing their list prices, and PhRMA argues in its lawsuit that effectively prevents them from doing so anywhere during the 60-day advance notice period.

"SB 17 conflicts with key tenets of a free market economy, in particular, that market participants should not have to justify their pricing to the government or be compelled to make controversial public statements about their pricing," the complaint states.

It's not uncommon for pharmaceutical companies to fight back when states try to address drug pricing, said Trish Riley, executive director of the National Academy for State Health Policy. In addition to California's law, Nevada and Oregon have also implemented drug price transparency laws, she said. Newly passed measures are being implemented in Maine, Connecticut and Vermont.

Some have argued that wholesale acquisition costs aren't relevant, since they represent list prices that are lowered, often substantially, through discounts and rebates. But others disagree.

"It's a bit of a red herring to say, 'No one pays the list price, so it doesn't matter,' " said Bari Talente, executive vice president of advocacy for the National Multiple Sclerosis Society, which backed the California law. "It's where everything starts from."

OSHPD reported that generic drugs saw the biggest increases over the three-year period, showing a median wholesale acquisition cost increase of 37.6%. That drug category also showed the widest range in three-year percentage change, from a high of 156.4% to a low of 31%.

Providers and provider associations like the not-for-profit health system Kaiser Permanente, the California Hospital Association, for-profit hospital chain Tenet Health and the California Academy of Family Physicians supported California's drug price transparency bill.

Dr. Veronica Jordan, an Academy member and faculty member in Sutter Santa Rosa Regional Hospital's family medicine residency, said she's experienced firsthand the effects of high drug prices. Not only does she spend hours on the phone trying to get reasonably priced drugs for patients, one of her longtime patients almost died from rationing her insulin. That patient, a 38-year-old single mother and Type 1 diabetic, was told she'd have to pay an extra $300 for her insulin. After weeks of trying to find an alternative, she ended up with heart failure and was in a coma for nearly a week.

"She literally almost died," Jordan said. "When we traced all the steps back, it really came back to that day when she showed up in the pharmacy and the price of insulin was going to be $300, which was ridiculous."