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Even generic-drug prices are going through the roof

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The good news: U.S. consumers still get more bang for their buck from generic drugs as prices of the cheaper versions of the originals are generally falling. The bad news: Recent years have seen an increasing count of sharp cost spikes for generics -- the drugs produced after the patents on their branded versions expire. 

“The broader picture of generic costs is the decline over time, and the lower prices traditionally seen,” said John Dicken, director of health care issues at the Government Accountability Office (GAO), the agency Congress has tasked with investigating how taxpayer money is spent. “But the fact is that there’s a subset in more recent years,” added Dicken, of a disruptive trend that’s threatening to unravel one of the few remaining restraints on the otherwise escalating cost of health care.    

Generic versions of popular or vital drugs have been a partial bright spot amid a public outcry over pharmaceutical companies jacking up the prices by astronomical proportions. After drawing fire over its pricing of its EpiPen, for instance, Mylan Pharmaceuticals (MYL) recently sought to stem the criticism by saying it would sell a generic version, charging $300 for a two-pack of the injectable medication for severe allergies rather than the list price of more than $600.

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But generic-drug manufacturers are also getting in on the price-hiking action. Examples of generics that have rocketed higher in price include the antibiotic drug erythromycin, which jumped to $8.96 per 500-milligram tablet in the first quarter of 2015 from 24 cents in the first quarter of 2010, an increase that followed three separate price spikes of at least 100 percent. 

Then there’s clomipramine HCL, an antidepressant used to treat symptoms of obsessive-compulsive disorder, which rose over 2,000 percent in one year, rising to $8.43 per 50-milligram capsule in the first quarter of 2014 from 34 cents per capsule in the first quarter of 2013.

That’s according to a recent report from the GAO, which found that from 2010 to 2011, 45 generic drugs jumped in price 100 percent or more from the first quarter of one year to the first quarter of the following year. By the 2014-2015 period, those incidences had more than doubled, to 103. 

“We looked at how often this happened, and in only five years, each year this became more common,” said Rashmi Agarwal, an assistant director at the GAO. “In most cases, the price increases were sustained over time -- they were not temporary,” added Dicken. 

Overall, generic drug prices fell 59 percent from the first quarter of 2010 through the second quarter of 2015, according to the agency. But of 1,441 established generic drugs, 351 had at least one extraordinary price increase of 100 percent or more between the first quarter 2010 and first quarter 2015, the GAO found. Of those 351 extraordinary price spikes, 48 rose 500 percent or more, and 15 leaped 1,000 percent or more.

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“Where there are multiple sources of equivalent products, there’s a gradual erosion in price,” said Dicken. “It’s very different from the branded drug market.” 

Competition, determined by the price and availability of the same drug from other manufacturers, is the primary factor in generic-drug pricing, and less competition could push prices higher.

“Stakeholders noted that the level of competition in the generic-drug market is influenced by a variety of factors, including raw material shortages, production difficulties, consolidation among manufacturers, and a backlog of new generic-drug applications awaiting federal review,” according to the GAO report, which cited drug manufacturers as the source of its conclusions. 

Within three years of a drug’s generic version being released into the market, there are a dozen competing suppliers, and its cost has declined 94 percent, according to research released in 2010.   

“The market is being driven toward consolidation with more limited suppliers, and opportunists are wading into this water looking for profit-generating opportunities,” said Rena Conti, an assistant professor of health policy at the University of Chicago. “It’s become a strategy among a select group of generic providers to look for drugs that have that characteristic to maximize profits.” 

Examples of companies that have drawn unwelcome attention for the practice of buying the rights to old drugs and then hiking prices dramatically include Valeant Pharmaceuticals (VRX) and Turing Pharmaceuticals.

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A handful of specialty drugs treat niche diseases for which there is no substitute, and “a winnowing of many of these manufacturers creates monopoly-type conditions that manufacturers are taking advantage of,” said Conti. “When mergers and acquisitions occur, oftentimes drug product lines get combined. You go from having two to one manufacturer, with a more constrained supply.” 

Quality issues have also arisen. In 2008, 81 U.S. patients died after the blood thinner heparin was tainted by a Chinese manufacturer with a counterfeit raw material. The ensuing uproar and recall led to more rigorous inspections by the U.S. Food and Drug Administration (FDA), which has since fallen further behind in approving applications by new generic suppliers.

More than 3,800 generic-drug applications are stalled waiting for approval from the FDA, a process that takes about 48 months, according to the Generic Pharmaceutical Association, a trade group.

The lags in getting FDA approval for new generics gives companies another excuse to hike prices of those already on the market. 

As Conti put it: “These companies will say, unless the FDA decides to more quickly clear the backlog, we have no other way of meeting revenue expectations.” 

Anger over the cost of drugs on Thursday prompted a bipartisan group of lawmakers to introduce legislation that would require drug manufacturers to provide their reasons for their pricing and a breakdown of their costs before raising prices on some products by more than 10 percent.     

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