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How Lilly Doubled the Price of an Antipsychotic Pill Without Anyone Noticing

The U.S. Supreme Court's denial of a class-action lawsuit that alleged Eli Lilly (LLY) unlawfully increased the price of the antipsychotic Zyprexa ought to be a wake-up call to managers at health insurance companies. The Supremes let stand a federal appeals court ruling that basically says if insurance companies are asleep at the wheel while drug companies jack up their prices for no good reason, they have no legal recourse.

The ruling also suggests that healthcare costs in the U.S. spiral upward because health insurers don't bother bargaining them down (and why would they if they can simply pass on the cost to you and I?)

In the case, a police benefits fund sued Lilly, alleging that it would never have accepted price hikes on Zyprexa if it hadn't been for the company's misleading marketing. Lilly promoted Zyprexa as superior to other drugs for schizophrenia and bipolar disorder, and also downplayed its dangers, such as weight gain and diabetes.

The case was dismissed because sales of the drug were not triggered directly by the misleading claims Lilly may have made. Instead, the independent judgment of doctors prescribing the drug broke the direct link the plaintiffs needed to prove their case, the court said.

But the ruling also described why the price of Zyprexa doubled in 10 years: Lilly had a pricing strategy called "premium drug, premium price," and health insurers didn't do anything to stop it. They just accepted the price rises. The court gave this schedule for Zyprexa's price per prescription:

  • 1996: $188
  • 2003: $292
  • 2006: $368
The difference between the cost of Zyprexa and its competitors (Johnson & Johnson's Risperdal, for instance) increased from $77 in 1996 to $150 in 2006. The court ruled:
In fact, if plaintiffs' factual allegations are correct, the chain of causation runs as follows: Lilly distributes misinformation about Zyprexa, physicians rely upon the misinformation and prescribe Zyprexa, TPPs [third-party payors] relying on the advice of PBMs and their Pharmacy and Therapeutics Committees place Zyprexa on their formularies as approved drugs, TPPs fail to negotiate the price of Zyprexa below the level set by Lilly, and TPPs overpay for Zyprexa.
It looks as if Lilly stuck with its pricing strategy since 2006. Currently, the cost of 100 Zyprexa pills in their strongest dose is around $1,950 and Zyprexa made about $3 billion in U.S. sales last year, according to IMS Health. Risperdal -- which has gone generic -- costs just $86 for 100 pills in the highest dose.

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Image by Flickr user mykl roventine, CC.