How to Protect Your Company from Excessive Prescription Drug Price Increases

By Brett McCabe
Fri, May, 19, 2017 @ 09:05 AM

If recent history is any indicator, this year could be another one in which exorbitant price increases on prescription drugs will garner news headlines.

In October 2015, the Wall Street Journal reported that drug price increases were contributing three times more to American drug company revenues than increases in the volume of their prescription sales. The newspaper’s analysis found that between 2010 and 2014, wholesale price increases among the 30 top selling drugs sold by US-based pharmacies averaged 76%. That is more than eight times the general rate of inflation.

Here is just a small sampling of some of the more exorbitant prescription drug price tags we have observed in recent years:

  • Marathon Pharmaceuticals announced in February 2017 that it would charge $89,000 for deflazacort (Emfalza) to treat children with Duchenne muscular dystrophy. The drug is already available in Europe and Canada for as little at $1,000 to $2,000 per year. Marathon has received criticism previously, most notably, in 2013, after it acquired the heart drugs Isuprel and Nitropress and then proceeded to hike prices by almost 400%
  • Kaleo raised the price of naloxone (Evzio) its antidote for opioid overdoses, from $690 to $4,500. Kaleo also announced it would price AuviQ, an epinephrine injector, at a similar price ($4,500). This occurred not long after Mylan pharmaceuticals initiated exorbitant price hikes on its Epi-Pen injector.
  • Novum Pharma increased the price of dermatological products Alcortin A and Aloquin by more than 1,200% each in May 2015, followed by another big price hike in January 2016. The company also increased the price of Novacort by more than 1,954% in 2015 followed by another hike in 2016.

It’s not just the newer, fancier, branded drug products that are sporting hefty price tags. Prices for some generics have also hit new, unprecedented levels – so much so, that some members of Congress, concerned about increased Medicare spending under Part D, asked the federal Government Accountability Office (GAO) to investigate. A report issued by the GAO in August 2016 found that between 2010 and 2015, generic drug prices covered under Part D fell overall by 59%. But during the same period, more than 300 drugs from among more than 1,400 established generic drugs analyzed had one or more “extraordinary” price increases – defined as price hikes of 100% or more.

Such extraordinary price increases, the GAO found, generally persisted for at least one year and most had no downward movement following the increase. This trend tended to moderate the overall decline in generic drug prices.

What is driving these increases? Although pharmaceutical companies will say prices are determined by factors such as manufacturing capacity or production difficulties, a lot of it boils down to pharma’s ability to dictate prices. Pharmaceutical company consumer coupons and rebate programs – which insulate consumers from out of pocket costs – also contribute to higher demand for products, which in turn, enables manufacturers to raise prices. In fact, manufacturers of these extraordinarily-priced products consistently structure their patient support programs so the insured patient pays zero – leaving employers to foot the entire bill.

If you ask your PBM what they are doing about this, they will likely say they have everything under control because of price protection clauses in their contracts. But do you know what these clauses really mean and how they actually protect you? Unfortunately, aside from conducting a formal third-party audit of your rebate contracts, you probably can’t verify what price protection value is being accurately passed on to you, or to which drugs these protection apply. Nor will you likely be able to verify what protection, if any, you have against generic drug inflation.

Don’t just put oversight of your formulary on autopilot. Here are some important things to keep in mind:

  • Find out if your PBM blocks drugs because of bad pricing behavior by manufacturers. If yes, find out how extensive this list is and how the PBM handles other products by these manufacturers.
  • Act quickly when egregious pricing occurs, whether for brand or generic drugs, and be ready to use alternative drugs products when available. Time lost means higher costs.
  • Ensure that your PBMs is proactively monitoring drug utilization and implementing the appropriate UM tools, such as prior authorizations, to encourage greater use of more cost-effective drug options.
  • Remain diligent, given that market place competition changes quickly. Big price hikes generally don’t show up on your top 10 drug lists. An unscrupulous drug manufacturer can often reap millions of dollars from the system without being noticed.
  • Finally, given the unpredictability of price increases, use a trusted advisor to help identify egregious pricing and inflation strategies for both brands and generics -- and recommend possible alternative drug options to lower overall costs.