GAO Assesses Drug Price Rises in New Study

The General Accountability Office (GAO) embarked on a study of drug price rises of brand name prescription drugs following concern from legislators, consumers, and payors that the rise was increasingly profound. Taking a cue from the 2008 Joint Economic Committee, which indicated a price rise of 100% or more in small market prescription drugs, the GAO went further to examine key price differences, their frequency and factors contributing to this rise in its latest study. The agency also sought to examine hidden trends through case studies comprised of six brand name drugs. The study spans an eight-year period from 2000 to 2008 and identified 416 brand name products.

Some of the key findings from this report are as follows:

• The 416 brand name drug products represented 321 different drug brands.
• In the 8-year period, the price rose annually and ranged between 100–499%. Most of the price increases were seen in drugs that were priced less than US$25 per unit.
• Of the brand name products, 90% managed to sustain the price rise, with a further higher increase or maintaining the original price hike.
• Half of the extraordinary price hikes were seen in drugs that were purchased by wholesalers from pharma firms to be repackaged and sold to individual healthcare centres.
• Predominantly, three therapeutic classes have witnessed price increases—central nervous system, which saw 126 products with an extraordinary price rise, namely in antidepressants; anti-infectives, with 55 drugs; and cardiovascular, with 35 brand name products.
• Two major factors behind the extraordinary price increases was the lack of therapeutically equivalent drugs and limited competition.
• Some of the drugs found to have witnessed price rises include Pfizer's Lipitor (atorvastatin) 80 mg, Lyrica (pregabalin) caps, Provera (medroxyprogesterone) 2.5 mg; Eli Lilly's Prozac (fluoxetine) 20-mg caps; J&J's Risperdal (risperidone); AstraZeneca's Seroquel (quetiapine).

The GAO study can be accessed here.

Outlook and Implications

The timing of this GAO report will prove to be significant for the pharmaceutical industry, which is already battling a number of suggestions from legislators and critics that drug prices are increasingly contributing to the higher costs in healthcare expenditure. This report is expected to be one of many in recent times outlining the pricing structure of drugs—particularly brand name drugs—and the factors that have been attributed include not much competition in some of the therapeutic areas. Here too, the study has pinpointed two factors, noting the limited competition and limited availability of therapeutic equivalents. The GAO has noted that patent protection and marketing exclusivity have contributed to this limited competition in that market. This will be disappointing to the pharmaceutical industry, particularly Big Pharma, which has lobbied hard to maintain broad patent protection laws.

Other factors contributing to the limited competition include the transfer of drug rights due to corporate consolidation—mergers and acquisitions. The past two years have seen an upsurge in the number of merger and acquisition deals, as pharma firms have sought to sustain growth through inorganic means. The strategy has been to maintain market share by acquiring brands and products in certain markets and therapeutic areas. This move is apparently now under scrutiny for contributing to the drug price increases. Unusual events such as manufacturing problems came a poor third in terms of culpability in the GAO report. For the pharmaceutical industry, the price rise issue is expected to present further challenges as the health reform process will include legislation ensuring more scrutiny of prices.

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