How Regulation Inflates The Cost Of Even Generic Drugs

I pay for my own drugs, 100%. That's because I chose to opt out of Obamacare entirely, and use the services of a concierge physician, which means I also have to pay for catastrophic (high-deductible) insurance in case I get cancer or a horrible accident. If I need to see a specialist, I pay for that out-of-pocket, too. But in exchange, I have my doctor's cellphone number, and I can get in pretty much whenever I need to. She's also really flexible: when my father-in-law visited and had a flare-up of his COPD, she was able to see him that same day and didn't charge us extra. It's far from my ideal situation, because I'm paying a relatively large sum annually for what amounts to an annual physical (I also must pay for the labs) and any incidental visits, though I do get the occasional benefit in the way of a flu shot or whatnot.

All this is to say, I was utterly flabbergasted when I was asked to pay $85 for a prescription of methylprednisolone, a drug that has been in the formulary since at least 1985 (PDF), and should be well out of patent. This led me to voice my frustration and shock on Facebook that such a basic drug should be so expensive. (It's routinely administered as an inexpensive means to shut down immune responses to various conditions, although it's something of a blunderbuss and has a nasty lot of side effects with routine, extended use.) It's a generic, right? Aren't they supposed to be cheaper than name-brand drugs?

Well, it turns out, no, they aren't. And, as you may have guessed, there's a reason for that.

Numerous factors may cause price increases for non–patent-protected drugs, including drug shortages, supply disruptions, and consolidations within the generic-drug industry.3 These factors generally lead to a decrease in market competition. For example, between 2002 and 2013, some manufacturers of digoxin — which is still used for atrial fibrillation and heart failure — faced safety-related drug recalls and FDA inspections, and the number of manufacturers of oral digoxin (tablet) fell from eight to three. During that time, the drug's price reportedly increased by 637%. Similarly, the price increase for doxycycline was most likely exacerbated by a national shortage in 2013, which the FDA attributed to increased demand in the face of limited manufacturing capacity.

The case of albendazole reveals additional circumstances that may contribute to price increases for older drugs. Although GSK continues to manufacture albendazole, the company sold its U.S. marketing rights to Amedra Pharmaceuticals, a small, private firm, in October 2010.4 In 2011, Teva Pharmaceuticals discontinued manufacturing of the only therapeutically interchangeable antiparasitic agent, mebendazole (Vermox), for non–safety-related business reasons, and prescribing of mebendazole slowed (see graph). Although many contributors to the price a manufacturer sets for a drug, such as shortages of raw materials or price markups elsewhere along the pharmaceutical supply chain, are out of a particular manufacturer's control, Amedra's business strategy may be to corner a niche market for a pharmaceutical agent. Amedra has similarly acquired from GSK dextroamphetamine (Dexedrine Spansule), a treatment for attention-deficit disorder, and pyrimethamine (Daraprim), which is used to treat toxoplasmosis. The prices of both drugs increased after their acquisition, though to a lesser extent than albendazole's price.

Although high prices charged for albendazole and other drugs by manufacturers that hold a monopoly (or a near monopoly) on them can hinder access for certain patients, U.S. antitrust laws protect consumers only from anticompetitive strategies such as price fixing among competitors. Manufacturers of generic drugs that legally obtain a market monopoly are free to unilaterally raise the prices of their products. The Federal Trade Commission will not intervene without evidence of a conspiracy among competitors or other anticompetitive actions that sustain the increased price. Amedra did acquire albendazole's only near-term potential competitor, mebendazole, from Teva in 2013, though that move may not rise to the level of anticompetitive behavior.

 All of which is to say, patent reform is not enough; the heavily regulated generic drug sector also needs to be taken behind the woodshed. That regulation appears to be driving the cost of medication in that it creates competitive moats around certain drugs and even classes of drugs for particular diagnosis areas. Political pressure to change this, thanks to Obamacare and third-party payment systems more broadly, will necessarily be diluted, as few people in my situation exist; the "ouch" factor simply isn't there. All they see is a copay, regardless of the total cost of medication.