BUSINESS

What's behind the huge price jump for some generic drugs?

Two congressmen seek answers from the drug industry about price jumps for some generics

Why are the prices of some generic drugs so darn high?

That's a question many consumers have been asking lately. And now, a pair of prominent congressmen are demanding an answer from the drug industry.

In letters to 14 pharmaceutical companies, the congressmen said they're investigating "the recent staggering price increases for generic drugs used to treat everything from common medical conditions to life-threatening illnesses."

The letters were sent by Rep. Elijah E. Cummings of Maryland, the ranking Democrat on the House Oversight and Government Reform Committee, and Vermont independent Sen. Bernie Sanders, chairman of the Senate Subcommittee on Primary Health and Aging.

They cited the example of the asthma drug albuterol sulfate. The average cost for a bottle of 100 pills was $11 last October, the pair said. The average charge by this April was up to $434.

The antibiotic doxycycline hyclate cost $20 last October for a bottle of 500 tablets, the congressmen observed. By April, the price was $1,849.

The letters to the drug companies seek information about operational and production costs. They don't suggest any impropriety on the companies' part.

But the mere fact that a congressional investigation has been launched indicates concern that generic drugs may not be priced fairly.

The congressmen's action comes amid reports of major drug companies paying makers of generic versions to delay bringing their products to market and of ongoing consolidation among generic drug makers.

Experts say generics are growing more expensive because of reduced competition among manufacturers and shortages of raw materials. However, that might not explain triple-digit price hikes for some drugs.

"Most generics are increasing in price by an average 10% a year," said Bryan Birch, chief executive of Truveris, a New York company that monitors prescription drug costs. "But we've seen some popular drugs increase by more than 650% in the last year."

He cited simvastatin, the generic equivalent of cholesterol drug Zocor, and clomipramine hydrochloride, the generic version of antidepressant Anafranil. Prices for each rose more than 650% from June 2013 to this June, Birch said.

He said consumers often are unaware of such huge price hikes because they face only a copay when they buy meds at a drugstore.

The skyrocketing costs are borne primarily by insurance companies, which subsequently raise people's premiums to accommodate the greater expenses, Birch said.

"Someone ends up paying the bill," he said. "Ultimately, it's consumers."

More than 80% of U.S. prescriptions are filled with generic drugs, according to the Food and Drug Administration. The Generic Pharmaceutical Assn. says this saves consumers more than $200 billion in healthcare costs every year.

But Sanders said he and Cummings decided to press for some answers from the drug industry because, even with widespread use of generics, Americans pay the highest prices in the world for prescription drugs.

"Generic drugs were meant to help make medications affordable for the millions of Americans who rely on prescriptions to manage their health needs," Sanders said. "We've got to get to the bottom of these enormous price increases."

Geoffrey Joyce, a professor of pharmaceutical economics at USC, said he's seen the cost of some generic meds rise as much as 1,000% in recent months. He called these increases "obscene."

"The question is why," Joyce said.

Each of the experts I spoke with cited industry consolidation as a key reason for rising prices. Rather than the half-dozen or so competitors that many economists believe are necessary to lead to lower prices, only two or three manufacturers now make some generic meds.

Some of the biggest generic drug companies — Mylan, Actavis and Teva Pharmaceutical Industries — have been aggressively snapping up other manufacturers in recent years, reducing the number of players in the market.

In July, Mylan said it would buy a controlling stake in Abbott Laboratories' generics business outside the U.S. in a deal valued at more than $5 billion.

The deal would give Mylan even more influence over prices — not to mention the lower taxes it would pay after moving its headquarters to the Netherlands.

Shortages of raw materials frequently are cited as a reason for higher drug prices. Joyce said the difficulty of knowing what's actually happening throughout a drug's supply chain, which often begins in China or India, makes it hard to know whether a shortage is the result of deliberate moves.

"I have no proof of that," he said. "But some of the price increases make you wonder."

William Comanor, head of pharmaceutical economics and policy studies at UCLA, takes a different view. He said the reality is that many generic drugs may be priced too low.

"The prices we pay don't account for all the costs that come with running a drug company, such as having a steady supply," he said.

By Comanor's thinking, generic drug prices that are too low prevent manufacturers from investing in long-term stocks of raw materials, causing inventories abroad to rise and fall and prices in the United States to follow suit.

But he said generic drug prices do sometimes show what economists call "disequilibrium," which occurs when normal supply-and-demand market forces aren't working as they should. Prices might soar for no readily apparent reason.

"It happens," Comanor said. "And I'd like to know why."

Ralph Neas, president of the Generic Pharmaceutical Assn., said his organization is "disappointed" at how some people have "mischaracterized the facts about generic drug prices."

He said critics such as Cummings and Sanders are focusing on only a handful of drugs and ignoring thousands of other "safe, affordable" generic meds.

Perhaps. And if that's the case, generic drug makers have nothing to fear from a little congressional scrutiny.

If, on the other hand, it can be shown that prices in some instances have skyrocketed because of unethical or unfair business practices, then the industry should feel a firmer pull on the regulatory leash.

It's a fact: Prices of some generic drugs are too darn high. The industry needs to come clean on what's going on.

David Lazarus' column runs Tuesdays and Fridays. he also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.

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