In a 24-hour news cycle that has been stoked by heated elections, partisan bickering and domestic terrorism, it can be hard to keep up with the latest daily dose of outrage.
But here is one bit of news that should have attracted our attention much more than it did. A Sept. 11 Financial Times article reported that “Nostrum Laboratories, a small Missouri-based drugmaker, more than quadrupled the price of a bottle of nitrofurantoin from $474.75 to $2,392.”
That feels like a punch in the gut; in what world does the price of an old product or technology suddenly increase by more than 500 percent?
But it gets better: “In an interview, Nirmal Mulye, Nostrum chief executive, said he had priced the product according to market dynamics, adding: ‘I think it is a moral requirement to make money when you can … to sell the product for the highest price.'”
What’s more shocking: the magnitude of the price increase for an older drug or the fact that the CEO was so brazen and blatant in explaining his avarice?
Mulye said Nostrum was responding to price increases from competitor Casper Pharma, which manufacturers the branded version of the product, Furadantin. In less than three years, Casper hiked its price 182 percent to $2,800 per bottle. Mulye pointed out that his company’s generic product still offered a price savings in comparison.
(I can’t let this story go without pointing out that the definition of Nostrum, the company’s name, is “a medicine of secret composition recommended by its preparer but usually without scientific proof of its effectiveness” or “a usually questionable remedy or scheme.” Seriously. Look it up.)
I suppose we could applaud Mulye’s candor, but this news — and his cavalier attitude — is concerning and should have raised more of a stir than it did. Perhaps we’ve come to expect behavior like this from corporate America, especially in health care.
We expect industry to squeeze where it can squeeze. In fact, the Annals of Internal Medicine published a report on Sept. 18 that, unsurprisingly, suggested that drug pricing goes up by a statistically significant amount after a shortage. This increase is magnified when a drug is supplied by three or fewer manufacturers.
Anyone who thinks like a business person — the exact type of person running drug companies — understands exactly why this happens. As Mulye noted, he’s under pressure from his stockholders to increase profit. The stockholders are the people for whom he works; it is his job and duty to increase drug pricing, ergo, increase revenue.
This isn’t the only sector of the pharmaceutical industry that takes liberties with this principle. Pharmacy benefit managers (PBMs) have more and more often fallen into this habit, as well.
Initially, PBMs were created in an effort to put all the players at one table for price negotiation: the insurer, the drug manufacturer, the pharmacies and the patients. They would exert the energy to negotiate the price that the insurer and patient would each pay for a prescription at each pharmacy. Their mission was to work out a contract that benefitted everyone and take a small markup for themselves. These PBMs often serve as either an arm within an insurer (UnitedHealth + OptumRx, for example) or a separate entity (Express Scripts before being purchased by Cigna in August) that determines both reimbursement to pharmacies and cost to patients for prescriptions.
The original idea was that these middlemen provided a benefit, so we tolerated their existence. And although that was the case at first, as they became more and more entrenched in every interaction — and acquired by insurance companies — they’ve cut out progressively more of the pie for themselves largely via a practice known as “spread pricing.”
Spread pricing is, in a nutshell, marking up a drug’s cost dramatically. Take Ziprasidone, a common antipsychotic, that retails at wholesale for about 30 cents per pill. Using the free online drug pricing resource GoodRx (itself a PBM(www.goodrx.com)), the least expensive price for that same medicine in my community is 72 cents if paying cash at Costco, or a 2.4-fold markup (and my patients have reported it’s much more expensive if they’re using their insurance’s PBM). Or consider reports that one PBM was charging a $50 copay(www.healthaffairs.org) for the contraceptive and acne treatment Sprintec — which retails at $11.28. That’s a 4.3-fold markup.
The same day the Financial Times released its article on Nostrum’s price hike, Bloomberg published an investigative piece that took a deep dive into the world of PBMs and their increasing take from the cookie jar of prescription medicine.
Bloomberg looked at 90 best-selling drugs Medicaid patients used in 2017 and found that PBMs and pharmacies, “siphoned off $1.3 billion of the $4.2 billion Medicaid insurers spent on the drugs in 2017.”
That’s 31 percent of all spending in this cohort going to PBMs. And people are starting to notice.
A West Health Institute/NORC University of Chicago poll released in September showed that three quarters of Americans consider the cost of prescription drugs to be “unreasonable,” and that only about a fifth of those polled think that the government is helping.
That’s not to say various state and federal politicians aren’t trying. According to Bloomberg, West Virginia cut PBMs from its Medicaid managed care programs and is projected to save $30 million this year (equivalent to 4 percent of the state’s Medicaid drug spending).
In late August, two U.S. senators crafted an amendment to an appropriations package that sought to require direct-to-consumer pharmaceutical advertising to include pricing information. But when it came down to a vote, the amendment was scrapped.
So, we’re stuck where we are: Corporate drug manufacturers are compelled to maximize profit, PBMs gain from the opacity of the system, and policymakers are largely standing on the sidelines, frantically trying to get wins where they can.
And it makes sense that we are at this stalemate; the industry is complex and has many moving parts that are dramatically influenced by the economic forces that surround them. A true fix would mean having to dive deep into many elements of the industry — from research and design, to initial funding and the influence of venture capital, to marketing and patent protection and direct-to-consumer advertising, to the positive publication bias in journals, to the speed of FDA approval and regulation, to price gouging and gaming with coupons and lack of transparency at the drugstore. They’re all up for grabs, and any part of this system could be improved.
It’s just a matter of our corporate and governmental partners stepping up. And there’s no time like the present.
By dispensing pharmaceuticals in our in-house dispensary, we save people about 21 percent, on average, on prescription costs.
Allison Edwards, M.D., founded and cares for patients at Kansas City Direct Primary Care;(www.kansascitydirectprimarycare.com) provides locums coverage at rural hospitals with Docs Who Care in Missouri, Kansas and Colorado; and is volunteer faculty at both the University of Colorado and the University of Kansas. You can follow her on Twitter at @KansasCityDPC.(twitter.com)