What's behind the big price jump for generic drugs?

David Lazarus
Los Angeles Times

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. 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 percent 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 percent 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 percent 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 percent of U.S. prescriptions are filled with generic drugs, according to the Food and Drug Administration. The Generic Pharmaceutical Association says this saves consumers more than $200 billion in health care 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.

Geoffrey Joyce, a professor of pharmaceutical economics at the University of Southern California, said he's seen the cost of some generic meds rise as much as 1,000 percent 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.

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.

William Comanor, head of pharmaceutical economics and policy studies at the University of California, Los Angeles, 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.

The Generic Pharmaceutical Association is "disappointed" at how some people have "mischaracterized the facts about generic drug prices," said president Ralph Neas.

He said critics focus on only a handful of drugs and ignore thousands of other "safe, affordable" generic meds.