Drug companies can, and will, gouge you now

Drug companies can, and will, gouge you now... and later... a lesson learned from the oil companies, who are gouging us for all they can get. Now is the time because with a new administration there may be some regulation and oversight.

updated 5:34 p.m. ET, Fri., Aug. 8, 2008
WASHINGTON - Pharmaceutical companies are increasingly hiking the prices of specialty medications by 100 percent or more — sometimes much more — attracting scrutiny from lawmakers who have pledged to lower health care costs.

Drug prices have historically outpaced those of other consumer goods, with the average price of medicines most-often prescribed to seniors rising 7.4 percent last year, according to the advocacy group AARP.

But several hundred medications have seen prices jump much, much higher — and their numbers appear to be growing.

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Prices on 64 drugs are expected to more than double this year, up from just 22 in 2004, according to researchers at the University of Minnesota.

Many of the drugs are used to treat rare ailments, such as Ovation Pharmaceuticals' Cosmegen, which is prescribed exclusively to children with rare kidney cancer. The company raised the drugs' price more than 3,400 percent in 2006 to $593.75 from just $16.79.

A company spokeswoman explained that Cosmegen and other Ovation drugs are used by just a few hundred patients each year. After acquiring the products from Merck in 2002, she said Ovation could not afford to keep them on the market without raising prices.

"These are not the big cancers that are going to yield huge profits," said Ovation spokeswoman Sally Benjamin Young. "If this drug were to go away, what's left for these children?"

She pointed out that drugs like Cosmegen, which are no longer patent-protected, are still much cheaper than newer cancer therapies like Genentech Inc.'s Avastin, which can cost tens of thousands of dollars for a year's supply.

Rare diseases targeted
"Our products are relatively inexpensive and save lives," Young said.

The Pharmaceutical Research and Manufacturers of America said Friday medicines to treat rare diseases are subject to price increases because they are often more costly and risky to develop.

"These types of increases are rare exceptions and not the norm," the group said in a statement.

But other drugs with rising price tags are used to treat more high-profile ailments, such as Abbott Laboratories' HIV drug Norvir. The company raised that drug's price by 400 percent to over $1,200.

Abbott earlier this month agreed to pay between $10 million and $27.5 million to charities to settle charges that it raised Norvir's price to illegally stifle competition and boost sales of its own alternative, Kaletra.

The payout depends on how the company fares before the 9th U.S. Circuit Court of Appeals, which will be asked to settle several antitrust questions raised in the case.

According to company spokesman Scott Stoffel, Abbott's scientists "discovered new uses for this drug and we repriced it to capture its true value."

The University of Minnesota researchers said the fact that many medications are seldom prescribed makes it easier for drug companies to unexpectedly hike prices.

"When you get past the top 500 drugs or so, most employers and payers just don't have time to monitor this information, and that creates an opportunity for extraordinary price increases," said Professor Stephen Schondelmeyer, a researcher at the university's PRIME Institute.


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Last week the group's research prompted Sen. Charles Schumer, D-N.Y., to ask the Government Accountability Office to investigate rising drug prices. Schumer chairs Congress' Joint Economic Committee.

The new scrutiny of drug costs comes as spending on medications begins to rise again, after declining for six years when many medications began competing with cheaper, generic versions. Spending on drugs grew 8.5 percent in 2006, the most recent year that data is available, when the government began paying for seniors' prescriptions under the Medicare drug benefit.

While drug costs still make up only a small portion of overall health care spending, both presumptive presidential nominees have highlighted the issue on the campaign trail. Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., would allow Americans to import cheaper medications from foreign countries, among other proposals.

Too little scrutiny
And McCain has specifically said pharmaceutical companies should reveal more information on drug costs to consumers and health care payers. The industry has long argued that those numbers are proprietary.

Researchers at the University of Minnesota said requiring price disclosure would encourage competition among specialty drugs, and help bring prices down.

"Most of those conditions necessary for an effective economic market aren't present in pharmaceuticals," Schondelmeyer said. "Markets don't work well when there's no information available."