Average Annual Cost Of Specialty Drugs Now Exceeds US Median Household Income

Earlier this month, we reported that Senators Susan Collins (R-Maine) and Claire McCaskill (D-Mo.), who together lead the Senate Special Committee on Aging, have opened a bipartisan investigation into pharmaceutical drug pricing. 

In the crosshairs are Valeant, Turing, Retrophin, and Rodelis. 

News of the investigation came after Turing CEO Martin Shkreli (who also founded Retrophin) decided to boost the price of a toxoplasmosis drug he bought by some 5000%. Valeant - also known for jacking up prices on acquired drugs - was thrust into the spotlight after a series of reports prompted scrutiny of the company’s apparently less-than-“limited” relationship with pharmacy Philidor.

Whether Shkreli - who, you might have noticed, made a few moves this week in KaloBios that cost the E-trading Joe Campbells of the world a small fortune - realized it or not, his decision to raise the price of Daraprim from $13.50 to $750/pill may have been the tipping point for a market that has until now borne the rising cost of prescription drugs.

Of course patients with insurance don’t foot the whole bill, but insurance companies aren’t running charity operations so ultimately, higher costs are passed on to consumers in the form of steeper premiums. 

It’s against this backdrop that AARP has released a new study which shows that incredibly, the average annual cost of specialty drugs now exceeds the median US household income. As The Washington Post notes, “the study of 115 specialty drugs found that a year's worth of prescriptions for a single drug retailed at $53,384 per year, on average, in 2013 -- more than the median U.S. household income, double the median income of Medicare beneficiaries, and more than three times as much as the average Social Security benefit in the same year.”

From the report:

  • The average cost of therapy was more than $53,000 per drug per year for specialty prescription drugs at the end-payer (retail) level in 2013. — This average annual cost ($53,384) is more than double the average annual cost ($25,857) for a specialty drug in 2006, the year Medicare implemented Part D
  • The average annual cost of therapy for one specialty drug in 2013 ($53,384) was greater than the median US household income ($52,250), more than twice the median income for a Medicare beneficiary ($23,500), and over 40 times higher than the average Social Security retirement benefit ($1,294) over the same time period.

The report also notes that "retail prices for widely used specialty prescription drugs increased substantially faster than general inflation in every year from 2006 to 2013." For instance, AARP points out that "in 2013, retail prices for 115 specialty prescription drugs widely used by older Americans, including Medicare beneficiaries, increased by an average of 10.6 percent. In contrast, the general inflation rate was 1.5 percent over the same period."

Holly Campbell, a spokeswoman for PhRMA, the trade group that represents the pharmaceutical industry, isn't buying it. Campbell "called the report misleading and inaccurate because it fails to take into account the discounts and rebates that are applied to drugs through the negotiations between drug manufacturers, insurers and pharmacy benefit companies," WaPo notes, adding that "she also critiqued the study's methodology and pointed out that specialty medicines are used by a small number of people and account for a small share of total healthcare spending."

But that's about to change, and Campbell probably knows it. Here's AARP again: 

Until recently, relatively few patients used specialty drugs. However, the US population is steadily aging and older adults typically use more specialty medications than younger populations. In addition, specialty drugs are increasingly being used to treat common chronic conditions that affect millions of Americans. Drug manufacturers are also developing more specialty drugs, which now represent 42 percent of the late stage research and development pipeline. Overall, these trends indicate that a much larger share of the population will use specialty prescription drugs in the future


 Experts have projected that specialty drug spending will increase by more than 16 percent annually between 2015 and 2018, and will comprise more than 50 percent ($235 billion) of total drug spending by 2018.

And here's a look at price increases in 2013 for widely used specialty drugs by company:


Of course the industry will continue to insist that prices are generally indicative of how much has been invested during development, but what seems clear from the above and from stepped up lawmaker scrutiny, is that in many cases patients are simply being gouged which leads directly to, as AARP puts it, "increased health care premiums, deductibles, and other forms of cost sharing." On top of that, "prescription drug price growth also increases spending for taxpayer-funded health programs like Medicare and Medicaid, which will eventually affect all Americans in the form of higher taxes."

Yes, "increased health care premiums, deductibles, and higher taxes," but that's fine because we're all happy to subsidize the luxurious lifestyles of the world's Martin Shkrelis, right?

Meanwhile, the Manhattan U.S. Attorney's office announced a $390 million civil fraud settlement with Novartis on Friday and just to drive home how underhanded this industry has truly become, we'll leave you with a few passages from the press release announcing the settlement: 

Preet Bharara, the United States Attorney for the Southern District of New York,announced a $390 million settlement against NOVARTIS Pharmaceuticals Corp. (“NOVARTIS”) in a civil fraud lawsuit based on claims that NOVARTIS gave kickbacks to specialty pharmacies in return for recommending two of its drugs, Exjade and Myfortic. 


Starting in early 2007, NOVARTIS saw Exjade sales were far below internal targets because of low refill rates due, in significant part, to side effects that were more frequent and more severe than initially expected.  To increase Exjade refills and hit its sales targets, NOVARTIS leveraged its control over patient referrals to pressure BioScrip, Accredo, and US Bioservices to hire or assign nurses to call Exjade patients and, under the guise of education or clinical counseling, encourage patients to order more refills. 


More specifically, as the Government contended, NOVARTIS knew that, when the pharmacies called patients, they emphasized the benefits of taking Exjade – for example, by telling patients that not taking Exjade would cause damage to their organs or lead to infertility – while understating the serious, potentially life-threatening risks of taking Exjade – for example, by not mentioning potential side effects like kidney and liver failure.  Indeed, NOVARTIS encouraged the pharmacies to promote Exjade refills in these ways even though FDA had characterized claims about Exjade preventing organ damage as “unsubstantiated.”


In addition, the Government contended that, to incentivize the pharmacies to intensify their efforts to promote Exjade refills, NOVARTIS devised a scheme under which it allocated more patient referrals and gave higher rebates to pharmacies that obtained higher refill rates.  Indeed, NOVARTIS went forward with this scheme – which operated from 2008 to 2012 – even though it knew that the scheme presented risks of violating the Anti-Kickback Statute.

Incidentally, WSJ reported this evening that Turing is now set to generously cut the price of Daraprim in half for hospitals, which we suppose means it will "only" cost $325 now as opposed to $13.50 before.

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Full AARP report

Price Watch Trends in Retail Prices of Specialty Prescription Drugs 2006 to 2013 Nov