How an FDA Program Lets Drug Companies Raise Prices

Your doctor hands you a prescription, explaining that she is giving you an older, inexpensive drug. At the pharmacy, you find the cost is many times the price you expected to pay. Why?

The answer is that the drug has been recently reviewed for its safety and effectiveness, and there are no other brand-name or generic equivalents available. But how could a new safety review of an old drug multiply its price?  

FDA Program Encourages Safety Testing of Old Drugs 

In 1938, Congress passed the federal Food, Drug, and Cosmetic (FDC) Act, requiring drug companies to demonstrate that new drugs are safe before they are sold. The 1962 congressional Kefauver-Harris Drug Amendments required drug makers to prove their drugs worked before the FDA could approve them for sale. 

Many drugs first marketed before these landmark decisions were assumed to be safe and were “grandfathered” in, sometimes for decades, without formally demonstrating their safety and effectiveness. The modern standard for all approved drugs sold in the United States includes randomized controlled drug trials, but until recently, that standard was not applied to these older drugs. 

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In June 2006, the FDA announced a new drug safety initiative with the goal of removing unapproved drugs from the market. The intention was to “concentrate ... resources on those products that pose the highest threat to public health and without imposing undue burdens on consumers, or unnecessarily disrupting the market.” 

Since then, drug classes have been reviewed, one at a time, with these priorities: 

  • drugs with potential safety risks
  • drugs that lack evidence of effectiveness
  • fraudulent drugs
  • drugs that present direct challenges to the new drug approval system
  • unapproved new drugs that also violative the Food, Drug, and Cosmetic Act in other ways
  • drugs that have been reformulated in order to evade FDA enforcement 

However, the program has had unintended consequences. 

If a product is not approved by the FDA, the agency can require a New Drug Application from the manufacturer, which is reviewed to determine if the drug meets FDA standards. Drugs that pass this review are then the only products of their kind that meet FDA standards, giving drug manufacturers the exclusive right to sell the drugs for a period of time, just as with any new drug. Only when the patent protection ends can other companies file applications to make and sell their generic equivalents, even if the drug has already been on the market for decades. 

The net result is that an inexpensive drug is studied, exclusive rights to sell the drug are given to the first manufacturer who meets the FDA standard, and the manufacturer can then decide what to charge — with no competition. 

The practice is similar to "flipping" homes in the real estate business. Buyers buy up older houses in nice neighborhoods and "flip" them, making some basic fixes and then immediately selling them at a high profit margin. 

Older Drugs Replaced with New, Costlier Versions 

H.P. Acthar (corticotropin) is an injectable corticosteroid. It now costs about $41,000 per vial as a new, recently approved product sold by a single company. Acthar is a member of a drug class that includes methylprednisolone and prednisone, both of which cost $20 to $30 for a prescription, even in injectable form. These drugs are often used to treat inflammation or flare-ups of diseases like multiple sclerosis or rheumatoid arthritis. 

According to Joseph Guglielmo, dean of the University of California, San Francisco School of Pharmacy, “A good healthcare provider would try to explain, it’s actually a very old drug, and an indirect way to stimulate production of cortisone. There are lots of ways to treat most of these diseases, which are prednisone type drugs. For some [infant] cases, its use is valid.”  

Due to the new FDA program, once an old drug goes through this kind of study and review, competing generic products may be forced off the market because of the patent that protects the newly approved product. Guglielmo explained that “the decision was taken out of the patient’s hands. There is no other drug they can choose.”

The price tag to take a new drug from development to market is a billion dollars. If the amount of money put into them was minuscule, they should not experience the same fiscal benefits.
Joseph Guglielmo, University of California, San Francisco School of Pharmacy

Another formerly inexpensive drug is colchicine, used to treat flare-ups of gout. After the FDA review, just one manufacturer now markets colchicine as Colcrys, and the retail price is almost $200 for fewer than 30 pills. The old generic versions once cost “pennies per pill.” 

Joseph E. Biskupiak, Ph.D., MBA, a professor at the University of Utah College of Pharmacy and associate director of the PORC Pharmacotherapy Outcomes Research Center, discussed the source of the rising drug prices. 

“They [the formerly generic drugs being reviewed] have been out so long there is plenty of information to look at concerning utility and efficacy issues,” he said. “If a company does go through the trouble of doing those studies, of course those drugs cost more money to offset the cost of doing those studies. Some of it is legit; some of it is opportunistic and taking advantage. I suspect the prices of the drugs more than compensate.” 

Guglielmo explained that bringing to market a completely new drug is indeed very expensive. “The price tag to take a new drug from development to market is a billion dollars.” Referring to studies on drugs that have been used for decades, he said, “If the amount of money put into them was minuscule, they should not experience the same fiscal benefits.”

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How Can Patients Avoid Exorbitant Drug Prices?

When old drugs are reviewed as if they are new, manufacturers may see an opportunity for a big price hike. Is the price jump justified? Should you (or your insurance company) pay for such an expensive drug? 

Guglielmo said, “If I am a patient it’s like everything else. I am making a decision on whether what I’m going to spend my money on is worth it. Patients have to rely on healthcare providers who can help them assess true value.”

How can patients know if an expensive prescription drug is the only possible treatment, or if there could be a much cheaper alternative?

Biskupiak pointed out that Medicare Part D plans, and the vast majority of insurance plans, use “the formulary process, which compares different treatments and their effectiveness, to ensure there is a treatment for a given problem that is covered” at a reasonable cost. Patients can and should learn about their insurance plan’s formulary when signing up for coverage. Many plans change their formularies every year, and they are not all the same.

A pharmacist can substitute a generic drug for an equivalent brand-name drug if there is one available. If there isn't a generic available, there could still be another class of drug that could work, and the pharmacist can discuss this with your doctor. Don’t assume that just because a drug costs far more, it must be more effective. 

Biskupiak recommends being proactive. “Take an inventory of the drugs you are taking. Write them down. If you switch insurers, check out the formulary of that insurer," he said. "What are the co-pays and are [the drugs] on their formulary? Especially for the Part D prescription plan, ask, 'What do they cover?'”

This is really an issue for Congress to address, not the FDA. A reexamination of the grandfathering process — Congress must take it up.
Joseph E. Biskupiak, University of Utah College of Pharmacy

Will you have to skip treatment if you are prescribed an incredibly expensive drug and you are uninsured, or if you are insured but your insurance company won’t pay for it? Not necessarily. 

Colcrys may be the only brand of colchicine sold in the United States, but the drug’s manufacturer has “established a Patient Assistance Program and a Co-Pay Assistance Program to ensure that all patients will be able to continue affordable access to colchicine, and has informed FDA in a letter that it will maintain the programs at a minimum until there is FDA-approved generic competition for Colcrys,” according to the FDA website.  Both patient assistance and co-pay assistance details are available through www.colcrys.com

For many other costly drugs, including H.P. Acthar, manufacturers also offer patient assistance programs and co-pay assistance (which covers most of the co-pay for patients below a certain income level). These programs do not address the high price insurers pay for drugs, which could increase insurance premiums across the board. 

For real change in the drug approval and review process, Biskupiak said, “This is really an issue for Congress to address, not the FDA. A reexamination of the grandfathering process — Congress must take it up.”  

This may be the best time in years to call your senator or representative about this issue. Currently, Sen. Bernard Sanders of Vermont and Rep. Elijah E. Cummings of Maryland have taken up the issue of inflated generic drug prices.  

According to Sanders’ website, Sanders, chairman of a Senate healthcare subcommittee, and Cummings, a ranking member of the House Oversight Committee, have asked top executives at 14 drug companies to explain recent price increases for specific generic drugs. The drugmakers have until October 23 to respond. 

If generic drug prices are being debated in Congress, patients may also be able to get lawmakers looking at drug pricing in general, as well as practices like so-called “flipping.”  

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