Comments on: Drug Wholesale Prices Rose 7.82 Percent In ‘07 http://www.pharmalot.com/2008/02/drug-wholesale-prices-rose-782-percent-in-07/ News, Comment and Conversation Fri, 10 Feb 2012 22:15:54 +0000 http://wordpress.org/?v=2.6.2 By: Bob Freeman http://www.pharmalot.com/2008/02/drug-wholesale-prices-rose-782-percent-in-07/#comment-171299 Bob Freeman Thu, 21 Feb 2008 15:58:35 +0000 http://www.pharmalot.com/2008/02/drug-wholesale-prices-rose-782-percent-in-07/#comment-171299 Nathan, good observations. Since Rx drugs are rebated deeply to secure preferred formulary status, it's difficult for a manufacturer which raises AWP to book the full price increase. For instance, if a manufacturer announces a 3% price increase, it may realize a "real" increase of 1.6% until the rebate contracts are renegotiated across the board. Second, federally mandated Medicaid rebates will apply to the higher price and, third, wholesalers model when price increases are expected and prestock to avoid paying the higher price. It is generally true that a product at the end of its patent life will have frequent and often high price increases. Cannabalization is effective only if the company has launched a new drug that is targeted for replacement. Mostly, the price increases will result in lower market share but higher per unit profit. Federal and state programs pay for about 65% of Rx drugs, so it's highly unlikely a manufacturer will forgo their programs. Nathan, good observations.

Since Rx drugs are rebated deeply to secure preferred formulary status, it’s difficult for a manufacturer which raises AWP to book the full price increase. For instance, if a manufacturer announces a 3% price increase, it may realize a “real” increase of 1.6% until the rebate contracts are renegotiated across the board. Second, federally mandated Medicaid rebates will apply to the higher price and, third, wholesalers model when price increases are expected and prestock to avoid paying the higher price.

It is generally true that a product at the end of its patent life will have frequent and often high price increases. Cannabalization is effective only if the company has launched a new drug that is targeted for replacement. Mostly, the price increases will result in lower market share but higher per unit profit.

Federal and state programs pay for about 65% of Rx drugs, so it’s highly unlikely a manufacturer will forgo their programs.

]]> By: Nathan http://www.pharmalot.com/2008/02/drug-wholesale-prices-rose-782-percent-in-07/#comment-171273 Nathan Thu, 21 Feb 2008 15:34:43 +0000 http://www.pharmalot.com/2008/02/drug-wholesale-prices-rose-782-percent-in-07/#comment-171273 Two statements from this article are strange to me: First: "Prices are going up because - drugmakers are trying to keep revenues afloat by raising prices ahead of patent expirations in hopes that patients will switch to newer meds that have market exclusivity, the paper explains." Do they have evidence for this? If this were true, then the average price increase for drugs nearing the end of their patent life would be HIGHER than than average price increase for the remaining drugs. Also, don't most people pay a copay on prescription medication? If so, then a price increase on an older medication really isn't going to influence someone to switch to a newer medication. The copay will be the same. Second strange thing: "Direct negotiations clearly could save the feds money, the concept being that the government makes almost 50% of purchases, and accordingly have almost fiat-like power to set their purchase price wherever they wish." Here's what I don't understand about pharmaceutical pricing: If the Feds (or anyother country) refuses to pay the going rate ("retail price") for a medication, couldn't the pharma company just refuse to sell to them? What is the governments responce going to be when drug company "X" decides that they are not going to sell any product to medicade/medicare unless they pay a particular price? It seems to me that the pharma industry has the "fiat-like" power -- they own the drugs that people want. You can't get them by any other legal means. Two statements from this article are strange to me:
First: “Prices are going up because - drugmakers are trying to keep revenues afloat by raising prices ahead of patent expirations in hopes that patients will switch to newer meds that have market exclusivity, the paper explains.”

Do they have evidence for this? If this were true, then the average price increase for drugs nearing the end of their patent life would be HIGHER than than average price increase for the remaining drugs. Also, don’t most people pay a copay on prescription medication? If so, then a price increase on an older medication really isn’t going to influence someone to switch to a newer medication. The copay will be the same.

Second strange thing:
“Direct negotiations clearly could save the feds money, the concept being that the government makes almost 50% of purchases, and accordingly have almost fiat-like power to set their purchase price wherever they wish.”

Here’s what I don’t understand about pharmaceutical pricing: If the Feds (or anyother country) refuses to pay the going rate (”retail price”) for a medication, couldn’t the pharma company just refuse to sell to them? What is the governments responce going to be when drug company “X” decides that they are not going to sell any product to medicade/medicare unless they pay a particular price? It seems to me that the pharma industry has the “fiat-like” power — they own the drugs that people want. You can’t get them by any other legal means.

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