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Generic drugs are potentially high-priced apples, ripe for the picking

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A pharmaceutical company's move to raise the price of a generic drug by more than 5,000% has some pointing to the lack of regulatory controls over the market system.

Turing Pharmaceuticals faced backlash after it announced it would raise the price of the drug Daraprim, a generic medication that treats toxoplasmosis, from $13.50 a pill to $750 a pill. The move came shortly after acquiring the rights to market the medication.

The company, however, is now backing off the over 5,000% price hike after the move provoked outrage, according to news reports. The company hasn't decided what the new price will be.

For more than 30 years, medications like Daraprim have served as an economic counterweight to the high costs of brand-name drugs.

But over the past decade, the number of manufacturers of these drugs has dwindled and they often monopolize the market and raise prices.

“It looks like they're targeting older drugs,” said Maura Caslyn, director of health policy at the Center for American Progress, an independent, nonpartisan policy institute based in Washington D.C. “It's a business decision, companies that are acquiring are obviously looking at the market for these drugs and figuring out how much do they think they can have the market bear when they increase these prices.”

Acquiring the rights to sell older medications manufactured by only a few or no other makers is not in itself illegal. Some might say companies like Turing are inevitable in a free market where life-saving medicines are treated as commodities instead of a basic human right.

Still, drugmakers are increasingly being pushed to explain their sudden price hikes.

Last October, U.S. Rep. Elijah Cummings, D-Md., and Democratic presidential candidate Sen. Bernard Sanders, I-Vt., sent letters to 14 drug manufacturers requesting information about their substantial price increases of 10 generic drugs. For example, the antibiotic Doxycycline Hyclate went from $20 in 2013 for 500 tablets to $1,849 for the same quantity the next year. That's an increase of more than 8,000%.

Other drugs saw similar kinds of hikes in costs, including the cholesterol lowering drug pravastatin, which increased to $196 from $27 between 2013 and 2014.

“We assume that a new drug from an innovative drug maker needs to cost a lot of money to recoup the cost of research and development so we, through our government, grant exclusive monopolies to individual drug makers,” said Dr. Jeremy Greene, associate professor of medicine and the history of medicine at the Johns Hopkins School of Medicine. “But one of the ways in which we comfort ourselves is to think well when that drug goes off patent then the monopoly is rescinded and the invisible hand of the free market balances supply and demand.”

Dr. Greene said generic pharmaceutical makers have historically lowered overall health care costs.

In a statement released Tuesday in response to the controversy surrounding Turing, Generic Pharmaceutical Association CEO Chip Davis said generic drugs were responsible for $239 billion in health savings in 2013 and $1.46 trillion in savings over the past decade.

“Turing is not a GPhA member and has no relationship with GPhA,” Mr. Davis said. “No single company and no single product represents the entire generic drug industry which has an undeniable record of patient savings and access.”

Dr/ Greene said the case of Turing has resurfaced questions about the government's role in controlling the market and maintaining access to inexpensive drugs.

“I think this emergence of very strategic efforts to acquire older drugs without competition and transform them into retro-monopolistic branded drugs at high price tags is not limited to Turing at all and we're seeing more of it with more devastating consequences in recent years,” Dr. Greene said. “I would project we will see more of it unless our government makes a sustained effort to restructure the incentive structure in which these companies operate.”

For their part, Democratic presidential candidates Sen. Sanders and Hillary Clinton have proposed allowing Medicare to negotiate prices with drug manufacturers, allowing patients to purchase cheaper Canadian drugs, and banning the practice of “pay for delay” agreements where manufacturers of brand-name drugs whose patents are expiring pay competitors to delay bringing their cheaper generics onto the market.

Ms. Clinton's proposal includes a provision that would require pharmaceutical companies that receive government funding for drug development to invest in research and development. Those who fail to meet certain goals would pay rebates.

“It would be really helpful to have increased transparency in the market in the sense that you would be able to make evaluations and decide whether the price (of a drug) really is justified by the costs associated with putting a product on the market or other products on the market,” said Leigh Purvis, director of health services research for AARP.

Whether such approaches will gain traction is unknown and may come down to what party wins the presidential election next year. None of the Republican candidates currently still in the race have yet to outline their plans to address high drug prices. And if and when they do, it's likely those plans will look vastly different from the approaches proposed by both Ms. Clinton and Sen. Sanders.

Steven Ross Johnson writes for Modern Healthcare, a sister publication of Business Insurance.