A $300K Med? The Skinny on Prescription Drug Pricing

Alden Wicker

prescription drugs expensiveThere is now an approved prescription drug that costs $295,000 a year.

Let’s digest this for a moment. A prescription drug that costs twice as much as a college education. Every. Single. Year.

And it’s not an outlier. Gattex, which is prescribed for short bowel syndrome, is the fourth drug approved in 2012 that’s priced above $200,000 per patient, per year.

The market for high-priced drugs meant to treat rare diseases, such as Gattex, is growing at a faster rate than the overall drug market. But even excluding these Rolls Royce drugs for uncommon diseases, brand-name pharmaceutical prices have risen faster than inflation. According to Express Scripts, a pharmacy benefits manager, brand-name meds increased more than 13% from September 2011 to September 2012.

You know, because they were just so cheap to begin with, right?

How Consumers Can Even Afford a $300,000 Drug

The reason why Gattex is priced so high sheds light on how the market for pharmaceuticals works–that’s to say in a way that hardly makes sense.

Gattex is considered an “orphan drug,” which has been a booming section of the pharmaceutical industry in the past decade. Targeting rare diseases is not only profitable, but it can even be seen as philanthropic. The current treatment for short bowel syndrome can cost well over $100,000 a year, and additional costs may run as high as $500,000. Gattex may allow patients to return to work and earn an income, amounting to a significant improvement on their quality of life. Ostensibly, Gattex costs as much as any other drug to develop, but short bowel syndrome is a rare disease, so the market will be very small–and hence why its maker, NPS Pharmaceuticals, priced it so high.

This said, no patient will have to pay out of pocket for it. Instead, the drug will be covered by a patchwork of insurance, coupons and charitable organizations. Commercial insurers will pay for part of the drug, around 70%. The remaining co-pay will be covered by NPS Pharmaceutical’s co-pay assistance plan or–in the case of Medicare patients–by rare disease organizations that get funding help from NPS Pharmaceuticals. About 15% of patients who can’t pay anything will get it for free. (NPS’s team of marketers work personally with everyone who wants to use the drug.)

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Until this strategy was picked up (and encouraged by a 1983 law), drug companies had no incentive to find cures for rare diseases with tiny markets. Now they do. According to a survey released on Thursday, drug companies are shifting away from developing drugs for common diseases toward doing so for orphan diseases. In 2011, they invested $50 billion of their own money into research targeted to rare disease medicine–at the end of that year, 1,800 such drugs were being tested on patients.

So you can understand why the Rolls Royces of the drug world are expensive. But what about the Hondas–the everyman’s drugs that many people need?