The Answer is Price Controls, Not Generics

The New York Times has a story showing how consolidation in the generic drug market led to skyrocketing prices:

The first sign of trouble came when Dr. Barry Lindenberg, a cardiologist, received a three-page insurance form in January, demanding he get preapproval to prescribe one of the oldest known heart medicines.

His patient had been on the drug, digoxin, for many years. A mainstay of treating older patients with rapid rhythm disturbances, it was first described in the medical literature in 1785. Millions of Americans still use it every day, and many had long paid just pennies a pill.

“I wrote on the form: ‘ARE YOU KIDDING ME?’ ” said Dr. Lindenberg, who practices in Schenectady, N.Y.

What the cardiologist did not know then was that the price of generic digoxin was rapidly rising. The three companies selling the drug in the United States had increased the price they charge pharmacies, at least nearly doubling it since late last year, according to EvaluatePharma, a London-based consulting firm.

………

Large price increases in the United States for vital medicines for the young, such as vaccines, have been mirrored by similar rises in some of the most basic treatments for older patients, like digoxin. Though there are many newer types of drugs to treat heart disease, for some patients there are no effective substitutes; digoxin is on the World Health Organization’s list of essential medicines.

………

But increasingly, experts say, the costs of some generic drugs are going the other way. The prices paid by pharmacies for some generic versions of Fiorinal with codeine (for migraines) and Synthroid (a thyroid medicine) as well as the generic steroid prednisolone have all more than doubled since last year, EvaluatePharma found. In January, the National Community Pharmacists Association called for a congressional hearing on generic drug prices, complaining that those for many essential medicines grew as much as “600, 1,000 percent or more” in recent years. The price jumps especially affected smaller pharmacies, which do not have the clout of big chains to bargain for discounts.

Digoxin provides a telling case study. There was no drug shortage, according to the Food and Drug Administration, that might explain the increase. There was no new patent or new formulation. Digoxin is not hard to make. What had changed most were the financial rewards of selling an ancient, lifesaving drug and company strategies intended to reap the benefits.

Though generic medicines are far cheaper to bring to market than brand-name drugs because they involve little research and development, they also are priced lower because generics typically face intense competition. But Dr. Aaron Kesselheim, a professor of health economics at the Harvard School of Public Health, noted, “Studies show it is not until you have four or five generics in the market that the prices really are down.”

By late 2013, a number of generic manufacturers had largely stopped producing and distributing digoxin, then a cheap medicine whose use had declined, leaving only two companies dominant in the market. Both businesses — the Lannett Company and Global Pharmaceuticals, a division of Impax Laboratories — are small companies whose bottom line can rise and fall on the sales of a single drug.

It's very simple.

The drug companies, or for that matter most companies, competition is not a good, but it is cross that they have to bear.

If you have 5 products, and one has a highly competitive market, you are inclined to leave the market and move to more lucrative one.  It's Econ 101.

It also f%$#s the rest of us.

We need a dose of government interference in this market.