April 21st, 2008 by David E. Williams of the Health business blog
In August, Questcor Pharmaceuticals announced â€œa new strategy and business model for H.P. Acthar Gel(R). Later that month you may have read my post (Abusing the orphan drug law to rip off customers), which explained how the company obtained orphan drug status for a product that had already been used for decades for Infantile Spasms (the orphan indication) and raised the price from $1600 to $23,000 per vial.
There’s a lot to explore in this story, and other bloggers have probed the issues more extensively than I have. (See the comments section of the original post for some of them.) For example: is it reasonable to use orphan status –designed to encourage development of new products– to boost the profitability of older products and potentially keep new products off the market? What are the alternative treatments for Infantile Spasms? How well do patient assistance and other price discrimination programs work in practice? How does Questcor’s inconclusive clinical trial for Infantile Spasms figure in?
The New York Times was working on a story about this topic during the fall. I know because I spent quite a bit of time educating a reporter about Questcor and H.P. Acthar. For whatever reason, the story never ran. That’s how it goes sometimes. (It wasn’t among all the news that was fit to print, I guess.)
So I was surprised to see the story in Saturday’s New York Times (Benefit Managers Profit by Specialty Drug Rights) and disappointed that the writer (a different one than I spoke with) ignored the Questcor and orphan drug law issues and focused instead on the distribution of specialty pharmaceutical products by pharmaceutical benefits managers. Here’s how the Times handled it:
As it turned out, the exclusive distributor of H.P. Acthar Gel is Express Scripts, a company whose core business is supposed to be helping employers manage their drug insurance programs and get medicines at the best available prices.
But in recent years, drug benefit managers like Express Scripts have built lucrative side businesses seemingly at odds with that best-price mission. A growing portion of their revenue comes from acting as exclusive or semi-exclusive distributors of expensive specialty drugs that can cost thousands of dollars. And the prices of such medicines are rising much faster than for the mainstream prescription drugs available through a wide variety of distributors…
“We are headed right down into conflict alley with these exclusive arrangements,” said Gerry Purcell, an Atlanta-based health benefits consultant to big employers. As exclusive or semi-exclusive distributors of specialty drugs, the benefit managers “can raise the prices at will,” Mr. Purcell said, “and the employer will have little chance but to pay the bill.”
The Times implies that Express Scripts is responsible for the price increase, and that the exclusive distribution arrangement drives prices up. It’s an odd way to focus the article.
It’s typical for specialty drugs to have a sole distributor and such arrangements have almost nothing to do with why specialty drugs are so expensive. Even if H.P. Acthar Gel were distributed widely it wouldn’t mean customers would pay less. The pricing power in this case is at the level of the manufacturer, not the distributor. (As an analogy, think of Microsoft Office. It’s available from many distributors, and prices do vary somewhat. However, Microsoft controls the wholesale price and can boost it or cut it at will. Distributors have little power.)
There are alternative treatments to H.P. Acthar Gel, including steroids and the ketogenic diet. Specialty distributors and PBMs who are locked out of the Questcor account have an incentive to promote such alternatives, which could be to the benefit of their customers and themselves.
In Questcor’s initial press release the company mentioned a number of risks inherent in the price boost, including the possibility that insurers would resist the price increase and that negative publicity would cause problems for the company. Neither of those things seems to have happened to any great degree, and the delayed, New York Times article, which points the finger in the wrong direction, is part of the reason.