When nearly 100 drugs became scarce between 2015 and 2016, their prices mysteriously increased more than twice as fast as their expected rate, an analysis recently published in the Annals of Internal Medicine reveals. The price hikes were highest if the pharmaceutical companies behind the drugs had little competition, the study also shows.
The authors—a group of researchers at the University of Pittsburgh and one at Harvard Medical School—can’t say for sure why the prices increased just based off the market data. But they can take a shot at possible explanations. The price hikes “may reflect manufacturers' opportunistic behavior during shortages, when the imbalance between supply and demand increases willingness to pay,” they conclude.
“There aren’t a lot of industries where if a manufacturer botches the production of a product and is responsible for a reduction in supply that they are able to profit from that... It is the federal government, underinsured, and uninsured patients that are picking up the tab," co-author William Shrank of the University of Pittsburgh noted in an interview with Bloomberg.
Their look into the connection between price increases and shortages adds to a long-held observation among hospitals and analysts that such shortages are costly. When a preferred drug is hard to come by, doctors can turn to less-effective—potentially more-expensive—drugs, as well as delay treatment or cut back on dosages. Together, with the hikes in prices, those changes have led advocates to estimate that drug shortages overall cost $230 million in additional healthcare costs each year.
To get a better handle on how the costs of drugs change under shortages, Shrank and colleagues analyzed data on 617 drug formulations for 90 different drugs that appeared on the Food and Drug Administration’s drug shortage database between December 2015 and December 2016. They then pulled pricing figures for those drugs from a database of wholesale acquisition costs.
Overall, they found that the drug prices tended to increase by about seven percent in the 11 months leading up to a shortage—but then increased by 16 percent in the 11 months after a shortage. Moreover, the size of that increase for individual drugs was linked to competition. The scarce drugs that had three or fewer competitors collectively held their price increase rates at about 12 percent before shortages. That rate leapt to 27 percent afterward.
On the flip side, drugs with plenty of competition (more than three competitors) saw their rates increase by just 2.5 percent before a shortage and a little under five percent afterward.
Modeling the pricing data, the researchers found that shortages pushed pricing increase rates from an expected nine percent to 20 percent. For drugs with little competition, the rate increases from 17 percent to 30 percent.
To combat potentially exploitative hikes, the authors offer a recommendation:
If manufacturers are observed using shortages to increase prices, public payers could set payment caps for drugs under shortage and limit price increases to those predicted in the absence of a shortage.
Annals of Internal Medicine, 2018. DOI: 10.7326/M18-1137 (About DOIs).
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