Price hikes for certain drugs on the World Health Organization List of Essential Medications may be coming, warn University of Minnesota researchers in a recent New England Journal of Medicine Perspective.

Highlighting certain recent price hikes on sole-source, off-patent branded medications—including the recent controversy surrounding Valeant Pharmaceuticals and Turing Pharmaceuticals—the authors suggest that these drugs are manufactured by three or fewer firms, have little or no alternatives, and treat conditions with high morbidity and mortality. On the list of drugs the authors compiled, 11 of the 17 drugs had one manufacturer.

"We believe that other older medications on the WHO Model List of Essential Medicines may be potential targets for opportunistic companies using this business model," the researchers wrote.

The list includes seven drugs used to treat tuberculosis, as well as first-line treatments for severe malaria, scabies and lice.

Generic drug companies have little incentive to enter niche markets, the authors point out, due to difficulty in recouping their investment. The FDA recently announced that it will fast-track the review process for generic drugs where only one manufacturer exists. But the authors call for more action.

“We believe that empowering Medicare to negotiate drug prices and opening U.S. markets to imported drugs would be a welcome regulatory response,” they wrote. “Quality and safety could be ensured by reliance on reputable regulatory agencies such as the European Medicines Agency and Health Canada.”

Separately, Valeant Pharmaceuticals last week said it was making good on its promise to scale back price hikes for two of its heart drugs, Nitropress and Isuprel. According to Valeant, hospitals are eligible for a minimum 10 percent rebate, and up to 40 percent rebate, based on volume.

Our Take: Years ago when a drug went off patent, it was common practice for a manufacturer to hike the price of the branded drug and ride the wave as long as possible, depending on physicians to write their prescriptions “Dispense as Written” and patients to demand the brand over a generic. That lasted until managed care and pharmacy benefit managers took over and required mandatory generic substitution. 

This business model is far different. In the case of Valeant, and to a lesser degree other larger companies, the business strategy is to find drugs with highly inelastic demand—high morbidity and mortality, and no direct competitor. In desperate need of treatment, people will pay just about anything for the drug.

That is, until they can’t.

The New York Times tells the story of Bruce Mannes, a 68-year-old carpenter from Granville, Mich. with Wilson disease. He had been taking Cuprimine for 55 years, which if untreated can lead to severe liver and nerve damage. After acquiring the drug, Valeant quadrupled the price overnight. The consequences? Medicare will now pay about $35,000 per month for the drug, and Mr. Mannes’ copay rose to $1,800 per month. His wife has since taken on a second job to cover their out-of-pocket expenses.

“My husband will die without the medicine,” his wife Susan told the Times. “We just can’t manage another two, three thousand dollars a month for pills.”

There is nothing illegal about what these companies have done. No antitrust laws have been broken. It’s a matter of business ethics. Jacking up prices on desperate people clinging to their lives with nowhere else to go? That sounds like what loan sharks do.

And of course, this business practice is completely at odds with the Triple Aim—the bedrock philosophy behind the new healthcare delivery paradigm. Valeant and Turing have put this issue front and center and we can all but guarantee that CMS and the FDA will do more to discourage companies from adopting this model.

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