The Affordable Care Act catalyzed the free-market health system into a flurry of mergers and acquisitions among some already very big insurance carriers. These companies are risk averse, and have been required to expand coverage to previously uninsured and people who have not had medical care. The incidence of neglected conditions is higher than that in the insured population.
Premiums are rising due to the increased risk and utilization. The health system is not yet in equilibrium, and may not be for several more years. The mergers of companies increases their underwriting assets, as well as decreases competition.
On the care delivery side of the equation the additional cost of administering accountable care organizations, meeting HEDIS criteria, and the loss of efficiency of improperly designed HIT (read EHR) is increasing practice overhead driving further mergers of medical practices, and health systems.
The same is true of pharmaceutical retailers and manufacturers.The pricing of drugs is unstable, as well and opportunities exist for profiteering while the going is good. Witness this article taken from the Journal of the American Medical Association,
Options to Promote Competitive Generics Markets in the United States
Clay P. Wiske, MPhil, MBA1,2; Oluwatobi A. Ogbechie, MD, MBA2,3; Kevin A. Schulman, MD2,4
[-] Author Affiliations
1Warren Alpert Medical School of Brown University, Providence, Rhode Island
2Harvard Business School, Boston, Massachusetts
3Harvard Medical School, Boston, Massachusetts
4Duke Clinical Research Institute and Department of Medicine, Duke University School of Medicine, Durham, North Carolina
JAMA. Published online October 29, 2015. doi:10.1001/jama.2015.13498
"In August, the price of the 62-year-old drug pyrimethamine (Daraprim), used to treat many potentially fatal parasitic infections, was increased practically overnight from $14 to $750 per tablet. This colossal increase attracted renewed attention to generic pharmaceutical price spikes, prompting public outrage and a new round of proposals to address this issue. Over the past few years, increasing drug shortages and price spikes have affected generic drugs, which now account for 86% of prescriptions and 29% of pharmaceutical spending.1 A stable supply of affordable generic pharmaceuticals is crucial to improve health care access and appropriate utilization for many Americans."
A 2014 report from the US Government Accountability Office found that the number of active drug shortages increased steadily from 154 in 2007 to 456 in 2012, and the majority of the affected drugs were generic.2 According to a recent Senate subcommittee investigation, many generic drugs prices have increased substantially as producers have left the market; for example, the price of albuterol sulfate tablets, used for asthma and other lung diseases, increased 4014% between October 2013 and April 2014 from $11 to $434.3 These generic drug shortages and price spikes are adverse outcomes of a malfunctioning marketplace.
Some solutions have been offered
Three potential business strategies—restricted market entry, long-term contracting, and creation of a futures market—could stabilize the generics drug market, but each has strengths and limitations. Paradoxically, for free-market advocates, these proposals all entail efforts that appear to be somewhat anticompetitive. The intent is to create a generics market that is economically viable for several firms to supply each product in the market. This result will likely lead to the most stable market over time.
Two features of the US generic drug market make it more prone to price swings and shortages than other commodity markets. First, entry into the generic drug market is restricted, including financial barriers (the cost of product formulation, quality assurance, and bioequivalence testing) and a time barrier due to the need for abbreviated clinical testing and the uncertainty of the Abbreviated New Drug Application (ANDA) review cycle. Second, again in contrast to more efficient commodity markets, there are barriers to the substitution of other products for a given generic drug molecule.
The economics of the generic drug market are driven by the opportunity for 180 days of market exclusivity for the first generic product on the market. These products are available at prices only slightly reduced from those of the originator products. Generic manufacturers may enter the market after 180 days in the hope of a substantial financial return in the short period of time before the price of the product declines. Firms take a calculated risk in financing bioequivalence studies and in entering the marketplace without knowing how many competitors will enter the market nor how quickly the price of the product will decline. As other firms enter the market and the price of a product approaches its marginal cost, the incentive to remain a supplier diminishes.4 At that time, firms make decisions about exiting the market without knowledge of the actions of other firms. Eventually, exit of enough firms supplying a particular product can lead to substantial price increases as the remaining firms operate with little competition, or drug shortages if remaining firms lack the capacity to supply the entire market. These are the drug shortages and price increases observed by Congress.
Option 1: Restrict Market Entry
Option 2: Encourage Long-term Contracts From Wholesalers
Option 3: Create a Futures Market
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Corresponding Author: Kevin A. Schulman, MD, Duke Clinical Research Institute, PO Box 17969, Durham, NC 27715 (
kevin.schulman@duke.edu).
Conflict of Interest Disclosures: All authors have completed and submitted the ICMJE Form for Disclosure of Potential Conflicts of Interest. Dr Schulman reports receiving honoraria from McKesson and Cardinal Health; consulting fees from Genentech, Novartis, sanofi-aventis, and Cytokinetics; and holding stock in Alnylam Pharmaceuticals. No other disclosures were reported.
Additional Contributions: This article was developed in collaboration with Aaron S. Kesselheim, MD, JD, MPH (Brigham and Women’s Hospital). He received no compensation for her contribution.
