What Rising Demand for Compound Drugs Means for Healthcare Drug Pricing
Everyone has heard of “Pharma Bro,” especially those of us in the healthcare industry. Martin Shkreli, CEO of Turing Pharmaceuticals, has become the poster boy for greed and price gouging in pharmaceuticals. In the wake of Turing’s acquisition of the patent for HIV treatment drug Daraprim and raising the price 5,000%, the drug pricing conversation has dominated political and healthcare trend discussions alike.1
Drugs are definitely expensive these days—no one denies that.
According to the latest drug trend report from Express Scripts, compounded drugs were the third-costliest drug category after diabetes and high blood cholesterol medications.
If we dig a little deeper, we can see there are two reasons for the huge jump from $28 million in spending on compound drugs in 2012 to $171 million in 2014: an increase in price per drug based on new ingredient-listing requirements, and also a genuine increased demand for compound drug prescriptions.
International Academy of Compounding Pharmacists spokesperson David Ball explained that beginning in 2012, reporting changed for the ingredients involved in each compound. Where before pharmacies listed only a single price for the compound, starting in 2012 they were required to list the unit prices for each ingredient, which resulted in a higher overall total.
He also noted, however, that a groundswell of demand is also responsible for the rise in compound drugs’ share of drug costs. Many industry forecasters believe there will be some legislative action related to drug pricing within the next few years, so where do compound drugs and compounding pharmacies fit into the problem and the solution?2
Rising Demand in Specific Areas for Compounded Medication
If we look at the areas where the demand for compound drugs is on the rise, a clear pattern emerges: Patients are looking for safer drugs formulated to work with the way their bodies process medication.
As the compounding landscape adjusts to legislation like the Food and Drug Administration’s (FDA) Drug Quality and Security Act (DQSA), we’ve seen changes across the board from traditional compounding pharmacies who fall under the 503A designation and those who can be categorized as manufacturers. Growing demand has resulted in organizations scaling up to provide compound drugs to those patients who want them, which has led to shifts in the market and pricing.
The areas showing high demand for compound drugs include:
- Hormone replacement therapy
- Ophthalmic/sterile preparations
Pain creams led the way for all compound drug categories, especially formulations containing gabapentin, baclofen, cyclobenzaprine, progesterone and propylene glycol.3
How Off-Patent Drugs Could Be a Solution to High Drug Prices
The second half of the story about compound drugs and drug pricing is the ways compounded and off-patent drugs could actually be a way out of the drug pricing arms race.
Take the Turing Pharmaceuticals story from the beginning of this article, for instance. Following the public outcry over Turing’s price increase of toxoplasmosis drug Daraprim, compound pharmacy Imprimis Pharmaceuticals brought a pill to market with the same dosage of FDA-approved pyrimethamine as Daraprim, via compounding with the vitamin leucovorin.
The cost of this pill? Ninety-nine cents.4
In the same way that compound and off-patent drugs are a crucial resource during drug shortages, off-patent drugs could be a solution to skyrocketing prices. Compound medications are not only a crucial part of a competitive and balanced drug market, they also provide important options for patients.
In recent years, compounders and the FDA have begun building the framework for a better way forward. Key points for all sides include recognizing the value of compounded medications to the market and also prioritizing patient safety.
As with any legislative and regulatory process, there is more progress to be made and unfulfilled desires from both sides. The drug market needs to balance between encouraging a competitive market, including competition from generics, with allowing pharmaceutical companies incentive to research and develop new drugs, and incur the costs involved with the difficult process of bringing them to market.5
The next level of progress for compounding pharmacies will be to more pointedly address ways compound drugs could reduce overall drug pricing, including:
- Potentially allowing Medicare to add compounded drugs or drugs with compounded elements to its list of drugs for which it will reimburse providers
- Incentivizing physicians to prescribe drugs based on efficacy rather than cost
- Exempt compounded versions of generics from the FDA’s “new drug” process, as these medications are compounded alternatives of generic, off-patent drugs, and not new drugs being brought to market
None of the healthcare industry forecasters knows for sure what the legislative picture for drug pricing will bring, of course, but most industry observers expect some action that will result in more regulation and tightening of drug pricing.6
Compounding pharmacists now have a larger voice in shaping how the age-old science of compounding will be viewed in the eyes of regulatory agencies. In the face of rising healthcare costs across the board, all of us in the compounding industry should look for ways we can be part of the solution.
Pharmaceutica North America is a leading provider of high-quality pharmaceutical ingredients, including lidocaine, gabapentin, baclofen and cyclobenzaprine for use in pain cream compounds. Contact us to learn more about how our APIs and compounding kits can help you provide the best quality patient care.
- “How Prescription Drugs Get So Wildly Expensive,” Sept. 23, 2015, http://www.wired.com/2015/09/prescription-drugs-get-wildly-expensive/ ↩
- “IACP to states: High standards, no loopholes on compounding,” Dec. 11, 2012, http://www.pharmacist.com/iacp-states-high-standards-no-loopholes-compounding ↩
- “The Economics of Pharmaceutical Pricing,” June 2014, https://www.pacificresearch.org/fileadmin/documents/Studies/PDFs/2013-2015/PhamaPricingF.pdf ↩
- “A New Prescription for Lower Drug Prices,” Jan. 25, 2016, http://www.wsj.com/articles/a-new-prescription-for-lower-drug-prices-1453767509 ↩
- “The Economics of Pharmaceutical Pricing,” ibid. ↩
- “Competition Is the Cure,” Oct. 5, 2015, http://www.usnews.com/opinion/economic-intelligence/2015/10/05/a-smarter-way-to-lower-prescription-drug-prices ↩