California’s New Transparency Law Reveals Steep Rise In Wholesale Drug Prices

Yves here. If you still don’t believe that drug companies are price-gouging in America, the figures in this story should convince you. The counterargument, as you will see below, is that the wholesale prices don’t reflect what various end customers pay due to the presence of various other middlemen. However, the distribution system is so complex that you’d need complete data capture to draw a definitive picture. And it’s not that other countries don’t have that. Japan even in the 1980s did all across distributions systems so MITI could identify major players and see their market shares. So this could be done. It’s just that this isn’t how we do things here.

By Barbara Feder Ostrov, Senior Correspondent for California Healthline, who previously worked for San Jose Mercury News, the Center for Health Journalism at the USC Annenberg School of Journalism, The Palm Beach Post and the Miami Herald and Harriet Blair Rowan, Digital Reporter for California Healthline, who has been a researcher and reporter for the Center for Investigative Reporting, the Investigative Reporting Program at the University of California-Berkeley and the East Bay Times. Originally published at California Healthline, a service of the California Health Care Foundation

Drugmakers fought hard against California’s groundbreaking drug price transparency law, passed in 2017. Now, state health officials have released their first report on the price hikes those drug companies sought to shield.

Pharmaceutical companies raised the “wholesale acquisition cost” of their drugs — the list price for wholesalers without discounts or rebates — by a median of 25.8% from 2017 through the first quarter of 2019, according to the Office of Statewide Health Planning and Development. (The median is a value at the midpoint of data distribution.)

Generic drugs saw the largest median increase of 37.6% during that time. By comparison, the annual inflation rate during the period was 2%.

Several drugs stood out for far heftier price increases: The cost of a generic liquid version of Prozac, for example, rose from $9 to $69 in just the first quarter of 2019, an increase of 667%. Guanfacine, a generic medication for attention deficit hyperactivity disorder (ADHD), on the market since 2010, rose more than 200% in the first quarter of 2019 to $87 for 100 2-milligram pills. Amneal Pharmaceuticals, which makes Guanfacine, cited “manufacturing costs” and “market conditions” as reasons for the price hike.

“Even at a time when there is a microscope on this industry, they’re going ahead with drug price increases for hundreds of drugs well above the rate of inflation,” said Anthony Wright, executive director of the California advocacy group Health Access.

The national debate over exorbitant prescription drug prices — and how to relieve them — was supposed to take center stage in recent weeks, as House Speaker Nancy Pelosi released a plan to negotiate prices for as many as 250 name-brand drugs, including high-priced insulin, for Medicare beneficiaries. Another plan under consideration in the Senate would set a maximum out-of-pocket cost for prescription drugs for Medicare patients and penalize drug companies if prices rose faster than inflation.

President Donald Trump has highlighted drug prices as an issue in his reelection campaign. But lawmakers’ efforts to hammer out legislation are likely to be overshadowed, for now, by presidential impeachment proceedings. In Nevada, health officials in early October fined companies $17 million for failing to comply with the state’s two-year-old transparency law requiring diabetes drug manufacturers to disclose detailed financial and pricing information.

California’s new drug law requires companies to report drug price increases quarterly. Only companies that met certain standards — they raised the price of a drug within the first quarter and the price had risen by at least 16% since January 2017 — had to submit data. The companies that met the standards were required to provide pricing data for the previous five years. In its initial report, the state focused its analysis on drug-pricing trends for about 1,000 products from January 2017 through March 2019.

California’s transparency law also requires drugmakers to state why they are raising prices. Over time, that information, in addition to cost disclosures, could create “one of the more comprehensive and official drug databases on prices that we have nationwide,” Wright said. “That, in itself, is progress, so that we can get better information on the rationale for drug price increases.”

But the data does not reflect discounts and rebates for insurers and pharmacy benefit managers and bears little resemblance to what consumers actually pay, said Priscilla VanderVeer, a spokeswoman for the trade group Pharmaceutical Research and Manufacturers of America. The group filed a lawsuit seeking to overturn the California legislation that has not yet been resolved.

“If transparency legislation only looks at one part of the pharmaceutical supply chain, without getting into the various middlemen like insurers and pharmacy benefit managers that ultimately determine what patients have to pay at the pharmacy counter, it won’t help patients access or afford their medicines,” VanderVeer said in an email.

State Sen. Richard Pan (D-Sacramento), a pediatrician who chairs the Senate health committee, agrees — up to a point.

“Transparency always has value,” Pan said. But policymakers need more data on how much insurers and consumers are spending on prescription drugs, he said.

And he wonders why the price of generic drugs, including those with plenty of competition, rose at higher rates.

His concerns were echoed by University of Southern California policy researchers, who recently published a study that concluded most state-level drug-transparency laws are “insufficient” to reveal the true transaction prices for prescription drugs, or where in the distribution system excessive profits lie.

“The question is, why are these prices going up? Typically, there are competing stories for that,” said Neeraj Sood, vice dean of the University of Southern California’s School of Public Policy and an author of the study. “Maybe cost of production is going up,” he said. “Maybe there’s a drug shortage, or some competitors got eliminated. This reporting of [wholesale acquisition cost] data doesn’t really tell us which of these stories is true.”

For now, California’s new data is not likely to be of much help to consumers, Pan said. But he said it might help state officials in their bid to overhaul the way the state purchases drugs for 13 million people served by Medi-Cal, the state’s Medicaid program for low-income residents. Gov. Gavin Newsom’s controversial plan to have the state, rather than individual Medi-Cal managed-care plans, negotiate directly with drugmakers would save the state an estimated $393 million a year by 2023, according to the administration.

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  1. Synoia

    But lawmakers’ efforts to hammer out legislation are likely to be overshadowed, for now, by presidential impeachment proceedings.

    To my cynical inner self, that appears to be the objective of impeaching Trump – to drown out any programs, such as Medicare for all, and Drug Prices, so the Democrats can claim the appearance of “doing something,” while not skewering large donors.

    It is the election year plan.

    1. John

      That was the first thing that occurred to me, but since the Congress was not focusing on drug prices anyway, any overshadowing is as not collateral damage.

      The very least that is needed is national regulation of the pharmaceutical companies and when they complain, as they will, ask if they would prefer expropriation and nationalization as an alternative and tell them that the one thing they will not be permitted to do any longer is to gouge the public to stuff their pockets, that those days are gone forever and they did it to themselves.

      1. Susan the other`

        The writing is on the wall. Graffiti is everywhere. It almost looks like these skyrocketing prices are just the first round of the inevitable negotiations to come. The drug companies are getting ready to establish inflated base costs so when they get whittled down to size it will be a survivable revenue. I personally think nationalization is the best step at this point because the drug companies have been so antagonistic. They don’t deserve any benefit of a doubt.

  2. rd

    The other countries are negotiating lower drug prices from big pharma, so the US is where they can make their high margins and profits since the US refuses to negotiate because prices are never negotiated in a true free market.

    Of course, the obvious solution is to allow Americans to buy drugs from countries that will negotiate lower prices with the drug companies. That is the new globalization..

    1. Furies

      Generic drugs are not safe.

      And that’s all that is available for many.

      see: “Bottle of Lies…Inside Story of the Generic Drug Boom” by Katherine Eban.

      So not only are we increasingly at risk, it’s going to cost us more, too. I love this country…./s

      1. Yves Smith Post author

        Agnotology, as in making shit up, is against our written site Policies. So is selling Big Pharma PR. We just had a huge recall of Zantac, a prescription med.

        Generic have the same active ingredients as prescription drugs. They are chemically/biologically identical

        Most drugs are manufactured in China, and the active ingredients for even more come from China. That was how on-patent Zantac came to be contaminated

        This is independent of whether they are generics or still on patent. How it is manufactured determines safety, not generic v. not. Eban totally misrepresents things by acting as if only generics rely on Chinese manufacture or active ingredients. This is sheer Big Pharma shilldom.

        We covered this issue earlier, in 2018:

        The big message of Gibon’s and Singh’s book is that the US relies on China for the production of active ingredients in drugs and in many cases, of the medications themselves, to the degree that we would have a public health crisis if supplies were interrupted. As Gibson said on C-SPAN:

        Many people that we spoke to, both former government officials and some in industry said that if China shut the door on exports, within months, pharmacy shelves in the United States to be empty, and hospitals would cease to function.

        And don’t assume generics king India would step into the breach. India gets many of the active ingredients for its pharmaceuticals from China. Gibson forecasts that China will overtake India in generics manufacture within a decade.

        As Gibson explains, the US no longer makes its own penicillin, in part because China dumped penicillin in 2004, driving the last US plant out of business.

        The medications where the US relies on China include heparin, a blood thinner that among other things is used for IV drips. No heparin, no IV treatments. Due to the difficulty in tracing the source of drug company ingredients, the authors could make only case by case investigations, but they China production to be critical for treatments for Alzheimer’s HIV, depression, schizophrenia, cancer, epilepsy, and high blood pressure.

        Dependency is not the only risk. US drug companies shifted production to China not just to save cost but to escape regulation.

        So Eban is taking generics-makers to task while giving Big Pharma a free pass. That is flat out dishonest

  3. rjs

    drug distributors are increasingly finding themselves liable for opiate damages, so they’re covering their bottom line by raising prices..

  4. Tim

    So.. (let me get my tinfoil hat on straight) ..the REAL reason for the impeachment circus is the pharmaceuticals, trying to put off the inevitable one term at a time.

    1. John Wright

      No, the impeachment circus helps to give an appearance of “doing something” while preserving the advantages and costs of the existing power structure.

      The impeachment circus is useful as a distraction in many ways to avoid providing better and perhaps, costly to the elite, public benefits (such as a legislative response to climate change, lessening mass incarceration, lessening inequality, improving infrastructure, regulating the financial industry, or cost effective and better education).

      The Impeachment circus has great utility, no significant costs and good optics for righteous politicians who can avoid troubling powerful donors and lobbyists by actually passing legislation.

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