Prescription Drug Hyperinflation Crisis

According to the U.S. Consumer Price Index (CPI) of Prescription Drugs, Americans in June 2016 experienced record high prescription drug price inflation on a month-to-month basis, equal to an annualized increase of 16.66%! The previous record high of 16.50% was set over 30 years ago in February 1986!

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For comparison, from 1969 through 2016, median prescription drug price inflation on a month-to-month basis has been equal to an annualized increase of 4.99%. U.S. prescription drug prices rose in June 2016 at an extremely dangerous rate that was 3.34X higher than normal!

In July 2016, U.S. prescription drug price inflation on a month-to-month basis declined from the record high set in June, but was still equal to 11.69% annualized – the third highest reading since the most sluggish economic recovery in history began nine years ago! FYI, the second highest reading of the recovery was 11.83% annualized in February 2016! It is very frightening to think about how the three highest prescription drug price inflation readings of the entire nine year economic recovery, all occurred over the trailing six month period!

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Over the trailing six months, U.S. prescription drug prices have soared at an annualized inflation rate of 8.06%. By far, this has been the worst six month period of the last 20 years for Americans who spend heavily on U.S. prescription drugs. With trailing six month U.S. prescription drug price inflation now a shocking 2+ standard deviations above the 20-year average of 3.68% annualized, the U.S. officially has a major new crisis to deal with that could radically change the outcome of November’s Presidential election!

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The biggest driver of America’s current prescription drug price inflation crisis are name brand prescription drugs not available in generic form. When the patent expiration of a name brand prescription drug allows competitors to begin marketing generic alternatives of identical formulation, the free market almost always drives the price of that drug to dramatically lower levels! Although generic drugs currently account for about 75% of total doctor written prescriptions, patented name brand drugs continue to generate about 75% of total prescription drug revenue.

The U.S. CPI of prescription drugs covers both patented name brands and generics. It appears to be weighted too heavily towards generics – when they account for only a small fraction of total prescription drug revenue. One thing that is unfairly skewing the government CPI-drug data so that the BLS reports artificially low prescription drug price inflation, are the increasing number of drugs coming off patent and the large price “declines” that immediately occur after.

NIA doesn’t consider the price declines of a prescription drug at the time of patent expiration to be real. Pharmaceutical companies usually prepare for the patent expiration of a widely used drug, by developing a new “greatly improved” drug for the same target market – and encouraging doctors to switch patients to their “new and improved” drug (with patent protection).

Based on an index of America’s Top 227 Best Selling Name Brand Drugs, the U.S. since year-end 2008 has experienced a compound annual name brand drug price inflation rate of 12.44%. Final 2016 data obviously isn’t available yet, but NIA projects based on year-to-date data that we are on track to see full year 2016 price inflation in patented name brand drugs of 13.89%! Although this would exceed the compound annual price inflation rate since year-end 2008 of 12.44%, it would be down slightly from the all-time high set in 2015 of 16.25%!

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The mainstream media is continuing to put the spotlight on selective cases of extreme prescription drug hyperinflation. The latest target of the mainstream media has been Mylan Labs (MYL)‘s EpiPen epinephrine autoinjector. MYL acquired the rights to EpiPen from Merck in 2007 – and initially set a retail price for the 2-pack EpiPen of $100, which lasted through year-end 2008. In 2009, MYL began to rapidly raise EpiPen’s retail price. For the next eight years straight, MYL implemented large EpiPen price increases – with the EpiPen retail price rising through 2016 at a compound annual rate of 26.26%.

Currently, NIA’s local CVS is quoting a price of $646 for the 2-pack EpiPen – and that’s after entering a coupon code. Without the coupon code that CVS so graciously entered for us, the actual retail price would be $735. In an attempt to be conservative, we used the reduced price of $646 when calculating its trailing eight year compound annual price inflation rate of 26.26%.

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If MYL was slightly less greedy and kept EpiPen price inflation inline with America’s Top 227 Best Selling Name Brand Drugs, the retail price for a 2-pack EpiPen would currently be $255.50Caving into the mainstream media pressure, MYL this evening announced that it is preparing to launch a new generic version of EpiPen within the next few weeks at a reduced retail price of only $300.