Such arguments may be particularly hard to swallow when an old, low-tech drug is re-packaged as new and innovative. For example, we discussed how thalidomide, originally marketed as a tranquilizer (and never marketed in the US because it produced birth defects when given to pregnant women), is now used to treat malignancies. However, although the drug is available outside of the US for pennies a dose, for its new use the price will be about $25,000 a year.
The Philadelphia Inquirer recently reported another similarly extreme example of drug pricing.
There's one drug most doctors turn to first when babies have catastrophic seizures: a natural hormone sold under the name H.P. Acthar. It's the gold standard to stop seizures that can ruin a child's chance for a normal life.
On Aug. 27, the lone maker of that drug raised the price from $1,650 a vial to more than $23,000 a vial, sending the price for an average patient to $100,000 or more.
Acthar is actually a very old, and familiar biological.
What sets apart Acthar is that it is an old drug. The compound (Adrenocorticotropic hormone) was first synthesized in the 1940s by Armour & Co., the canned-meat firm, which harvested it from pigs' pituitary glands.
The drug, used for years to treat Infantile Spasms, was made by Rhone-Poulenc Rorer Inc. and then by its successor, Aventis. It was never a big seller, and the former owner nearly stopped making it in the mid-1990s - only to see it brought back after a storm of pediatricians complained that there was no substitute.
Questcor bought the rights to the drug in 2001. The company sought formal approval for Infantile Spasms from the Food and Drug Administration, but it issued a 'non-approvable' letter in May. The agency did not think the existing clinical trials were good enough, Cartt said, adding that the firm is exploring what kind of tests the FDA will need.
Even without formal FDA approval, Acthar remains the drug of choice for babies with Infantile Spasms. It is the most likely drug to end the seizures, which, if not stopped, make the chances of normal development remote at best.
Acthar is also one of several drugs that helps with sudden flare-ups in multiple sclerosis patients, though its use is small.
Actually, the evidence supporting the use of ACTH in infantile spasms is weak, to be charitable. The latest Cochrane Collaboration review of infantile spasms found no strong evidence supporting the use of ACTH. [Hancock E, Osborne J. Treatment of infantile spasms. Cochrane Database of Systematic Reviews 2002, Issue 2. Art. No.: CD001770. DOI: 10.1002/14651858.CD001770.] There is similarly little evidence supporting its use in childhood epilepsy. [Gayatri NA, Ferrie CD, Cross H. Corticosteroids including ACTH for childhood epilepsy other than epileptic spasms. Cochrane Database of Systematic Reviews 2007, Issue 1. Art. No.: CD005222. DOI: 10.1002/14651858.CD005222.pub2.]
There has been opposition to the new pricing of Acthar.
However, the Inquirer story noted some economists attempts at apologia.
'It's an obscene increase. I could almost see doubling or tripling the price but  times seems ridiculous,' said Sarah Erush, clinical manager of pharmacy at the Children's Hospital of Philadelphia.
Acthar is 'one of the most expensive drugs on the market,' said Frank Lichtenberg, a business professor at Columbia University. 'This raises the question: Are the clinical benefits commensurate with that extremely high cost? The burden will be on the company to demonstrate this will extend life, it will improve quality of life, and it will reduce other medical expenditures.'
Prescription drugs are 'a legal monopoly. We expect monopolists to behave like monopolists,' said Mark V. Pauly, a health economist at the Wharton School. "The argument is the higher profits will stimulate further beneficial research."
Experts say it is not uncommon for new drugs, especially for those that treat rare diseases, to cost more than $100,000 a year. The high price is needed, economists say, so the firm can be encouraged to enter the field.
Several economists said the firm, whose shares closed at 75 cents yesterday, up 12 cents on the American Stock Exchange, needs to find a balance on price. 'From the company's point of view, if the company charged too high a price, nobody would buy it,' said William Comanor, director of the UCLA program on Pharmaceutical Economics and Policy. 'And if they charge too low a price, they'd be leaving a lot of money on the table.'
And as often seems to happen in these cases, health insurers and managed care organizations, which seem to be pretty good at restricting what physicians charge for such services as deciding whether Acthar would be a good or bad option for a particular patient, do not seem put off by its new high price.
[Questcor Executive Vice President for Corporate Development Steve] Cartt said. 'We're seeing greater than 90 percent insurance coverage at the new pricing,' he said. Some state Medicaid programs have balked, he said, but big insurers, such as WellPoint Inc., United HealthCare and Kaiser Permanente, are covering it.
Darryl Richard, a United HealthCare spokesman, confirmed that the insurer is covering Acthar at the higher cost. But he said the insurer was requiring a new pre-authorization process to make sure the drug is used only when necessary.
I wonder how they will do that, given the state of the evidence, or lack thereof, about this drug?
This case illustrates again how pricing of health care goods and services, particularly drugs, seems unrelated to their costs of production, and to their value to patients. Furthermore, it demonstrates that insurers and managed care organizations do not seem adept at putting pressure even on the most extreme prices, despite their claims to, for example, "make health care more affordable," made by UnitedHealth. Yet they seem very good at cutting prices paid to physicians, particularly for "cognitive services," such as deciding whether or not a patient might need an expensive drug. It's your dysfunctional health care system at work.
ADDENDUM (15 October, 2007) - See this post on Brass and Ivory questioning Questcor's financial justification for this pricing decision.