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Equivalent Drugs and Limited Competition May Contribute to 
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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

December 2009: 

Brand-Name Prescription Drug Pricing: 

Lack of Therapeutically Equivalent Drugs and Limited Competition May 
Contribute to Extraordinary Price Increases: 

GAO-10-201: 

GAO Highlights: 

Highlights of GAO-10-201, a report to congressional requesters. 

Why GAO Did This Study: 

The growing cost of brand-name prescription drugs—FDA-approved drug 
products that typically have patent protection—is a concern for 
patients, payers, and providers of health care—particularly when price 
increases are large and occur suddenly. A 2008 congressional hearing by 
the Joint Economic Committee drew attention to some small market 
prescription drugs that had an extraordinary price increase—a price 
increase of 100 percent or more at a single point in time. 

GAO was asked to examine extraordinary price increases for brand-name 
prescription drugs. Specifically, GAO examined the: (1) frequency of 
extraordinary price increases for brand-name prescription drugs from 
2000 to 2008, (2) characteristics of the brand-name prescription drugs 
that had extraordinary price increases, and (3) factors that 
contributed to the extraordinary price increases experienced by these 
brand-name prescription drugs. To determine the frequency and 
characteristics of the brand-name prescription drugs that experienced 
an extraordinary price increase, GAO reviewed drug pricing and other 
data from a pharmaceutical industry compendium. To illustrate the 
factors that may contribute to extraordinary price increases, GAO 
developed case studies of six brand-name prescription drugs identified 
from the analysis of drug pricing data. These brand-name prescription 
drugs were selected based on factors including price, and the 
percentage and number of price increases. 

What GAO Found: 

From 2000 to 2008, 416 brand-name drug products—different drug 
strengths and dosage forms of the same drug brands—had extraordinary 
price increases. These 416 brand-name drug products represented 321 
different drug brands. The number of brand-name drug products that had 
these extraordinary price increases represents half of 1 percent of all 
brand-name drug products. The number of extraordinary price increases 
each year more than doubled from 2000 to 2008 and most of the 
extraordinary price increases ranged between 100 percent and 499 
percent. Almost 90 percent of all brand-name drug products that had an 
extraordinary price increase sustained the new higher price—by either 
having another increase in price or remaining at the increased price. 

More than half of the brand-name drug products that had extraordinary 
price increases were in just three therapeutic classes—central nervous 
system, anti-infective, and cardiovascular. These therapeutic classes 
include drugs used to treat conditions such as fungal or viral 
infections, and heart disease. About half of the extraordinary price 
increases were for brand-name drug products that were purchased from 
drug manufacturers or wholesalers, repackaged, and resold in smaller 
packages to health care providers such as hospitals or physicians. 
However, some drug repackagers serve a niche in the drug market, and 
therefore may have a small share of the market in a therapeutic class. 
The majority of all extraordinary price increases were for drugs priced 
less than $25 per unit; however, a full course of treatment for some of 
these drugs could total several thousand dollars. 

Based on interviews with experts and industry representatives, a lack 
of therapeutically equivalent drugs—both generics and other brand-name 
drugs used to treat the same condition—and limited competition may 
contribute to extraordinary price increases. The limited availability 
of therapeutically equivalent drugs may result from patent protection 
and market exclusivity, and the size of the market for a given drug. 
Patent protection and market exclusivity temporarily limit competition 
and thereby allow a drug company to recoup research and development 
costs and earn a return on its financial investment. Two of six case 
study drugs that had extraordinary price increases were patented at the 
time of the extraordinary price increase. The transfer of the rights to 
a drug and corporate consolidations among drug companies may result in 
fewer drug options and contribute to extraordinary price increases, 
according to experts. For example, the rights to four of the case-study 
drugs were obtained by a new drug company, and two of these drugs had 
an extraordinary price increase shortly after the rights to the drugs 
were purchased. Finally, experts and industry representatives noted 
that unusual events—such as disruptions in production due to shortages 
of raw materials—and other factors, including manufacturing issues, may 
also contribute to some extraordinary price increases. 

View [hyperlink, http://www.gao.gov/products/GAO-10-201] or key 
components. For more information, contact John Dicken at (202) 512-7114 
or DickenJ@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

More Than 400 Extraordinary Price Increases Occurred for Over 300 Drug 
Brands from 2000 to 2008: 

Most Brand-name Drug Products with Extraordinary Price Increases Were 
in Three Therapeutic Classes, Cost Less Than $25 Per Unit, or Were 
Repackaged: 

Lack of Therapeutically Equivalent Drugs and Limited Competition May 
Contribute to Extraordinary Price Increases for Brand-name Drugs: 

Expert Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Brand-name Prescription Drugs with an Extraordinary Price 
Increase, 2000 to 2008: 

Appendix III: Characteristics of Case Study Drugs: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Annual Frequency of Extraordinary Price Increases for Brand- 
name Drugs, 2000 to 2008: 

Table 2: Annual Frequency of Extraordinary Price Increases for Brand- 
name Drug Products by Percentage Increase in Price, 2000 to 2008: 

Table 3: Therapeutic Classes of Brand-name Drug Products That Had 
Extraordinary Price Increases, 2000 to 2008: 

Table 4: Frequency of Extraordinary Price Increase by Price Level, by 
Brand-name Drug Products, 2000 to 2008: 

Table 5: Annual Frequency of Extraordinary Price Increases for 
Repackaged and Nonrepackaged Brand-name Drug Products, 2000 to 2008: 

Table 6: Repackaged Brand-name Drug Products that Had an Extraordinary 
Price Increase, 2000 to 2008: 

Table 7: Nonrepackaged Brand-name Drug Products that Had an 
Extraordinary Price Increase, 2000 to 2008: 

Table 8: Summary of Characteristics of the Six Case Study Drugs: 

Abbreviations: 

AWP: average wholesale price: 

DOJ: Department of Justice: 

FDA: Food and Drug Administration: 

FTC: Federal Trade Commission: 

NDC: national drug code: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

December 22, 2009: 

The Honorable Charles E. Schumer: 
Vice Chairman: 
Joint Economic Committee: 
United States Congress: 

The Honorable Amy Klobuchar: 
United States Senate: 

The growing cost of brand-name prescription drugs can be a burden on 
patients, payers, and providers of health care--particularly when price 
increases are large and occur suddenly. Controlling rising prescription 
drug prices helps to ensure that patients can afford medically 
necessary and sometimes life-saving medications, and to moderate costs 
for hospitals and third-party payers such as insurance plans and state 
and federal governments. However, a hearing held in July 2008 by the 
Joint Economic Committee drew attention to certain prescription drugs 
that recently had an extraordinary price increase--a price increase 
equal to 100 percent or more at a single point in time. 

Drug manufacturers may consider several factors when setting prices for 
brand-name prescription drugs, including a drug's patent status and 
market exclusivity. Patents and market exclusivity may provide a 
limited period of protection from competition, thereby allowing a drug 
company to recoup research and development costs and earn a return on 
its financial investment. Drug manufacturers may obtain patents or 
patent extensions from the U.S. Patent and Trademark Office. In 
addition, independent of a drug product's patent status, the Federal 
Food, Drug, and Cosmetic Act authorizes various periods of market 
exclusivity for drug products. 

In this report, GAO studied extraordinary price increases for brand- 
name prescription drugs. Specifically, we examined (1) the frequency of 
extraordinary price increases for brand-name prescription drugs from 
2000 to 2008, (2) the characteristics of the brand-name prescription 
drugs that had extraordinary price increases, and (3) the factors that 
contributed to the extraordinary price increases experienced by these 
brand-name prescription drugs. 

To determine the frequency of extraordinary price increases, we 
reviewed the average wholesale price (AWP)[Footnote 1] for all brand- 
name prescription drugs in Thomson Reuters' Red Book,[Footnote 2] and 
identified all extraordinary price increases--a unit price[Footnote 3] 
increase of 100 percent or more at a single point in time--from 2000 to 
2008. Red Book includes drug prices for each package size (for example, 
30, 60, or 100 tablets) and dosage form (for example, tablet or 
injection) of a brand-name drug.[Footnote 4] We report the frequency of 
extraordinary price increases in two ways--by drug brand (or drug label 
name as recorded in Red Book) and by brand-name drug product. For the 
drug brand frequencies, we counted an extraordinary price increase if 
the price of any version of a brand-name drug increased by 100 percent 
or more at a single point in time. For brand-name drug products, we 
counted each extraordinary price increase for each version--drug 
strength and dosage form--of the brand-name drug separately. For 
example, if both the 1mg and 5mg tablet versions of a drug had 
extraordinary price increases, we categorized this as one drug brand 
increase, and as two brand-name drug product increases (one for each 
version of the brand-name drug). The frequencies of extraordinary price 
increases reported include brand-name drug products that were 
repackaged for resale to health care providers such as hospitals or 
physicians.[Footnote 5] To identify the characteristics of brand-name 
drug products that had an extraordinary price increase, we used Red 
Book data on therapeutic class[Footnote 6] and price. 

To identify the factors that may contribute to extraordinary price 
increases, we interviewed drug policy experts; academic researchers; 
state and federal government officials; consumer advocates; insurance 
company representatives; and representatives from hospital, health 
insurance, and retail pharmacy associations. To illustrate the factors 
that may contribute to extraordinary price increases, we developed case 
studies of six different brand-name drugs from different drug companies 
identified from our analysis of Red Book data. Each brand-name drug 
that was active in the market as of December 31, 2008 and that had an 
extraordinary price increase was eligible for selection for the case 
study. To achieve variability in the characteristics of the brand-name 
drugs reviewed for the case study, our selection was based on several 
factors, including a drug's price, the level of the percentage 
increase, whether the drug had more than one extraordinary price 
increase between 2000 and 2008, availability of the drug from multiple 
sources, and permanence of the price increase. To gain an understanding 
of the market and other dynamics leading to the extraordinary price 
increase experienced by each brand-name drug in our case studies, we 
interviewed representatives of the companies that manufacture and 
distribute these brand-name drugs,[Footnote 7] and obtained information 
about each drug company's business strategy from the companies' Web 
sites, annual and quarterly reports, and other resources. (See appendix 
I for a detailed description of our scope and methodology.) 

We reviewed the Red Book data file to assess its reliability. This 
review involved an assessment of the variables in Red Book to identify 
incorrect and erroneous entries or extreme outliers. We compared a 
random sample of the pricing data reported in Red Book with pricing 
data in another drug pricing compendium. Based on this review, we 
determined that the data used in this report were adequate for our 
purposes. 

We conducted our work from October 2008 through December 2009 in 
accordance with all sections of GAO's Quality Assurance Framework that 
are relevant to our objectives. The framework requires that we plan and 
perform our engagement to obtain sufficient and appropriate evidence to 
meet our stated objectives and to discuss any limitations in our work. 
We believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions 
in this product. 

Background: 

Extraordinary price increases for brand-name drugs can lead to 
substantially higher drug spending for public and private insurance 
plans, hospitals, and other providers that cover prescription drugs. 
Patients may also face higher out-of-pocket costs and reduced access to 
medically necessary and sometimes life-saving drugs. In addition, 
extraordinary price increases for brand-name drugs may contribute to 
overall drug spending, which has increased an average of about 10 
percent a year since 2000.[Footnote 8] As reported during the Joint 
Economic Committee hearing, a small but growing subset of drugs have 
had very large and sudden price increases since 2000, raising questions 
about the competitiveness of the prescription drug marketplace. 

Overview of Brand-name Drugs: 

Brand-name drugs are drug products that have received FDA approval and 
typically have patent protection.[Footnote 9] After the patent and any 
applicable period of market exclusivity expires, these drugs are still 
considered brand-name drugs, but other drug companies may develop a 
generic equivalent--a similar drug that contains the same active 
ingredient, strength, dosage form, route of administration, and 
intended use.[Footnote 10] The FDA reviews and approves both brand-name 
and generic prescription drugs. 

Brand-name drugs may be supplied to health care providers from 
companies other than a drug's manufacturer. For example, brand-name 
drugs may be repackaged from large drug inventories into smaller 
packages, and sold by a repackaging company using a unique national 
drug code (NDC). Repackagers include health maintenance organizations, 
pharmacies, and private companies. Repackagers are required to follow 
FDA guidelines, such as registering annually with the FDA and labeling 
drugs under the same brand name. Repackagers may obtain prescription 
drugs from wholesalers, and sell the repackaged drugs to health care 
providers such as hospitals or physicians who then dispense them to 
patients. Proponents of repackaged drugs believe that they offer 
convenience to patients and may reduce medication errors.[Footnote 11] 
However, some experts suggest that repackaging drugs may unnecessarily 
increase drug prices and profits. Repackagers may assign AWPs for 
repackaged drugs that differ from the AWP suggested by the drug's 
manufacturer. 

Patents, Market Exclusivity, and Orphan Drugs: 

Patents and market exclusivity protect prescription drugs by limiting 
competition for a set period of time. A drug manufacturer may seek a 20-
year patent on various aspects of its new chemical entity from the U.S. 
Patent and Trademark Office.[Footnote 12] Once a patent is granted, 
other drug manufacturers are excluded from making, using, or selling 
the patented formula during the life of the patent. Companies that 
develop new brand-name drugs generally obtain a patent on the active 
ingredient used in the drug. Patents may be granted for other 
properties of a brand-name drug, such as its formulation and 
composition, and/or method of use.[Footnote 13] After receiving a 
patent on a brand-name drug, drug companies typically seek approval 
from the FDA for use of the drug to treat certain indications. 

Market exclusivity may be granted for approved drugs and is independent 
of the rights granted by a patent. The Federal Food, Drug, and 
Cosmetics Act authorizes various periods of market exclusivity for drug 
products. Generally, market exclusivities prevent the FDA from 
approving any application for a competing drug compound for a stated 
period of time. These exclusivities may relate to new chemical entities 
(5 years),[Footnote 14] previously approved drugs with a new 
application that is based on new clinical studies (3 years),[Footnote 
15] generic drugs (180 days),[Footnote 16] drugs tested for use in 
children (6 months),[Footnote 17] and orphan drugs (7 years).[Footnote 
18] Market exclusivity and patent protection may run concurrently. 

The Joint Economic Committee hearing in July 2008 identified certain 
brand-name drugs which treat rare diseases that experienced 
extraordinary price increases. Incentives are available for drug 
companies to develop innovative drugs for rare diseases (orphan drugs). 
In addition to the 7-year market exclusivity status, these incentives 
may include tax incentives of up to 50 percent of the cost of clinical 
research, and a waiver of FDA fees.[Footnote 19] Research grants are 
also available through the FDA for the development of drugs used to 
treat rare diseases or conditions. 

Drug Market Trends: 

According to experts, the drug industry's traditional business model is 
changing. In the past, large drug companies conducted research and 
development on several drugs, with the goal of releasing one or more 
"blockbuster" drugs that treat a large population and can earn billions 
of dollars. Recently, drug companies have increasingly focused on 
specialty drugs that target niche markets, or a smaller population of 
people with a narrow indication or medical condition. According to 
experts and industry representatives, the pace of consolidation among 
drug companies through mergers and acquisitions and transfers of drug 
ownership rights has increased. Fewer companies producing and marketing 
drugs can lead to greater market domination among certain companies and 
less competition. In addition, large drug companies have purchased 
other drug companies that specialize in manufacturing drugs targeting 
niche populations or drugs in similar therapeutic classes. 

Setting Prescription Drug Prices: 

According to some economists, the usual mechanisms that enforce market 
discipline may not work in the same manner in the health care market. 
In most markets--automobiles, for example--consumers are expected to be 
conscious of the price of goods. If a company raises the price of its 
goods, consumers would likely purchase fewer goods, causing the 
company's revenues to decline. However, health care providers influence 
demand because they typically act on behalf of patients, who may remain 
unaware of drug costs. If the patient is insured and their medical 
bills are paid by a third-party payer, then demand may not be 
significantly influenced by changes in price to the extent that it 
might be in other markets. Some price restraint may be provided by 
pharmacy benefit managers and health plans that use drug formularies to 
negotiate price rebates on brand name prescription drugs. 

According to industry representatives and experts, drug companies may 
consider several issues when setting the price of a drug. These 
include: (1) the perceived value of a drug relative to its competitors, 
such as its ease of use; (2) the unique characteristics of a drug, such 
as its novelty, the frequency of administration, and safety; (3) the 
cost of therapeutically alternative drugs and alternative therapies, 
such as surgery, medical devices, and existing drugs; (4) the disease 
treated; (5) the size and characteristics of the patient market; (6) 
research and development, manufacturing, and marketing costs; (7) the 
willingness of customers to pay for the drug; and (8) the amount of 
reimbursement for the drug from third-party payers. To mitigate high 
drug prices some companies subsidize the price of some of their brand- 
name drugs through a patient assistance program to low-income uninsured 
or underinsured patients.[Footnote 20] 

Federal Oversight: 

While prescription drug pricing in the private sector is not subject to 
federal regulation, drug companies are subject to antitrust 
enforcement. The Federal Trade Commission (FTC) and the U.S. Department 
of Justice (DOJ) enforce federal antitrust laws that prohibit 
activities such as mergers and acquisitions that may substantially 
reduce competition or create a monopoly.[Footnote 21] Companies are 
required to notify the FTC and DOJ of certain pending mergers, also 
known as the pre-merger notification program.[Footnote 22] In addition, 
the FTC has authority to investigate and take action against unfair 
methods of competition affecting commerce, including in the drug 
industry.[Footnote 23] Price fixing agreements between businesses, 
certain monopolies, and other anticompetitive conduct are subject to 
review and enforcement action. FTC officials indicated that the FTC has 
not brought a case against a drug company for charging extraordinarily 
high prices because such activity is not expressly prohibited by 
federal law, and because high drug prices in the absence of 
anticompetitive behavior are not per se illegal. The FTC has challenged 
anticompetitive patent settlements between brand-name and generic drug 
manufacturers. For example, FTC officials indicated that the agency has 
filed cases challenging "pay-to-delay" settlements in which a brand- 
name manufacturer shares a portion of its future profits with a 
potential generic competitor in exchange for an agreement to delay 
marketing the generic prescription drug. 

Finally, drugs must be manufactured in accordance with FDA regulations 
called good manufacturing practices, and the FDA inspects manufacturing 
facilities before a drug can be approved.[Footnote 24] Good 
manufacturing practices are designed to ensure the safety and quality 
of drug products and lay out minimum standards for the facilities and 
equipment used in manufacturing drug products. All drug manufacturers--
including companies that acquire the rights to a drug from another 
manufacturer--are required to comply with good manufacturing practices. 

More Than 400 Extraordinary Price Increases Occurred for Over 300 Drug 
Brands from 2000 to 2008: 

Between 2000 and 2008, 416 brand-name drug products representing 321 
drug brands had extraordinary price increases. Most often, these 
extraordinary price increases ranged from 100 percent to 499 percent, 
but in a few cases were 1,000 percent or more. 

From 2000 to 2008, 416 Extraordinary Price Increases Occurred for 321 
Different Drug Brands: 

From 2000 to 2008, 416 brand-name drug products representing 321 drug 
brands had an extraordinary price increase. A number of these 321 drug 
brands had two or more extraordinary price increases between 2000 and 
2008. The number of brand-name drug products that had these 
extraordinary price increases each year trended upwards, more than 
doubling from 2000 to 2008; however, they represent about half of 1 
percent of all brand-name drug products. (See table 1 for the frequency 
of extraordinary price increases.) Most brand-name drug products that 
had an extraordinary price increase sustained the new price after the 
extraordinary price increase occurred.[Footnote 25] For example, 
following the extraordinary price increase, about 87 percent of the 
brand-name drug products remained at the increased price, or had 
another increase in price, and only 13 percent had a decrease in price. 
[Footnote 26] 

Table 1: Annual Frequency of Extraordinary Price Increases for Brand- 
name Drugs, 2000 to 2008: 

Drug brands[A]: 

Category: Number of extraordinary price increases for drug brands; 
2000: 24; 
2001: 21; 
2002: 23; 
2003: 38; 
2004: 38; 
2005: 33; 
2006: 38; 
2007: 52; 
2008: 54; 
Total: 321. 

Brand-name drug products[B]: 

Category: Number of extraordinary price increases for brand-name drug 
products; 
2000: 28; 
2001: 27; 
2002: 31; 
2003: 48; 
2004: 51; 
2005: 39; 
2006: 47; 
2007: 74; 
2008: 71; 
Total: 416. 

Total number of all brand-name drug products on the market[C]: 
2000: 11,503; 
2001: 11,503; 
2002: 11,106; 
2003: 11,413; 
2004: 11,436; 
2005: 11,979; 
2006: 12,798; 
2007: 12,895; 
2008: 13,193; 
Total: N/A[D]. 

Source: GAO analysis of average wholesale price from Red Book. 

Note: Drug prices are identified and reported by a unique national drug 
code (NDC). 

[A] A drug brand is the drug label name as recorded in Red Book. 

[B] A brand-name drug product includes the same drug brand with 
different strengths and dosage forms. The frequencies for brand-name 
drug products are reported using NDC-9s. 

[C] Total number of brand-name drugs recorded in the Red Book for each 
calendar year. As of December 31, 2008, some of these drugs were no 
longer active on the market. 

[D] Totals for the period are not provided. Drugs that were recorded in 
Red Book may appear in multiple years. 

[End of table] 

A number of these brand-name drug products had more than one 
extraordinary price increase. For example, 21 of the 416 brand-name 
drug products had more than one extraordinary price increase between 
2000 and 2008, and 9 of those 21 brand-name drug products had more than 
one extraordinary price increase in the same year. The 416 brand-name 
drug products were sold by 91 drug companies, and 12 of these 91 drug 
companies sold brand-name drug products that had more than one 
extraordinary price increase between 2000 and 2008. Furthermore, 4 of 
these 91 drug companies sold brand-name drug products that had more 
than one extraordinary price increase within the same year. (See 
appendix II for a list of brand-name drugs that had an extraordinary 
price increase.) 

While Most Extraordinary Price Increases Were Less Than 500 Percent, 
Some Increases Were 1,000 Percent or More: 

Most extraordinary price increases--for 357 of the 416 brand-name drug 
products with extraordinary price increases--ranged from 100 percent to 
499 percent.[Footnote 27] Overall, the median increase for brand name 
drug products was about 158 percent. However, some brand-name drug 
products had very large extraordinary price increases. For example, 26 
brand-name drug products had extraordinary price increases greater than 
1,000 percent--a tenfold increase. The largest extraordinary price 
increase for brand-name drug products was about 4,200 percent. (See 
table 2 for the frequency of extraordinary price increases by percent 
increase.) In addition, 7 brand-name drug products had extraordinary 
price increases of 500 percent or more multiple times from 2000 to 
2008. 

Table 2: Annual Frequency of Extraordinary Price Increases for Brand- 
name Drug Products by Percentage Increase in Price, 2000 to 2008: 

Brand-name drug products[A]: 

Category: Total brand-name drug products with extraordinary increase in 
price; 
2000: 28; 
2001: 27; 
2002: 31; 
2003: 48; 
2004: 51; 
2005: 39; 
2006: 47; 
2007: 74; 
2008: 71; 
Total: 416. 

Category: Total brand-name drug products with extraordinary increase in 
price: 100-499 percent; 
2000: 22; 
2001: 15; 
2002: 23; 
2003: 43; 
2004: 43; 
2005: 37; 
2006: 43; 
2007: 64; 
2008: 67; 
Total: 357. 

Category: Total brand-name drug products with extraordinary increase in 
price: 500-999 percent; 
2000: 3; 
2001: 3; 
2002: 6; 
2003: 5; 
2004: 6; 
2005: 2; 
2006: 2; 
2007: 3; 
2008: 3; 
Total: 33. 

Category: Total brand-name drug products with extraordinary increase in 
price: 1,000-1,499 percent; 
2000: 0; 
2001: 4; 
2002: 0; 
2003: 0; 
2004: 2; 
2005: 0; 
2006: 1; 
2007: 2; 
2008: 1; 
Total: 10. 

Category: Total brand-name drug products with extraordinary increase in 
price: 1,500-1,999 percent; 
2000: 1; 
2001: 3; 
2002: 0; 
2003: 0; 
2004: 0; 
2005: 0; 
2006: 0; 
2007: 3; 
2008: 0; 
Total: 7. 

Category: Total brand-name drug products with extraordinary increase in 
price: More than 2,000 percent; 
2000: 2; 
2001: 2; 
2002: 2; 
2003: 0; 
2004: 0; 
2005: 0; 
2006: 1; 
2007: 2; 
2008: 0; 
Total: 9. 

Source: GAO analysis of average wholesale price from Red Book. 

Note: Drug prices are identified and reported by a unique NDC. 

[A] A brand-name drug product includes the same drug brand with 
different strengths and dosage forms. The frequencies for brand-name 
drug products are reported using NDC-9s. 

[End of table] 

Most Brand-name Drug Products with Extraordinary Price Increases Were 
in Three Therapeutic Classes, Cost Less Than $25 Per Unit, or Were 
Repackaged: 

Brand-name drug products that had extraordinary price increases shared 
similar characteristics including therapeutic class, cost, or 
packaging. While extraordinary price increases occurred in 20 
therapeutic classes, more than half of the increases fell into 3 
therapeutic classes--central nervous system agents, anti-infective 
agents, and cardiovascular agents. Most extraordinary price increases 
were for brand-name drug products costing less than $25 per unit. 
Depending on the condition treated and length of treatment, the full 
cost of treatment for a drug could total several thousand dollars. More 
than half of all extraordinary price increases were for repackaged 
brand-name drug products. 

Three Therapeutic Classes Accounted for More Than Half of the 
Extraordinary Price Increases: 

While extraordinary price increases for brand-name drug products 
occurred in 20 therapeutic classes, the majority of the drugs--52 
percent--that had extraordinary price increases fell into 3 therapeutic 
classes--central nervous system, anti-infective, and cardiovascular 
drugs.[Footnote 28] 

* Central nervous system--126 brand-name drug products had 
extraordinary price increases. Central nervous system drugs include 
sedatives and antidepressants, and are typically used to treat 
depression or anxiety. 

* Anti-infective--55 brand-name drug products had extraordinary price 
increases. Anti-infective drugs are used to treat infections caused by 
fungi, bacteria, or viruses. 

* Cardiovascular drugs--35 brand-name drug products had extraordinary 
price increases. Cardiovascular drugs such as anti-arrhythmia agents 
are used to treat the heart. 

The remaining 17 therapeutic classes comprised 192 brand-name drug 
products that had extraordinary price increases. (See table 3 for 
frequency of extraordinary price increases by therapeutic class.) 

Table 3: Therapeutic Classes of Brand-name Drug Products That Had 
Extraordinary Price Increases, 2000 to 2008: 

Brand-name drug products[A]: 

Therapeutic class: Central nervous system agents; 
2000: 9; 
2001: 6; 
2002: 6; 
2003: 16; 
2004: 12; 
2005: 13; 
2006: 20; 
2007: 24; 
2008: 20; 
Total: 126. 

Therapeutic class: Anti-infective agents; 
2000: 9; 
2001: 2; 
2002: 9; 
2003: 8; 
2004: 8; 
2005: 6; 
2006: 6; 
2007: 2; 
2008: 5; 
Total: 55. 

Therapeutic class: Cardiovascular agents; 
2000: 3; 
2001: 2; 
2002: 1; 
2003: 0; 
2004: 4; 
2005: 4; 
2006: 5; 
2007: 5; 
2008: 11; 
Total: 35. 

Therapeutic class: Other therapeutic classes; 
2000: 7; 
2001: 15; 
2002: 15; 
2003: 23; 
2004: 27; 
2005: 16; 
2006: 16; 
2007: 42; 
2008: 31; 
Total: 192. 

Total brand-name drug products that increased in price[B]: 
2000: 28; 
2001: 27; 
2002: 31; 
2003: 48; 
2004: 51; 
2005: 39; 
2006: 47; 
2007: 74; 
2008: 71; 
Total: 416. 

Source: GAO analysis of average wholesale price from Red Book. 

Note: Drug prices are identified and reported by a unique NDC. 

[A] A brand-name drug product includes the same drug brand with 
different strengths and dosage forms. The frequencies for brand-name 
drug products are reported using NDC-9s. 

[B] Columns do not add up to total because eight records were not 
classified into a therapeutic class in Red Book. 

[End of table] 

Brand-name Drug Products Priced Less Than $25 Per Unit Accounted for 
Most of the Extraordinary Price Increases: 

Ninety-six percent of brand-name drug products that had extraordinary 
price increases cost less than $25 per unit prior to the price 
increase.[Footnote 29],[Footnote 30] Overall, brand-name drug products 
that had an extraordinary price increase ranged in price from $0.01 per 
unit to $5,400 per unit prior to the price increase. The median price 
of the brand-name drug products that had an extraordinary price 
increase rose from $1.66 per unit before the increase to $4.70 per unit 
after the increase.[Footnote 31] (See table 4 for the frequency of 
extraordinary price increases by price level.) 

Table 4: Frequency of Extraordinary Price Increase by Price Level, by 
Brand-name Drug Products, 2000 to 2008: 

Brand-name drug products[A]: 

Price prior to increase: Less than $25.00 per unit; 
100-499 percent: 344; 
500-999 percent: 31; 
1,000-1,499 percent: 8; 
1,500-1,999 percent: 7; 
2,000 percent or more: 9; 
Total: 399. 

Price prior to increase: $25.00 to $49.99 per unit; 
100-499 percent: 4; 
500-999 percent: 0; 
1,000-1,499 percent: 1; 
1,500-1,999 percent: 0; 
2,000 percent or more: 0; 
Total: 5. 

Price prior to increase: $50.00 or more per unit; 
100-499 percent: 9; 
500-999 percent: 2; 
1,000-1,499 percent: 1; 
1,500-1,999 percent: 0; 
2,000 percent or more: 0; 
Total: 12. 

Total number of brand-name drug products that increased in price: 
100-499 percent: 357; 
500-999 percent: 33; 
1,000-1,499 percent: 10; 
1,500-1,999 percent: 7; 
2,000 percent or more: 9; 
Total: 416. 

Source: GAO analysis of average wholesale price from Red Book. 

Note: Drug prices are identified and reported by a unique NDC. 

[A] A brand-name drug product includes the same drug brand with 
different strengths and dosage forms. The frequencies for brand-name 
drug products are reported using NDC-9s. 

[End of table] 

It is important to note that the unit price of a drug is only one 
factor in determining the cost of a full course of treatment for a 
medical condition. Other factors affecting cost include the total 
number of units prescribed and the duration of the treatment. For 
example, the full cost of treatment for a drug that is priced less than 
$25 per unit could total several thousand dollars or more. One of the 
drugs we reviewed that is used to treat a rare cancer cost $390 for a 
full course of treatment prior to the extraordinary price increase. 
[Footnote 32] After two extraordinary price increases, the full cost of 
a course of treatment rose to more than $3,000. 

Repackaged Drugs Accounted for More Than Half of the Extraordinary 
Price Increases for Brand-name Drug Products: 

More than half of the brand-name drug products that had extraordinary 
price increases were repackaged--that is, purchased from drug 
manufacturers or wholesalers and resold in smaller packages to health 
care providers such as hospitals or physicians.[Footnote 33] (See table 
5 for frequency of extraordinary price increases for repackaged and 
nonrepackaged drugs.) Almost all the extraordinary price increases for 
repackaged drugs appear to have originated from the company that 
repackaged the drug rather than from the company that manufactured the 
drug.[Footnote 34] Specifically, 95 percent of repackaged drugs had an 
extraordinary price increase without a corresponding extraordinary 
price increase by the drug's manufacturer for the identical 
nonrepackaged drug. However, some drug repackagers serve a niche in the 
drug market and therefore may have a small share of the market in a 
therapeutic class. 

Table 5: Annual Frequency of Extraordinary Price Increases for 
Repackaged and Nonrepackaged Brand-name Drug Products, 2000 to 2008: 

Brand-name drug products[A]: 

Category: Repackaged drugs that increased in price; 
2000: 18; 
2001: 10; 
2002: 15; 
2003: 27; 
2004: 19; 
2005: 29; 
2006: 33; 
2007: 31; 
2008: 29; 
Total: 211. 

Category: Nonrepackaged drugs that increased in price; 
2000: 10; 
2001: 17; 
2002: 16; 
2003: 21; 
2004: 32; 
2005: 10; 
2006: 14; 
2007: 43; 
2008: 42; 
Total: 205. 

Category: Total brand-name drugs that increased in price; 
2000: 28; 
2001: 27; 
2002: 31; 
2003: 48; 
2004: 51; 
2005: 39; 
2006: 47; 
2007: 74; 
2008: 71; 
Total: 416. 

Total number of all repackaged brand-name drug products on the 
market[B]: 
2000: 3,162; 
2001: 3,496; 
2002: 3,307; 
2003: 3,648; 
2004: 3,743; 
2005: 4,333; 
2006: 5,078; 
2007: 5,423; 
2008: 5,690; 
Total: N/A[C]. 

Source: GAO analysis of average wholesale price from Red Book. 

Note: Drug prices are identified and reported by a unique NDC. 

[A] A brand-name drug product includes the same drug brand with 
different strengths and dosage forms. The frequencies for brand-name 
drug products are reported using NDC-9s. 

[B] Total number of brand-name drugs recorded in Red Book for each 
calendar year. As of December 31, 2008, some of these drugs were no 
longer active on the market. 

[C] Totals for the period are not provided. Drugs that were recorded in 
Red Book may appear in multiple years. 

[End of table] 

Almost one-fifth of the 91 companies that sold brand-name drug products 
that had extraordinary price increases were repackagers. The four 
companies with the greatest number of brand-name drug products that had 
an extraordinary price increase were repackagers--ranging from 26 to 51 
brand-name drug products per repackaging company.[Footnote 35] About 99 
percent of repackaged drugs cost less than $25 per unit.[Footnote 36] 
The median price of repackaged drugs that had extraordinary price 
increases rose from $2.14 per unit to $5.39 per unit after the 
increase.[Footnote 37] 

Lack of Therapeutically Equivalent Drugs and Limited Competition May 
Contribute to Extraordinary Price Increases for Brand-name Drugs: 

Based on interviews with experts and industry representatives, we found 
that a lack of therapeutically equivalent drugs--generics and other 
brand-name drugs used to treat the same condition--and limited 
competition may contribute to extraordinary price increases. According 
to these experts and industry representatives, the availability of few 
therapeutically equivalent drugs may result from patent protection and 
market exclusivity, and the limited size of the market for a given 
drug. Experts noted that the transfer of drug rights and corporate 
consolidations may limit competition among drug companies, resulting in 
few drug options. The experts and industry representatives also noted 
that unusual events--such as disruptions in production due to shortages 
of raw materials--and other factors may also contribute to some 
extraordinary price increases. 

Limited Availability of Therapeutic Equivalents: Experts we interviewed 
said that drugs without therapeutic equivalents--in some cases due to 
patents or a limited market size--may be more likely to have an 
extraordinary price increase.[Footnote 38] Experts and industry 
representatives also reported that competition within a therapeutic 
class of drugs may be limited by (1) patents for a new drug, such as 
patents for the active ingredient; (2) patents for existing drugs that 
have been modified by, for example, changing a drug's active 
ingredient, strength, or delivery mechanism;[Footnote 39] and (3) 
market exclusivity protections. Patents and market exclusivity may 
limit the entry of other prescription drugs into the market. An expert 
also noted that no single factor leads to extraordinary price 
increases, rather a combination of several factors likely contributes 
to these extraordinary price increases. 

Two of our six case study drugs[Footnote 40] had patent protection at 
the time of the extraordinary price increase. (See appendix III for a 
summary of the characteristics of the case study drugs.) One drug had a 
method-of-use patent and was the only FDA-approved drug available to 
treat an acute illness affecting infants and young children. The other 
drug was under patent at the time of its extraordinary price increase, 
and was sold by a licensed repackager that purchased the drug from 
wholesalers. 

In addition, experts and industry representatives we interviewed 
reported that small market drugs, such as orphan drugs or drugs for 
rare diseases, may lack therapeutically equivalent drugs, and thus may 
be prone to extraordinary price increases. When the target patient 
population or market for a drug is relatively small, there may be 
little financial incentive for potential competitors to enter the 
market and offer competing drugs. Two of the drugs we examined in our 
case studies treat rare diseases. These drugs did not have generic 
equivalents at the time of their extraordinary price increases; 
however, the drug companies reported the availability of other drugs 
that treat similar conditions. Both drugs had more than one 
extraordinary price increase--one of the drugs had two price increases 
that were each more than 1,000 percent, and the other had extraordinary 
price increases in 2 consecutive years. 

Representatives of the manufacturer for one of these drugs reported 
that their company's business model is based almost solely on sales 
from the drug that had the extraordinary price increases. This drug is 
currently approved for several dozen indications, and the company is 
funding research on other uses for the drug. The second company 
reported that its business model is structured around facilitating the 
development of drug products for rare diseases. The company provides 
financial support to researchers developing new drugs for rare diseases 
and obtains the rights to the drugs created by these researchers. The 
company considered their financial support for developing other rare 
disease drugs when determining the price of their drug. Furthermore, a 
representative of this company stated that it had obtained other drugs 
that were discontinued by a prior owner and then reintroduced the drugs 
onto the market. Both of these drug companies market specialized drugs 
that treat rare diseases. 

Transfer of Drug Rights, Corporate Consolidations, Mergers, and 
Acquisitions: Experts and industry representatives we interviewed 
reported that transfers of drug ownership rights and consolidations 
among drug companies have increased.[Footnote 41] These transfers and 
consolidations may limit competition as companies that may offer 
competing prescription drugs in a therapeutic class merge or sell their 
rights to a drug, potentially leading to extraordinary price increases 
for drugs. Fewer drug companies competing in a therapeutic class may 
lead to fewer prescription drugs being developed and sold within that 
class. Industry representatives and experts reported that larger drug 
companies are acquiring drugs from smaller drug companies that conduct 
drug research. Notwithstanding potential FTC or DOJ review, drug 
companies may still acquire competitors that offer similar drugs, 
potentially leading to market domination in a therapeutic class. 
[Footnote 42] The rights to four of our case study drugs were obtained 
by a new drug company, and two of these drugs had an extraordinary 
price increase shortly after the rights to the drugs were purchased. 

Unusual Events: Extraordinary price increases were also attributed by 
industry representatives and experts to the occurrence of unusual 
events, such as disruptions in the production of a drug due to 
shortages of necessary raw materials or the added costs to renovate 
outdated drug production plants. For example, a drug in our case study 
was purchased from a drug company that was suspending production of the 
drug. The company that purchased this drug reported investing millions 
of dollars transferring and upgrading the manufacturing equipment, 
processes, and testing methods required to make the drug. The drug's 
manufacturer attributed the first of two extraordinary price increases 
to compensating for the drug's production expenses and other costs. 
Prior to the company's purchase of the drug, it was sold only in 
limited quantities through a patient advocacy group.[Footnote 43] 
Another drug from our case study was purchased by a company that spent 
several years trying to identify a technical partner capable of 
processing the drug's active ingredient, which was difficult to 
manufacture because of its cytotoxic nature and the limited quantity of 
drugs produced. The company's representative stated that due to the 
unique challenges of producing the active ingredient of the drug, two 
companies were involved in manufacturing and packaging the drug. As a 
result of changes made in manufacturing the drug, the company reported 
investing several million dollars upgrading its manufacturing equipment 
and processes in order to meet updated FDA regulations.[Footnote 44] 
This company considered its investment to produce a stable supply of 
the drug when pricing the product. 

Other Factors: Representatives of the drug companies we reviewed for 
our case studies reported that they considered other factors when 
determining the price of their drugs. For example, one expert noted 
that extraordinary price increases may occur because a drug 
manufacturer updates the price of a drug after obtaining new 
information about certain demand and supply factors affecting the drug. 
Three of the drug companies reported that their products were difficult 
to manufacture. These companies employ third-party manufacturers that 
produce the drugs. One of these companies said that its drug was very 
toxic, and since its manufacturing equipment was used to make other 
drug products, the equipment must be decontaminated after each batch is 
produced. These drug companies factored in these additional costs when 
they raised the price of their products. 

Some of the drug companies we reviewed revised the price of their brand-
name drugs to bring them in line with the prices of what they regarded 
as similar drugs. One company reviewed the estimated annual cost of 
several orphan drugs when determining the price for its drug, which 
treats a rare disease. Three companies reviewed various drug products 
and priced their drugs in line with these drugs. This pricing strategy 
led, in part, to these drugs experiencing an extraordinary price 
increase. An official from one of these companies reported that the 
drug was underpriced, and the company increased the price of the drug 
based on the prices of competing drug products used for similar medical 
conditions. Some of the drug companies considered the financial 
solvency of their drug product and company, and their fiduciary 
responsibility to their shareholders when determining the price of 
their drug. 

In some cases, representatives of drug companies cited the quantity of 
free or low-cost drugs donated through their patient assistance program 
and the level of rebates paid to the Medicaid program as factors that 
they considered when raising the price of their brand-name drugs. 
[Footnote 45] Two drug companies said that the level of rebates paid to 
the Medicaid program was a factor for their drugs' extraordinary price 
increases.[Footnote 46] The companies reported that they charged a 
higher retail price for their drugs, in part, to account for the large 
financial outlays to patient assistance and government programs. One 
company said that Medicaid beneficiaries represent a large portion of 
the patient population that uses their drug product. This company's 
representatives stated that over half of its drug sales were targeted 
to their patient assistance program for low-income, underinsured, or 
uninsured individuals or were reimbursed under Medicaid and therefore 
subject to rebates. These companies reported that they offered patient 
assistance programs that provide a large volume of free prescription 
drugs to patients who meet established criteria. The programs also 
provide financial assistance to insured patients who face financial 
hardship from paying copayments or coinsurance. 

Expert Comments: 

We provided a draft of this report to drug policy experts, who provided 
technical comments that we incorporated as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to other interested parties. We will also provide copies to others upon 
request. In addition, the report is available at no charge on the GAO 
Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or at dickenj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs can be found 
on the last page of this report. GAO staff members who made major 
contributions to this report are listed in appendix IV. 

Signed by: 

John E. Dicken Director, Health Care: 

[End of section] 

Appendix I: Scope and Methodology: 

In this report we address the following objectives: (1) the frequency 
of extraordinary price increases for brand-name prescription[Footnote 
47] drugs from 2000 to 2008, (2) the characteristics of the brand-name 
drugs that had extraordinary price increases, and (3) the factors that 
contributed to the extraordinary price increases experienced by these 
brand-name drugs. 

To determine the frequency of extraordinary price increases, we 
reviewed the average wholesale price (AWP)[Footnote 48] for all brand- 
name drugs in Thomson Reuters' Red Book,[Footnote 49] and identified 
all extraordinary price increases--a unit price increase[Footnote 50] 
equal to 100 percent or more at a single point in time from 2000 to 
2008. We calculated the percent change in unit AWP recorded in the Red 
Book for each 11-digit national drug code (NDC-11).[Footnote 51] For 
example, where a NDC-11 had three unit prices reported in Red Book from 
2000 to 2008 (unit price at point 1, unit price at point 2, and unit 
price at point 3), two data records were created. One record contained 
the percent change in unit price from point 1 to point 2, and the other 
record contained the percent change from point 2 to point 3. We 
identified extraordinary price increases by selecting only records (NDC-
11s) with a percent change of 100 percent or more. 

Drugs sold in different package sizes--for example, 30, 60, or 100 
tablets--have different NDC-11 codes. Each NDC-11 record captures the 
label name of the drug which includes the dosage form of the drug. 
Because a brand-name drug may have several NDC-11 codes for different 
package sizes, we identified the number of brand-name drug products 
that had an extraordinary price increase by their NDC-9 code, which 
represents the manufacturer and drug name, and strength. Where more 
than one package size of the same brand-name drug had an extraordinary 
price increase, we selected the package size with the highest 
extraordinary price increase.[Footnote 52] We counted an NDC-9 with 
different package sizes that had an extraordinary price increase on the 
same date only once. In this report, we use three terms to refer to the 
brand-name prescription drugs recorded in the Red Book. Drug brand 
refers to the label name of a brand-name prescription drug; brand-name 
drug product refers to the different products of the same drug brand. 
Otherwise we use the term brand-name drug or drug when we do not need 
to distinguish between drug brand and brand-name drug product. We 
report the frequency of brand-name drugs that had extraordinary price 
increases by (1) drug brand (drug label name as recorded in Red Book), 
and (2) brand-name drug product (NDC-9 code). The frequencies of 
extraordinary price increases reported by brand-name drug products (NDC-
9) include the same drug brand sold in different strengths and dosage 
forms (e.g., a 1mg or a 5mg tablet). The frequency of extraordinary 
price increases reported includes brand-name drug products that were 
repackaged by a distributor for resale to health care providers. 
[Footnote 53],[Footnote 54] (See appendix II for a list of the brand-
name drugs that had extraordinary price increases.) To identify the 
characteristics of brand-name drugs that had an extraordinary price 
increase, we used Red Book data on therapeutic class and price. 

To identify the factors that may contribute to extraordinary price 
increases we interviewed drug policy experts; academic researchers; 
state and federal government officials; consumer advocates; insurance 
company representatives; and hospital, health insurance, and retail 
pharmacy associations representatives. To illustrate the factors that 
may contribute to extraordinary price increases, we developed case 
studies of six drugs from different companies identified from our 
analysis of Red Book data. Each brand-name drug (NDC-11) was eligible 
for inclusion as a case study if it was active in the market as of 
December 31, 2008, and had an extraordinary price increase. To achieve 
variability in the characteristics of the drugs reviewed for the case 
study, selection was based on several factors, such as the (1) unit 
price, (2) percentage increase in price, (3) year of increase, (4) 
number of increases, (5) availability from multiple sources, (6) orphan 
drug status, and (7) permanence of the price increase. 

We also interviewed representatives of the companies that manufactured 
and distributed the case study drugs about the market dynamics leading 
to the drugs' extraordinary price increases. We gathered information 
on: (1) the characteristics of each drug, such as its patent and market 
exclusivity status, indication, volume, and utilization; (2) corporate 
business and marketing strategy for each drug; (3) factors that 
influenced the extraordinary price increase; and (4) agreements with 
the makers of drugs in the same therapeutic class. Some information 
provided by the representatives during these interviews is considered 
proprietary. As a result, the names of the participating companies and 
brand-name drugs are not identified. (See appendix III for information 
on each of the drugs from the case studies.) Information was also 
obtained from drug companies' Web sites, annual and quarterly reports, 
and other resources. 

We systematically reviewed Red Book to assess its reliability. The 
review involved an assessment of the frequencies of all numeric and 
date variables in Red Book to identify incorrect and erroneous entries 
or extreme outliers.[Footnote 55] We compared a sample of the pricing 
data for brand-name drugs that had extraordinary price increases 
reported in Red Book with pricing data contained in another drug 
pricing compendium and found a high degree of concurrence between the 
prices recorded in both data sources. Based on this review, we 
determined that the data used in our report were adequate for our 
purposes. We conducted our work from October 2008 through December 2009 
in accordance with all sections of GAO's Quality Assurance Framework 
that are relevant to our objectives. The framework requires that we 
plan and perform our engagement to obtain sufficient and appropriate 
evidence to meet our stated objectives and to discuss any limitations 
in our work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for any findings and 
conclusions in this product. 

[End of section] 

Appendix II: Brand-name Prescription Drugs with an Extraordinary Price 
Increase, 2000 to 2008: 

Using Thomson Reuters' Red Book,[Footnote 56] we calculated the change 
in average wholesale price (AWP) and identified all unit price 
increases equal to 100 percent or more at a single point in time from 
2000 to 2008. (See appendix I for more information.) Based on this 
analysis, we identified the label names of drugs that had extraordinary 
price increases by their NDC-9 code.[Footnote 57] AWP records in Red 
Book are reported by the drug manufacturer and published in Red Book. 
In some cases, when drug manufacturers do not report AWP, Red Book 
calculates AWP from other drug pricing benchmarks provided by drug 
manufacturers. GAO did not audit the drug pricing information reported 
to Red Book by drug manufacturers nor the calculations performed by Red 
Book to fill nonreported AWP data. Some of the drugs on this list were 
repackaged, or nonrepackaged, while other drugs were both repackaged 
and nonrepackaged. In a few cases, drugs were removed from the list 
because changes in the recorded package size led to errors in the 
calculated change in unit prices. See table 6 below for the label names 
of brand-name prescription drugs that had an extraordinary price 
increase between 2000 and 2008. 

Table 6: Repackaged Brand-name Drug Products that Had an Extraordinary 
Price Increase, 2000 to 2008: 

Repackaged brand name drugs (Pricing for these drugs is typically set 
by the repackager and not the drug's manufacturer): 

Name and strength of drug: 

Abilify Tab 5MG; 
Actos Tab 15MG; 
Actos Tab 30MG; 
Adderall Tab 5MG; 
Ambien Tab 5MG; 
Ambien Tab 10MG; 
Amoxil Cap 250MG; 
Amoxil Cap 500MG; 
Anaprox Tab 275MG; 
Anaprox-DS Tab 550MG; 
Ansaid Tab 100MG; 
Antabuse Tab 250MG; 
Aricept Tab 10MG; 
Arthrotec Tab 75MG-0.2MG; 
Avandia Tab 4MG; 
Axert Tab 12.5MG; 
Bayhep B Inj; 
Bextra Tab 20MG; 
Biaxin Sus 250MG/5ML; 
Bontril Cap ER 105MG; 
Bontril Slow Cap 105MG; 
Brevital Sodium Inj 500MG; 
Bromfed Tab; 
Cataflam Tab 50MG; 
Ceftin Tab 125MG; 
Ceftin Tab 250MG; 
Ceftin Tab 500MG; 
Celebrex Cap 200MG; 
Celebrex Cap 100MG; 
Cerumenex Otic Sol 10%; 
Cipro Tab 500MG; 
Cipro Tab 750MG; 
Claritin Tab 10MG; 
Codiclear DH Syr; 
Combivir Tab; 
Compazine Sup 25MG; 
Compazine Tab 10MG; 
Coumadin Tab 2.5MG; 
Cutivate Cre 0.05%;
Cytotec Tab 200mcg; 
Dalmane Cap 30MG; 
Daypro Tab 600MG; 
Depo-Estradio Inj 5MG/ML; 
Desowen CRE 0.05%; 
Diovan Tab 160MG; 
Dovonex Cre 0.005%; 
Dovonex Oin 0.005%; 
Duricef Cap 500MG; 
E.E.S.-400 Film Tab 400MG; 
Econopred Plus OP Sus 1%; 
Effexor Tab 100MG; 
Effexor XR Cap ER 75MG; 
Effexor-XR Cap 75MG; 
Effexor-XR Cap 37.5MG; 
Eryc Cap 250MG; 
Estrace Tab 1MG; 
Flexeril Tab 5MG; 
Flovent Inh 0.22/Act; 
Floxin Tab 200MG; 
Floxin Tab 300MG; 
Floxin Tab 400MG; 
Fulvicin P/G Tab 330MG; 
Glyset Tab 25MG; 
Ionamin Cap 15MG; 
Ismo Tab 20MG; 
Lamictal Tab 25MG; 
Lamictal Tab 200MG; 
Lanoxin Tab 0.25MG; 
Levaquin Tab 250MG; 
Levaquin Tab 500MG; 
Levaquin Leva-pak 750MG; 
Levoxyl Tab 0.088MG; 
Lidoderm Patch 5%; 
Lipitor Tab 80MG; 
Locoid Cre 0.1%; 
Lomotil Tab 0.025MG-2.5MG; 
Lotensin Tab 40MG; 
Lunesta Tab 1MG; 
Lunesta Tab 2MG; 
Lunesta Tab 3MG; 
Lyrica Cap 100MG; 
Lyrica Cap 200MG; 
Lyrica Cap 50MG; 
Lyrica Cap 75MG; 
Marcaine Inj 0.5%; 
Maxitrol Opth Sus; 
Mephyton Tab 5MG; 
Methergine Tab 0.2MG; 
Mevacor Tab 20MG; 
Miacalcin Spr 200iu/Act; 
Miralax Pwd for Soln; 
Mobic Tab 15MG; 
Mobic Tab 7.5MG; 
Motrin Tab 800MG; 
Niferex-150 Forte Cap; 
Nitrolingu Spr 0.4/Spray; 
Nitrostat SL Tab 0.4MG; 
Norco Tab; 
Norflex Tab 100MG; 
Norvasc Tab 10MG; 
Norvir Cap 100MG; 
Ovral Tab; 
Paxil CR Tab 25MG; 
Paxil CR Tab 12.5MG; 
Paxil CR Tab 37.5MG; 
Pediazole Sus; 
Pepcid Tab 40MG; 
Peridex Liq 0.12%; 
Phenergan Tab 25MG; 
Phenergan Sup 12.5MG; 
Phenergan Sup 50MG; 
Phenhist Expectorant Liq; 
Phoslo Tab 667MG; 
Plendil Tab 5MG; 
Plendil Tab 10MG; 
Ponstel Cap 250MG; 
Premarin Tab 0.625MG; 
Prilosec Cap 20MG; 
Provera Tab 2.5MG; 
Prozac Cap 20MG; 
Restoril Cap 30MG; 
Risperdal Tab 1MG; 
Risperdal Tab 0.5MG; 
Risperdal Tab 0.25MG; 
Robinul Inj 0.2MG/ML; 
Septra DS Tab; 
Seroquel Tab 25MG; 
Seroquel Tab 100MG; 
Seroquel Tab 50MG; 
Silvadene Cre 1%; 
Singulair Tab 10MG; 
Skelaxin Tab 400MG; 
Skelaxin Tab 800MG; 
Soma Compound w/Code Tab; 
Sumycin Cap 250MG; 
Synalgos-DC Cap; 
Synthroid Tab 0.1MG; 
Synthroid Tab 0.088MG; 
Terazol 3 Vag Cre 0.8%; 
Tigan Inj 100MG/ML; 
Tobradex Opth Sus; 
Tobrex Opth Sol 0.3%; 
Topamax Tab 25MG; 
Topamax Tab 100MG; 
Toprol XL Tab 50MG; 
Transderm Scop Patch; 
Ultram Tab 50MG; 
Ultram ER Tab ER 200MG; 
Valium Tab 5MG; 
Valtrex Tab 1GM; 
Vicodin Tab; 
Vicoprofen Tab; 
Vioxx Tab 25MG; 
Viracept Tab 250MG; 
Viramune Tab 200MG; 
Vivelle-Dot 0.1MG/24hrs; 
Voltaren Tab 75MG; 
Zebeta Tab 5mg; 
Ziagen Tab 300MG; 
Zithromax Tab 250MG; 
Zithromax Z-Pak Tab 250MG; 
Zocor Tab 10MG; 
Zocor Tab 20MG; 
Zocor Tab 40MG; 
Zoloft Tab 25MG; 
Zyprexa Tab 10MG; 
Zyprexa Tab 2.5MG; 
Zyprexa Tab 7.5MG; 
Zyprexa Tab 5MG; 

Source: GAO analysis of Red Book data. 

Note: Following the extraordinary price increase, some drugs may have 
become discontinued or transferred from one manufacturer to another. In 
some cases, an extraordinary price increase for a drug may not be 
attributed to the manufacturer that currently owns the drug. 

[End of table] 

Table 7: Nonrepackaged Brand-name Drug Products that Had an 
Extraordinary Price Increase, 2000 to 2008: 

Nonrepackaged brand name drugs: 

Name and strength of drug: 

Adderall Tab 5MG; 
Ala-Scalp HP Lot 2%; 
Amytal Sodium Inj 0.5GM; 
Ancobon Cap 250MG; 
Ancobon Cap 500MG; 
Bensal HP 60MG-30MG/1GM; 
Bontril PDM Tab 35MG; 
Bontril Slow Cap ER 105MG; 
Brethine Inj 1MG/ML; 
Brevital Sodium 2.5GM; 
Brevital Sodium Inj 2.5GM; 
Buprenex Inj 0.3MG/ML; 
Capital w/Codeine Sus; 
Cefazolin 1GM/50ML; 
Cefotan Inj 1GM; 
Cefotan Inj 2GM; 
Cellcept Cap 250MG; 
Cenolate Inj 500MG/ML; 
Ceretec Kit; 
Cogentin Inj Soln 1MG/1ML; 
Cognex Cap 10MG; 
Cognex Cap 20MG; 
Cognex Cap 30MG; 
Cognex Cap 40MG; 
Combipatch 0.05MG-0.14MG; 
Combipatch 0.05MG-0.25MG; 
Cortrosyn Inj 0.25MG; 
Cosmegen IV 0.5MG; 
Cuprimine Cap 250MG; 
Cystadane 1GM/1Scoopful; 
D.H.E. 45 Inj 1MG/ML; 
Dantrium IV 20MG; 
Demser Cap 250MG; 
Dermagraft Sheet; 
Digoxin Soln 0.05MG/1ML; 
Diprivan IV Emul 10MG/1ML; 
Diuril Sodium IV 0.5GM; 
Dopram IV Soln 20MG/1ML; 
Duramorph Inj 0.5MG/1ML; 
Duramorph Inj 1MG/1ML; 
Duramorph PF Inj 1MG/ML; 
Dynex Tab; 
Edecrin Sodium Inj 50MG; 
Edecrin Tab 25MG; 
Elliotts B Inj; 
Ergotrate Tab 0.2MG; 
Erythrocin Lac Inj 500MG; 
EtheDent Chew Tab 0.25MG; 
EtheDent Chew Tab 0.5MG; 
EtheDent Chew Tab 1MG; 
Fareston Tab 60MG; 
FazaClo Dis Tab 100MG; 
FazaClo Dis Tab 25MG; 
Formalyde-10 Spr 10%; 
Fosrenol Chew Tab 500MG; 
Geref Inj 50mcg; NovaPlus 
H.P. Acthar Gel 80U/1ML; 
Hectorol Cap 2.5MCG; 
Hectorol Liq Cap 2.5MCG; 
Hep-Lock Inj 10U/ML; 
Histatrol Inj 0.275/ML; 
Histatrol Soln 2.75MG/ML; 
Histussin HC 2.5-5-1/5; 
Hypaque-76 Inj; 
Inderal LA Cap 60MG; 
Inderal LA Cap 80MG; 
Inderal LA Cap 120MG; 
Inderal LA Cap 160MG; 
Inderal LA Cap ER 120MG; 
Inderal LA Cap ER 160MG; 
Inderal LA Cap ER 60MG; 
Inderal LA Cap ER 80MG; 
Indocin IV Pwd for Soln; 
Indocin Susp 25MG/5ML; 
Infumorph 200 Inj; 
Infumorph 500 Inj; 
Inversine Tab 2.5MG; 
Iodopen Inj 118MCG/1ML; 
Isuprel Inj 0.2MG/ML; 
Kenalog Spr 0.147/GM; 
Lacrisert Opth Dev 5MG; 
Levo-Dromoran Tab 2MG; 
Liposyn III Inj 10%; 
Liposyn III Inj 20%; 
Liposyn III IV Emul 10%; 
Liposyn III IV Emul 20%; 
Locoid Oin 0.1%; 
Locoid Sol 0.1%; 
Locoid Crm 0.1%; 
Locoid Lipocrem 0.1%; 
Lymphazurin Inj 10MG/ML; 
Matulane Cap 50MG; 
Maxipime Inj 1GM; 
Maxipime Inj 2GM; 
MD-Gastroview 66%-10%; 
Mephyton Tab 5MG; 
Methylin Chew Tab 10MG; 
Methylin Chew Tab 2.5MG; 
Methylin Chew Tab 5MG; 
Methylin Soln 10MG/5ML; 
Methylin Soln 5MG/5ML; 
Minocin Cap 50MG; 
Minocin Cap 100MG; 
Muri-Lube Oil; 
Mustargen IV Pwd for Soln; 
Nascobal Gel 500mcg/0.1ML; 
Nembutal Sod Inj 50MG/ML; 
Nicomide Tab; 
Nitropress Inj 50MG; 
Norvir Cap 100MG; 
Norvir Sol 80MG/ML; 
Novahistine DH 7.25-2-5/5; 
NovaPlus Diprivan IV 10/1; 
Nydrazid Inj 100MG/ML; 
Omnipaque 300 Inj 64.7%;
Oncoscint CR/OV Inj 1MG;
Optison IV Susp;
Oracit Sol;
Ortho-Prefest Tab;
Pamelor Cap 10MG;
Pamelor Cap 25MG;
Panhematin IV 313MG;
Phrenilin Forte 50-650;
Prefest Tab;
Prevacid SoluTab 15MG;
Prevacid SoluTab 30MG;
Prevpac Kit;
Promit IV 150MG/1ML;
Quelicin Inj 100MG/ML;
Quelicin Inj 20MG/1ML;
Regonol Inj Soln 5MG/1ML;
Rejuvesol Inj;
Rescon-MX Tab ER;
Robaxin Inj Soln 100MG/ML;
Robinul Inj Soln 0.2MG/ML;
Roxicet Tab 500MG-5MG;
Ryna-12 S Sus;
Seconal Sodium Cap 100MG;
Septra DS Tab;
Sucraid Sol 8500 IU/ML;
Sulfoxyl Regular Lot;
Sulfoxyl Strong Lot;
Sumycin Tab 250MG;
Sumycin Tab 500MG;
Syprine Cap 250MG;
Syrex Inj 0.9%;
Tenormin Inj 0.5MG/ML;
Testopel Pellets 75MG;
Tetanus To Inj 10LF/0.5ML;
Trasylol Inj 10,000kiu/ML;
Tricitrasol Cnt 46.7%;
Tridesilon Cre 0.05%;
Tridesilon Oin 0.05%;
Trisenox IV Soln 1MG/1ML;
Tuinal Cap 50MG;
Uretron D/S Tab;
Utira-C Tab;
Virazole Sus 6GM;
Vitrasert Imp 4.5MG;
Westhroid Tab 130MG;
Westhroid Tab 32.5MG;
Westhroid Tab 65MG. 

Source: GAO analysis of Red Book data. 

Note: Following the extraordinary price increase, some drugs may have 
become discontinued or transferred from one manufacturer to another. In 
some cases, an extraordinary price increase for a drug may not be 
attributed to the manufacturer that currently owns the drug. 

[End of table] 

[End of section] 

Appendix III: Characteristics of Case Study Drugs: 

To gain an understanding of the market dynamics leading to 
extraordinary price increases for brand-name drugs, we developed case 
studies of six brand-name drugs identified from our analysis of Red 
Book data. Selection for inclusion as a case study was based on several 
factors including price, the level of the percentage increase, whether 
the drug had more than one extraordinary price increase between 2000 
and 2008, availability of the drug from multiple sources, and the 
permanence of the price increase. See table 8 for characteristics of 
the drugs selected for the case studies. 

Table 8: Summary of Characteristics of the Six Case Study Drugs: 

Drug characteristics: Year of FDA approval; 
Drug A: 1987; 
Drug B: 1952; 
Drug C: 1969; 
Drug D: 1960; 
Drug E: 1985; 
Drug F: 1991. 

Drug characteristics: Year of unit price increase; 
Drug A: 2007; 
Drug B: 2001 and 2007; 
Drug C: 2004 and 2005; 
Drug D: 2004; 
Drug E: 2008; 
Drug F: 2001. 

Drug characteristics: Percent unit price increase[A]; 
Drug A: 1,100; 
Drug B: 1,800 and 1,300; 
Drug C: 900 and 700; 
Drug D: 100; 
Drug E: 100; 
Drug F: 1,400. 

Drug characteristics: Patent status at time of price increase; 
Drug A: No patent; 
Drug B: No patent; 
Drug C: No patent; 
Drug D: No patent; 
Drug E: Under patent[B]; 
Drug F: Under patent. 

Drug characteristics: Market exclusivity status at time of price 
increase[C]; 
Drug A: None; 
Drug B: None; 
Drug C: None; 
Drug D: None; 
Drug E: None; 
Drug F: None. 

Drug characteristics: Repackaged drug; 
Drug A: No; 
Drug B: No; 
Drug C: No; 
Drug D: No; 
Drug E: No; 
Drug F: Yes[D]. 

Drug characteristics: Year of drug acquisition[E]; 
Drug A: 2007; 
Drug B: 2001; 
Drug C: 1998; 
Drug D: 2000; 
Drug E: N/A[F]; 
Drug F: N/A[G]. 

Drug characteristics: Generic equivalent available on the market at 
time of price increase[H]; 
Drug A: Yes; 
Drug B: No; 
Drug C: No; 
Drug D: No; 
Drug E: No[I]; 
Drug F: No. 

Drug characteristics: Drug available through patient assistance 
program[J]; 
Drug A: No; 
Drug B: Yes; 
Drug C: Yes; 
Drug D: No; 
Drug E: No; 
Drug F: Yes[K]. 

Drug characteristics: Drug is considered low volume or high volume[L]; 
Drug A: Low volume; 
Drug B: Low volume; 
Drug C: Low volume; 
Drug D: Low volume; 
Drug E: Low volume; 
Drug F: High volume[M]. 

Source: GAO analysis of Red Book and interviews with drug company 
representatives. 

Note: Changes in unit prices are calculated using average wholesale 
price (AWP) in Thomson Reuters' Red Book. An extraordinary price 
increase is a unit price increase equal to 100 percent or more at a 
single point in time from 2000 to 2008. Patent status is reported as of 
the date the extraordinary price increase occurred. 

[A] Percent increase is rounded to the nearest hundred percent. 

[B] This drug had a method-of-use patent. 

[C] The Federal Food, Drug, and Cosmetics Act authorizes various 
periods of market exclusivity for new drug products. Generally, market 
exclusivities prevent the Food and Drug Administration (FDA) from 
approving any application for a competing drug compound for a stated 
period of time. 

[D] This drug was sold by a repackager. The price of the drug was set 
by the repackager and not the manufacturer. 

[E] Indicates the year that the rights to the drug were acquired from 
the previous manufacturer. 

[F] This company owns the original rights to the drug. 

[G] This drug was sold by a repackager. 

[H] This information was obtained from the companies and publicly 
available information from the FDA. 

[I] This drug's active ingredient is available as a generic in other 
dosage forms. 

[J] Patient assistance programs are typically established to offer a 
company's drug products at low or no cost to low-income, underinsured, 
or uninsured individuals. 

[K] This drug was sold by a repackager. At the time of its 
extraordinary price increase, the drug was available through the 
manufacturer's patient assistance program. 

[L] Drug companies were asked to identify their drug as either low 
volume or high volume, depending on the amount manufactured annually. 

[M] The manufacturer of the drug said that this drug was a high-volume 
product at the time of its extraordinary price increase. The repackager 
told us it sold a small amount of the drug at the time of its 
extraordinary price increase. 

[End of table] 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John E. Dicken at (202) 512-7114 or Dickenj@gao.gov. 

Acknowledgments: 

In addition to the contact named above, Martin T. Gahart, Assistant 
Director; N. Rotimi Adebonojo; Rashmi Agarwal; George Bogart; Kristin 
Helfer Koester; Martha Kelly; Yesook Merrill; Giao N. Nguyen; Daniel 
Ries; and Timothy Walker made major contributions to this report. 

[End of section] 

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[End of section] 

Footnotes: 

[1] In this report, drug prices are measured by the AWP, a drug pricing 
benchmark that is commonly used in the pharmaceutical industry. AWP is 
in most cases the manufacturer's suggested list price and does not 
necessarily reflect the actual price charged by a wholesaler. 

[2] Red Book is a drug pricing compendium with information about prices 
and other characteristics of drug products, published by Thomson 
Reuters. 

[3] A unit price is the (1) price per gram; (2) price per milliliter; 
or (3) price for each piece, such as for products sold in tablets. The 
unit price and other characteristics of the brand-name drugs cited in 
this report were those recorded in the Red Book as of December 31, 
2008. 

[4] The name of a drug and its manufacturer, the strength of the drug, 
and the package size or number of units (such as tablets) in the 
package are represented by a 11-digit national drug code (NDC-11). 

[5] Prescription drugs may be repackaged from bulk drug purchases into 
smaller packages and identified by the repackaging company's unique 
NDC. Repackaged drugs are typically sold to health care providers, who 
then resell them to patients. 

[6] Drugs that possess a similar chemical structure and similar 
therapeutic effects are grouped into therapeutic classes. Most drugs 
within a therapeutic class produce similar benefits, side effects, 
adverse reactions, and interactions with other drugs and substances. 

[7] For this report, companies that manufacture and/or sell brand-name 
drugs are referred to as drug companies. 

[8] While prescription drug spending and prices continue to rise, the 
rate of growth in spending and prices for prescription drugs declined 
in 2007. In 2000, national spending for retail prescription drugs was 
$120.6 billion, compared to $227.5 billion in 2007--an average increase 
of 10 percent a year. In 2007, retail prescription drug spending grew 
4.9 percent, and prescription drug prices increased 1.4 percent. M. 
Hartman, A. Martin, P. McDonnell, A. Catlin, and the National Health 
Expenditure Accounts Team, "National Health Spending in 2007: Slower 
Drug Spending Contributes to Lowest Rate of Overall Growth Since 1998," 
Health Affairs, vol. 28, no. 1 (2009). However, there is preliminary 
indication of higher drug price increases from 2008 to 2009. 

[9] To obtain FDA approval for a drug, a drug company must conduct 
clinical studies showing that the drug is safe and effective for its 
intended use, or indication. 

[10] While a brand-name drug is patented, therapeutically similar brand-
name drugs not containing the same active chemical ingredient, also 
known as "me-too" drugs, may be developed and marketed by a drug 
company. Also, the FDA may not approve generic therapeutic equivalents 
to a brand-name drug prior to the expiration of the drug's patent 
unless the applicant certifies that the patent is invalid or that the 
generic drug does not infringe the patent. 

[11] Drugs obtained directly from health care providers may eliminate 
travel to a pharmacy to obtain a prescribed drug. In addition, the 
availability of repackaged drugs from the health care provider may 
reduce medication errors caused by poor handwriting--such as 
administering the wrong medication or an incorrect dosing. 

[12] See 35 U.S.C. §§ 111, 154. 

[13] Patents may be granted for several properties of a drug. For 
example, a drug company may obtain a patent on the active ingredient 
used in the drug. Companies may also obtain patents on the use of a 
drug, and a drug's formula and composition. Although a patent may be 
granted for a drug product long before its approval for marketing by 
the FDA, a company may obtain a patent term extension in certain 
circumstances. 

[14] 21 U.S.C. § 355(c)(3)(D)(ii). 

[15] 21 U.S.C. § 355(c)(3)(D)(iii). 

[16] 21 U.S.C. § 355(j)(2)(D)(iv). Exclusivity pertains to the first 
applicant of an abbreviated new drug application based on a previously 
approved brand-name drug. 

[17] 21 U.S.C. § 355a. 

[18] 21 U.S.C. § 360cc. An orphan drug is a drug that treats a rare 
disease or condition which is generally defined as affecting fewer than 
200,000 people in the United States. 

[19] The FDA is responsible for designating drugs as orphan drugs. 

[20] Underinsured patients typically face limited covered benefits and 
high out-of-pocket costs such as deductibles, coinsurance, or 
copayments. 

[21] See 15 U.S.C. §§ 18, 1. In addition, states investigate and 
litigate potential violations of state as well as federal antitrust 
law. See 15 U.S.C. § 15c. 

[22] 15 U.S.C. § 18a. Companies involved in transactions that do not 
meet certain criteria are not required to notify the FTC and DOJ. The 
FTC and DOJ may seek an injunction to halt the acquisition or require 
that companies divest certain drugs if they determine that the merger 
is likely to be anticompetitive. 

[23] See 15 U.S.C. § 45 (prohibiting unfair methods of competition). 

[24] See 21 C.F.R. part 211 (2009). 

[25] About 90 percent of the extraordinary price increases--380 brand- 
name drug products--remained at the increased price for more than 90 
days after experiencing the price increase, and more than four-fifths 
remained at the increased price for 180 days or more. 

[26] We compared the price of the drug immediately after the 
extraordinary price increase to the last recorded price of the drug as 
of December 31, 2008. For 361 drugs that had extraordinary price 
increases, the final price recorded for these drugs was the same price 
or higher than the price immediately after the extraordinary price 
increase. 

[27] The NDC-9 code represents the name of the drug and its 
manufacturer, and strength of the drug. The price increases for brand- 
name drug products that had an extraordinary price increase were 
reported using unit price data recorded at the NDC-9 level. 

[28] These three therapeutic classes represented 40 percent of all 
brand-name drugs recorded in Red Book. 

[29] The unit price for brand-name drug products that had an 
extraordinary price increase were reported using unit price data at the 
NDC-9 level. We report the unit price of a drug prior to the 
extraordinary price increase. A unit price is denoted by Thompson 
Reuters in Red Book as (1) price per gram; (2) price per milliliter; 
and (3) price for each piece, such as products sold by the item, such 
as tablets or capsules. 

[30] Of the brand-name drug products priced less than $25 per unit 
prior to the extraordinary price increase, 40 percent were priced less 
than a dollar, 54 percent between $1 and $9.99, and 6 percent between 
$10 and $24.99. After the extraordinary price increase, 18 percent of 
these drugs were priced less than a dollar, 63 percent between $1 and 
$9.99, and 19 percent between $10 and $24.99. 

[31] The median price after the increase is calculated using the price 
recorded in Red Book as of December 31, 2008, because the price of 
these drugs may have increased or decreased following the extraordinary 
price increase. 

[32] The calculation of treatment cost is based on two courses of 
treatment lasting up to 28 days. In some cases, patients on this drug 
may receive only one course of treatment. The out-of-pocket cost for a 
patient varies depending on insurance coverage. 

[33] The price increases for drugs that had an extraordinary price 
increase are reported using unit price data recorded at the NDC-9 
level. Less than half of all brand-name drug products recorded in Red 
Book were repackaged drugs. 

[34] To determine whether an extraordinary price increase was initiated 
by a drug's manufacturer or by the repackager of the drug, we matched 
all repackaged drugs that had an extraordinary price increase to the 
nonrepackaged equivalent drug brand sold by the manufacturer. To 
account for increases initiated by manufacturers of nonrepackaged drugs 
that had an increase of less than 100 percent and therefore were not 
captured from Red Book, we counted only repackaged drugs that had an 
increase of at least 200 percent for this analysis. 

[35] These four repackaging companies accounted for about three 
quarters of all repackaged drugs that had an extraordinary price 
increase. 

[36] As discussed earlier, the price of a course of treatment depends 
on the nature of the condition treated, how long the condition should 
be treated, and the number of units of a drug used to treat the 
condition. 

[37] The median price after the increase is calculated using the price 
recorded in Red Book as of December 31, 2008, because the price of 
these drugs may have increased or decreased following the extraordinary 
price increase. 

[38] For this report, we use the term therapeutically equivalent drugs 
to include both generic versions of a brand-name drug and other brand- 
name drugs used to treat the same condition. Generally, according to 
the FDA a therapeutically equivalent drug refers only to the generic 
version of a brand-name drug. 

[39] Drug companies may also receive a patent for minor alterations to 
the formulation of a drug such as reversing only the structure of the 
chemical used in the active ingredient. 

[40] See Apps. I and III for more details on the case study drugs. 

[41] A drug's patent(s) may be acquired through grant, sale, or other 
type of transfer. 

[42] Two companies in our case studies have acquired another drug 
company and its drug products. Also, some of the companies in our case 
studies have acquired the rights to drugs manufactured by other 
companies. 

[43] According to the company, the previous owner sold the rights to 
the drug because of difficulty manufacturing the drug and its financial 
losses from low sales of the drug. 

[44] These changes included upgrades to manufacturing equipment used to 
detect and reduce impurities and revalidation of the entire 
manufacturing process. 

[45] Drug manufacturers that wish to have their drugs available for 
Medicaid enrollees are required to enter into rebate agreements with 
the federal government on behalf of states. These rebate agreements are 
intended to ensure that Medicaid pays the lowest price that the 
manufacturer offers for the drug. Rebates are computed and paid by the 
drug manufacturer each quarter based on drug utilization data supplied 
by Medicaid. 

[46] The basic Medicaid rebate is 15.1 percent of a drug's average 
manufacturer price (AMP) per unit, or the difference between AMP and a 
drug's best price, whichever is greater. If a brand-name drug's AMP 
rises faster than inflation, as measured by the consumer price index, 
an additional unit rebate may be calculated. See U.S.C. § 1396r-8(c). 
The two companies indicated that due to the application of additional 
unit rebates caused by increases in their drug prices, their Medicaid 
rebates actually exceeded their drugs' AMPs. 

[47] Unless otherwise noted, in this report "brand-name drugs" refers 
to brand-name prescription drugs. 

[48] In this report, drug prices are measured by AWP. AWP is in most 
cases the manufacturer's suggested price and does not necessarily 
reflect the actual price charged by a wholesaler. AWP is a drug pricing 
benchmark that is commonly used in the pharmaceutical industry. 

[49] Red Book is a proprietary database containing drug pricing and 
other drug-related information published by Thomson Reuters. Drug 
manufacturers and companies report the price of their drug--in AWP or 
other pricing benchmarks--to Thomson Reuters for publication in the Red 
Book. In some cases, Red Book calculates AWP values using other pricing 
benchmarks. 

[50] A unit price is the (1) price per gram; (2) price per milliliter; 
or (3) price for each piece, such as for products sold in tablets. The 
unit price and other characteristics of the brand-name drugs cited in 
this report were those recorded in Red Book as of December 31, 2008. 

[51] Drug prices are identified and reported in Red Book by an 11-digit 
number called the NDC-11 code. The NDC-11 code represents the name of 
the drug and its manufacturer, the strength of the drug, and the 
package size--or number of units (such as tablets) in the package. 

[52] As a result, for these brand-name drugs we do not capture this 
variation in extraordinary price increase by package size. 

[53] Prescription drugs may be repackaged from bulk drug purchases into 
individual dose packages and identified by the repackaging company's 
unique NDC. Repackaged drugs may be sold to health care providers, who 
then dispense them to their patients. 

[54] To determine whether an extraordinary price increase was initiated 
by a drug's manufacturer or by the repackager of the drug, we matched 
all repackaged drugs that had an extraordinary price increase to the 
nonrepackaged equivalent drug brand sold by the manufacturer. Whenever 
a match between the repackaged and nonrepackaged drug was not found, we 
concluded that the repackaged drug had an extraordinary price increase 
without a corresponding increase by the drug's manufacturer for the 
identical nonrepackaged drug. To account for increases initiated by 
manufacturers of nonrepackaged drugs that had an increase of less than 
100 percent and therefore were not captured from Red Book, we counted 
only repackaged drugs that had an increase of at least 200 percent for 
this analysis. 

[55] We deleted records from our data files in a few cases where a drug 
company provided evidence showing that an extraordinary price increase 
had not occurred. In one case, data entry errors recording an incorrect 
package size was the reason for an extraordinary price increase. We 
also deleted one record that showed an extraordinary price increase 
after December 31, 2008. 

[56] Red Book is a database containing drug pricing and other drug- 
related information published by Thomson Reuters. 

[57] The NDC-9 code represents the name of the drug and its 
manufacturer, and strength of the drug. 

[End of section] 

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