Sharp hike in some Rx prices rankles hospitals

April 17, 2006

When a new drug hits the market, it's no surprise to anyone that the price can be pretty steep. High research and development costs, along with huge promotional expenses, are part and parcel of bringing a new drug to consumers.

But when old-line, low-volume niche agents that have been around for more than 30 years are priced at a lofty level, red flags are raised. Two of the nation's biggest hospital buying groups, Premier Inc. and Novation, have been fielding complaints from their members who are outraged over inexplicably high prices for drugs manufactured by Ovation Pharmaceuticals.

The drugs that are caught in the middle of a firestorm of protest from pharmacy directors, purchasing agents, and directors of neonatal intensive care units (NICU) include: benztropine mesylate (Cogentin), chlorothiazide (Diuril), indomethacin (Indocin), mechlorethamine HCl (Mustargen), and hemin for injection (Panhematin). Cogentin, Diuril, Indocin, and Mustargen were recently sold to Ovation by Merck, and Panhematin was purchased by Ovation from Abbott.

Fred Pane, R.Ph., senior director of pharmacy affairs for Premier Inc., based in Charlotte, N.C., said his company was notified in early February by its members about the extraordinary price increases. "People did not see this coming," he said.

One of the reasons Ovation is able to charge so much is that the drugs are not contracted. Although not all drugs are purchased on a contractual basis-many sole-source agents are not contracted-Pane explained that it's difficult for buying groups to track noncontracted items because they aren't notified of price increases. That's in stark contrast to contracted items, where notification of price hikes is routine.

David Knocke, R.Ph., executive director of marketing for Deerfield, Ill.-based Ovation, said the company currently does not have contracts with hospital buying groups. "We have recently begun a dialogue with several GPOs and are interested in working together." Knocke told Drug Topics that at the time Ovation acquired the drugs from other manufacturers, they were not on contract with GPOs.

Linea Wilson, director, group purchasing services, for Child Health Corp. of America, said that CHCA owner hospitals' budgets have been greatly impacted by the price increases. In 2005, for example, CHCA owner hospitals spent $300,000 on Indocin IV, Diuril IV, Cosmegen, and Mustargen. "In 2006, we estimate that CHCA will spend approximately $5.9 million on these same drugs," Wilson noted. CHCA is a business alliance of 42 free-standing, independent, noncompeting children's hospitals in the United States and Canada.

Addressing the pricing structure, Knocke said that because small niche products have to undergo the same regulatory and quality requirements as billion-dollar products, it's "important to price them appropriately." Knocke added, "Many of these products are so small that not only have they not been improved but often the price has not been maintained even close to breakeven."

Knocke pointed out that in the case of the five agents in question, the overall cost of keeping the products available and on the market factored into the pricing scheme. In addition, he said, Ovation is in the process of establishing new manufacturing facilities for active pharmaceutical ingredients and finished dosage forms.