Drugmakers raised prices last year in anticipation of new health law, Eli Lilly reports financial hit

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Apr 21 2010

The Wall Street Journal: "Drug companies sharply raised prices last year, ahead of increased rebates they must pay to Medicaid and other expenses tied to the federal health overhaul passed last month. Prices for brand-name pharmaceuticals rose 9.1% last year, the biggest increase in at least a decade, according to pharmacy-benefit manager Express Scripts Inc." The increases were "exacerbated" by the health debate, according to Steve Miller of Express Scripts, "although drug makers disputed that notion .. The effects of the price increases on overall drug spending are being tempered by the availability and aggressive promotion of cheaper generic alternatives, among other factors."

"Also, as drugs go generic, companies mark up the prices of the brand-name versions, assuming that patients who stick with those 'are the people for whom price doesn't matter,' said Mark McClellan, who formerly oversaw the Medicare and Medicaid programs for the Bush administration and is now at the Brookings Institution" (Mathews, 4/20).

Meanwhile, The Associated Press reports that "Health care reform charges helped chop Eli Lilly and Co.'s first-quarter profit by 5 percent, offsetting strong sales growth from some of its top-selling drugs. The Indianapolis drugmaker said Monday it took a one-time charge of $85 million in the three months that ended March 31 due to its retiree prescription drug coverage, and it expects Medicaid-related rebates to shrink revenue by $350 million to $400 million this year" (Murphy, 4/19).

Business Week: "Now analysts may revise projections for Bristol-Myers Squibb Co., Pfizer Inc. and other drugmakers yet to report first-quarter results ... Measures in the bill expanded the number of hospitals serving low-income populations eligible for lower prices on medicines, boosted discounts to Medicaid and made subsidies for retirees' prescriptions taxable, Lilly said today. ... Some of these companies' biggest-selling products are sold mostly to Medicaid patients, such as schizophrenia medications" (Tirrell and Pettypiece, 4/19).

Forbes reports the reduced earnings are "thanks to a one-time tax charge of $85.1 million in the first quarter."

"While the reform represents a drag on earnings, sales of Lilly's top drugs [Zyprexa and Cymbalta] continued to trend up" (Iacomb, 4/19).

Meanwhile, "Swiss drug giant Novartis AG is cutting about 20% of its U.S. headquarters staff as it attempts to cut costs and reorganize the way it sells drugs in the world's biggest pharmaceutical market," The Wall Street Journal reports in a second article. "The company is eliminating 383 jobs ... Novartis said Tuesday as it reported a 49% rise in first-quarter net profit" (Whalen, 4/20).

This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.