Drugmakers hike prices by 1,000 percent — then offer free coupons to consumers

LOS ANGELES - Horizon Pharma charges more than $2,000 for a month's supply of a prescription pain reliever that is the combination of two cheap drugs available separately over the counter.

Another company, Novum, sells a small tube of a prescription skin rash cream, containing two inexpensive decades-old medicines, for nearly $8,000.

What is key to the companies' business plan of raising prices by 1,000 percent or more?

The answer: coupons that deliver Horizon's pain reliever Vimovo and Novum's skin cream Alcortin A for as little as nothing to the patient, while leaving America's health system to pick up much of the rest of the price.

Experts warn that the coupons, increasingly being used by dozens of companies, are sharply adding to the nation's medicine bill. That cost is passed along to most Americans through higher insurance premiums and taxes needed to pay for government health programs.

The success of Horizon and Novum using this strategy demonstrates how America's convoluted and opaque system of paying for prescription drugs enables executives to set extraordinary prices on modest medicines that have been around for years. The coupons keep patients and doctors from seeing the medicine's true price tag.

'Via a coupon, the manufacturer can make its high-priced drug look as cheap as these over-the-counter medicines,” explained Matt Schmitt, an assistant professor at the UCLA Anderson School of Management.

In two recent papers, Schmitt, along with professors from Harvard and Northwestern, showed how the coupons propelled companies to charge 'the highest price possible.”

They found that spending on 23 medicines sold through coupons was as much as $2.7 billion higher over five years than it would have been if the coupons were not used.

In 2007, a quarter of sales from brand-name medicines came from drugs backed by copay coupons, the group said. By 2010, that proportion had more than doubled and 'the availability of coupons has since become rampant,” they said.

By boosting prices, companies can bolster revenue without spending more on research to discover new medicines. Horizon, for example, has increased the price of Vivomo eight times in the last two years.

The price hikes lift the corporate bottom line, and often executives' compensation.

Last year, Horizon's board handed CEO Timothy Walbert a pay package worth $93.4 million - a 10-fold rise from the previous year.

Novum, founded last year and owned by a small group of investors who don't release financial figures, has sold more than $85 million worth of Alcortin A this year through the end of July, according to QuintilesIMS, which tracks drug spending.

Before Novum bought the drug from another company, the prescription skin cream's annual sales were less than $4 million.

Of the three medicines Novum sells, Alcortin A is by far its most popular.

In answers to questions sent by email, Geoffrey Curtis, Horizon's senior vice president of corporate communications, said the coupons help patients get needed medicines.

'Our goal is to provide access to medicines a patient's physician prescribes while limiting the patients' financial burden,” Curtis said.

He said the wholesale price of the company's pain reliever Vimovo 'is not reflective of the cost to patients.”

Rand Walton, a Novum spokesman, declined to answer questions about its skin cream. In a statement, Walton said Novum was owned 'by a group of like-minded investors who believe in the company's business model to provide no-hassle and affordable access to therapies.”

Some patient advocacy groups support industry coupons, a position that has somewhat muffled the outcry over soaring medicine prices.

'Copay coupons are something our case managers will continue to use until there's no need for them,” said Caitlin Donovan at the National Patient Advocate Foundation.

The group, which is partly funded by drug companies, runs a program to help patients pay for medicines.

Alcortin A is a combination of hydrocortisone and an antibacterial drug called iodoquinol - both discovered many decades ago. The gel also includes a compound from the aloe vera plant, similar to what is sold to soothe sunburn.

Its label explains that it is 'possibly” effective for eczema and other skin conditions.

Horizon's Vimovo is a combination of naproxen, the generic pain reliever sold under the brand name Aleve, and the generic version of the heartburn medicine Nexium. Both are available over the counter.

Some doctors suggest taking the two medicines together to try to avoid stomach ulcers, a dangerous side effect of pain relievers such as Aleve, known as NSAIDS.

The wholesale, or list price, of Vimovo is $34 per tablet. The pain reliever is taken twice daily for a total cost of $68.

If a patient instead bought naproxen and Nexium over the counter at the drugstore, a day's worth of medicine would cost as little as 57 cents.

Horizon bought the rights to sell Vimovo and quickly raised its price for 60 tablets from $115 to $799 on Jan. 1, 2014, according to data from Truven Health Analytics. After seven more price hikes, the drug now sells for $2,061.

Curtis, the Horizon executive, said the combination drug is worth its price because it lowers a pain patient's risk of potentially deadly ulcers.

'To assume that you can substitute OTC (over the counter) and/or generic medicines sequentially is inaccurate,” he wrote in an email.

The strategy of purchasing an older medicine and hiking its price has become so common in the pharmaceutical industry that Wall Street analysts call it 'buy-and-raise.”

Last year, executives from Valeant Pharmaceuticals International and Turing Pharmaceuticals were called before a congressional committee to explain their large price hikes on medicines purchased from other companies.

Novum bought the rights to sell Alcortin A in spring 2015 and soon hiked its price from $189 to $2,496, according to Truven. The price jumped to $3,489 in January and to $7,968 on Sept. 12.

Experts said it would be far more difficult for drug companies to aggressively boost prices without the coupons. They defeat one of the few tools that the nation's health system has to try to stop doctors from prescribing high-priced medicines not worth their cost.

Insurers often put higher co-payments or copays - the fixed payment made by a patient - on expensive, brand-name drugs in an attempt to get patients to take cheaper generic alternatives. With the coupons, though, patients and doctors don't have to worry about those higher copays.

But experts say widespread use of the coupons leads to overall higher premiums.

'This is raising the cost to everyone,” said Steve Miller, chief medical officer at Express Scripts, the nation's largest manager of prescription drug benefits for insurers and employers.

Last year, drug costs for patients covered by private insurance policies rose nearly 16 percent, according to the S & P Global Institute.