The pill price hike.

Health and medicine explained.
Aug. 23 2006 1:12 PM

The 1,800-Fold Price Hike

A maker of the pill sticks it to family-planning clinics.

No one much noticed, but thousands of family-planning clinics across the country went into a tailspin last month. They were reacting to a drastic price increase by Ortho-McNeil, a major supplier of birth-control pills and maker of the popular contraceptive patch. The company used to charge publicly funded clinics as little as a penny a pack for the pills. Then, as of July 1, the price of some pills jumped to more than $18 a pack. Ortho's move was apparently legal under federal pricing rules. But it's anybody's guess as to why the company chose to do this now, without giving the clinics any real notice.

As a result of the price hike, publicly funded clinics from Maine to New Mexico are running short on popular contraception products, scrambling to find reasonably priced generics, and scaling back on the choices they offer low-income women. Chronically underfunded, the clinics are in no shape to absorb this blow, especially now. The number of women in need of subsidized contraception is rising, while new and expensive advances in screening and prevention, like the HPV vaccine, are coming on line. Yet the national press has ignored the story of the Ortho price hike, which the Charleston Gazette in West Virginia broke in late July.

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Ortho-McNeil has historically offered birth control to public clinics at a far lower price than it retails to women with private insurance, allowing the clinics to offer free or low-cost pills to many patients. The company's low prices—pennies for a month's worth of birth-control pills, $10 to $12 for the popular one-month contraceptive patch Ortho Evra—came through the federal program 340B. Using a complex formula, 340B sets upper limits on what companies can charge to clinics that receive funding from Title X, the federal family-planning initiative. There are about 4,500 Title X clinics serving around 5 million patients. The current funding is $283 million a year—an amount that's supposed to cover not only birth control but also treatment for sexually transmitted diseases, screening for breast and cervical cancer, pregnancy tests, and counseling. (Title X funds may not be used for abortions.)

Under 340B, pricing is confidential. So, we don't know the highest prices that Ortho can legally charge the Title X clinics and other eligible community health centers. But Ortho's contraceptive products may have been priced well below the ceiling before the price hike in July, and now they may be right up against it. In some states, more than 70 percent of the birth-control pills distributed at publicly funded clinics were made by Ortho. So, why did the company offer discounts that may have been deeper than required—and then suddenly stop offering them? Ortho refuses to explain itself or even to confirm any pricing information. In a statement, the company says that its products "are comparatively priced with other hormonal contraceptive options" and notes that generic alternatives are available.

Some doctors who work with publicly funded clinics speculate that Ortho previously kept prices low because it hoped to build brand loyalty among women who might one day switch to private insurance. Now that generic substitutes for most Ortho pills are available and most private insurance companies press women to use them, the theory goes, Ortho has little incentive to woo women. But generic birth-control pills have been available for a while, so this doesn't explain why Ortho chose to stick it to the public clinics now.

Another possibility is that the price hike reflects a change in the prices Ortho charges commercially. The federal formula used to calculate 340B prices takes into account a drug's commercial price and its Medicaid price, and it can result in low or even negative numbers—in which case, the government goes with a price of one penny, says Jennifer Lockwood-Shabat of the National Family Planning and Reproductive Health Association, which negotiates pricing with Ortho on behalf of public clinics. Lockwood-Shabat says there may have been a recent shift in Ortho's commercial pricing that in turn allowed it to raise prices for the public sector. Still, the company could have decided to keep prices low or increase them incrementally rather than radically raise them.

To absorb the higher prices, public clinics are contemplating cutting other services, reducing the hours they're open, or closing some locations. Some clinics are finding that generic substitutes are difficult to afford. Prices for generic birth control pills vary widely, but many seem to cost between $5 and $18 dollars a pack—not bad compared with retail prices, but far more than clinics were accustomed to paying for Ortho. Some clinics say they will have to stop offering certain classes of birth control pills altogether. This is a problem since women respond differently to different hormonal formulations: One kind of pill may cause breakthrough bleeding, bloating, or moodiness, while another causes no side effects.

The National Family Planning and Reproductive Health Association and its members have managed to convince Ortho to relent on one of the price increases—the cost of the Ortho Evra patch initially jumped from $10 or $12 to more than $22 dollars; now it's down to $15. Maybe Ortho will come to its senses on the pill as well, or maybe state governments will step in with an infusion of cash.

But so far, the episode demonstrates just how strapped—and politically friendless—the clinics that serve poor women are. Funding for Title X has been shortchanged for years. It's unlikely to get a boost in 2007, despite the growing number of women who need help paying for contraception. Poor women need a full range of birth-control choices and better access to care, not higher prices and cutbacks at the clinics on which they rely.

Amanda Schaffer is a science and medical columnist for Slate.

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