In an overlooked corner of pharma, drastic price hikes hit medicines for radiology scans

Three years ago, pharmacist Dennis McClure was stunned by news from a key supplier.

The cost of two widely used radiology medicines that his pharmacy sells to hospitals for performing lung and kidney scans jumped between 500 percent and nearly 1,800 percent. Earlier this year, he received yet another jolt — prices not only rose again, but the supplier sent a long-term contract requiring him to purchase a minimum amount of another of its medicines, as well.

McClure believes the supplier, Jubilant DraxImage, acted unfairly, but felt he had to take the deal.

“They have a monopoly,” said McClure, who operates Nuclear Apothecary in St. George, Utah, one of about 110 independent nuclear pharmacies that prepare and dispense vials of medicines to hospitals. “If you don’t sign the contract, you don’t get the product. So we did. But prices have gone up exponentially … and this has had a deleterious effect.”

These pharmacies, which operate in a largely overlooked corner of the pharmaceutical world, may not be the only ones that will suffer consequences, though.

Some doctors and hospital administrators suggest there are negative implications for patient care. Why? Cash-strapped facilities may use other types of scans that do not require these increasingly costly medicines to diagnose patients. But some other scans could also pose health risks.

Meanwhile, legal experts say the Jubilant contracting may be problematic. “The bundling sounds like a potential antitrust violation, particularly if their product has the dominant share of the market,” said Herbert Hovenkamp, a University of Iowa law professor and antitrust scholar.

State and federal authorities have, in fact, been alerted to the concerns, according to sources familiar with the matter, although there is no indication that official probes are underway.

A spokeswoman for Jubilant — which is a unit of Jubilant Pharma in India — declined to comment, citing a regulatory quiet period relating to its planned acquisition of the Triad Isotopes nuclear pharmacy chain.

This is only the latest incident in which rising drug prices are prompting heightened scrutiny of the pharmaceutical industry. In the last few years, numerous drug makers — big and small — have been investigated by Congressional committees, as well as state and federal investigators, in response to higher medicines costs and, in some cases, questionable competitive practices.

This particular episode began in January 2014, when Jubilant saw an opportunity to raise prices.

The Jubilant medicines are sold in powder form to nuclear pharmacies, which add a solution before filling orders from hospital radiology departments. A vial of MAA, which radiologists use for lung scans, rose from between $20 to $30 to between $350 and $450, depending upon quantities purchased. And DPTA, which is used for kidney scans, increased from between $20 to $30 a vial to between $130 and $160, depending upon quantities bought.

During a May 2014 conference call, however, Rajagopal Sankaraiah, the Jubilant chief financial officer, told investors these were “not just mere price hikes.” The company, he explained, was in a “very enviable position,” because Jubilant is a “single source” supplier, which means there are no other suppliers from which nuclear pharmacies could purchase the medicines (see page 8).

The pharmacies had little choice but to pass on a portion of the higher costs to hospitals, but those price hikes seem to have escaped wider notice. Now, though, some pharmacy owners said the combination of still more price hikes — MAA and DTPA each rose about 70 percent this year — and tightened contract requirements will have repercussions.

How so?

Many of these smaller nuclear pharmacies serve rural or less-populated markets where hospitals may not have much need to conduct a large number of lung or kidney scans on a regular basis. In the past, the pharmacies could order a certain amount of MAA or DTPA from Jubilant in advance of hospital orders and prepare numerous doses in each vial, which can only last up to about 12 hours.

Now, though, the Jubilant contracts that went into force earlier this year prevent the pharmacies from engaging in what is called anticipatory compounding. As a result, the pharmacies can only purchase enough of the Jubilant medicines to fill specific orders and, unless a hospital orders several doses, any leftover medicine is likely to be wasted.

The upshot: Pharmacies must spend more to keep customers.

“This has really hurt small pharmacies,” said Tom Wilkinson, who runs Austin Nuclear in Austin, Texas. “We don’t do the volume that a large operator does. From one vial of MAA, we may only get three doses, because we have fewer orders in a short period of time. The bigger guys can get up to seven doses from each vial. But if you can’t supply that product to a customer, that customer will go someplace else.”

Some hospitals are also feeling pinched.

The Cleveland Clinic Foundation is eating the higher costs, but spending less elsewhere, said Shashi Khandekar, the administrator for the imaging institute department. The 2014 price hikes added an extra $1 million to her $5 million budget. This may appear to be a small amount for a large hospital system, but it can mean delaying the purchase of new, state-of-the-art equipment.

“One year, you’re paying the cost of a few lattes and the next year, you’re paying the cost of a whole cell phone bill,” explained Danielle Holtz, a CCF sourcing analyst. “You have to look for savings somewhere.”

Some hospitals may not be able to absorb the costs as easily, though, said Dr. Mark Tulchinksy, a radiologist at Penn State Health’s Hershey Medical Center. To cope, a hospital can use CT scans for examining lungs. These are less expensive than ventilation perfusion scans, which require the Jubilant medicines.

But this raises another issue, since a CT scan exposes patients to more radiation.

“A lot of hospitals still use [the VQ] as an absolute necessity,” he said. “And I still use it myself, but not for every patient. I try to do so very sparingly. … No amount of radiation is trivial. But this is how the health system responds. The type of test used for diagnosis can be switched purely on economic grounds. There’s no data to substantiate it, but I do think there’s been considerable fallout in patient care. And it started with the price hikes.”

This story was updated to reflect Jubilant comment referring to an upcoming acquisition.