Prescription drug prices in the United States

Prescription drug prices in the United States have been among the highest in the world. The high price of prescription drugs became a major topic of discussion in the new millennium, leading up to the U.S. health care reform debate of 2009 and has received renewed attention in 2015.

Background

Drug retail price

Pharmaceuticals are the only major health care service, in which the producer is able to set prices relatively unrestrained.^[1] As of 2004 prices of brand name drugs were significantly higher in the United States than in Canada, India, the UK and other countries, nearly all of which have price controls, while prices for generic drugs tended to be higher in Canada.^[2]

In 2005 the Government Accountability Office (GAO) had examined the change in drug retail prices from January 2000 through December 2004 and found the average usual and customary (U&C) prices for a 30-day supply of 96 drugs frequently used by people enrolled in BlueCross BlueShield Federal Employee Programs for Medicare and non-Medicare increased 24.5%. Drilling down, the average U&C prices for brand prescription drugs increased three times as much as the average for generic prescription drugs.^[3]

In 2007, the AARP published a series of studies saying that prescription drug prices are rising significantly faster than general inflation.^[4] The American Enterprise Institute, a conservative think tank, has criticized the methodology as overstating drug price inflation.^[5]

A December 2015 NYT editorial stated that "drug prices have been pushed to astronomical heights for no reason other than the desire of drug makers to maximize profits." ^[6]

2015 media attention

In 2015, the Department of Health and Human Services (HHS) and both houses of Congress held a public meeting and hearings resepectively to investigate price gouging.^[7]

Relationship between drug research and development and retail price

Pharmaceutical companies argue that the prices they set for a pharmaceutical drug are necessary in order to continue to fund research. 11% of drug candidates that enter clinical trials are successful and receive approval for sale.^[8] Although the cost of manufacturing is relatively low, the cost of developing a new drug is relatively high.^[9]:422 In 2011, "a single clinical trial can cost $100 million at the high end, and the combined cost of manufacturing and clinical testing for some drugs has added up to $1 billion."^[10] The U.S. pharmaceutical industry is able to invent drugs that would not be profitable in countries with lower prices, because of high drug prices in the United States.^[9]

Critics of pharmaceutical companies point out that only a small portion of the drug companies' expenditures are used for research and development, with the majority of their money being spent in the areas of marketing and administration.^[11]

A study found that European pharmaceutical companies are just as innovative, or perhaps even more so, than their U.S. counterparts, despite price controls. In addition, some countries, such as the United Kingdom and Germany, encourage comparative-effectiveness reviews, whereby cost-benefit analyses are applied to rival drugs to determine which perform best. ^[12]

Drug expenditures

Spending on pharmaceuticals, defined as expenditures on prescriptions medicines and over-the-counter products excluding pharmaceuticals consumed in hospitals^[13] has been mentioned together with price, although not being the same. Historically, spending on pharmaceuticals accounted for 11.5% of U.S. national healthcare expenses in 1960, gradually falling to a low of 5.5% of national healthcare expenditures in 1980 before rising back to 10.4% in 2000. From 2000 to 2013, drug expenditures ranged between 10.4% and 12.0% of U.S. healthcare expenses.^[14] The latest data on US 'pharmaceutical spending' in international comparisons are $1034 per capita in 2013.^[13]

Effects

Because of the price differential between the U.S. and Canada, US Americans purchased more than US$1 billion in brand-name drugs per year from Canadian pharmacies as of 2004 to save money.^[2]

The Washington Post wrote in 2003 that "U.S. Customs estimated 10 million U.S. citizens brought in medications at land borders each year. An additional 2 million packages of pharmaceuticals arrive annually by international mail from Thailand, India, South Africa and other points".^[15]

A quarter of Americans taking prescription drugs said they had not filled a prescription in the past 12 months due to cost, and 18 percent reported they "cut pills in half or skipped doses" according to a Kaiser Family Foundation survey in June 2015.^[16]

Reasons for high prices

Drug company profits

A Kaiser Family Foundation survey from June 2015 found the public citing "drug company profits as the number one reason for the high cost of prescription drugs (picked by 77%), followed by the cost of medical research (64%), the cost of marketing and advertising (54%), and the cost of lawsuits against pharmaceutical companies (49%)."^[16]

As of 2015, several pharmaceutical companies had developed a new business strategy "of dominating noncompetitive markets for older drugs and then increasing the price substantially".^[17]

Pharmacy Benefit Managers

Pharmacy benefit managers (PBM)s may increase drug prices they charge to their clients, in order to increase their profits. For example, they may classify generic drugs as brand name drugs, because their contract does not contain a definition, contain only an ambiguous definition, or a variable definition. This allows them to "classify drugs for one purpose in one way, and for another purpose in another way", including a change at different points during the life of a contract. This as of 2010 unlitigated freedom affects "drug coverage, making contract terms, and the reporting about the satisfaction of contract terms" ^[18]

Drug rebates

Drug manufacturers may offer to pay an insurance company a rebate after they have sold them a drug for full price. This is largely invisible to the consumer, because a drug company does not report how much it returns to the payer. However the total aggregate in the US has been estimated at $40 billion per year.^[19]

Orphan drugs

Drug companies can price new medicines, particularly orphan drugs, i.e. drugs that treat rare diseases, defined in the United States as those affecting fewer than 200,000 patients, at a cost that no individual person could pay, because an insurance company or the government are payors.^[20] An orphan drug may cost as much as $400,000 annually. The orphan drug business model could come under increased payer regulation.^[21]

FDA backlog in generic drug application review

Generic drugs cost less. The FDA reviews applications by companies wishing to manufacture generic drugs to guarantee quality and bioequivalence. In fiscal year 2014 none of about 1500 applications had been approved by the end of 2014.^[22] The slow pace of the FDA review (6-12 months even for a priority review) has not allowed the market to correct itself in a timely manner, i.e. not allowed manufacturers to begin to produce and offer a product when a price is too high. The following suggestions have been made: prioritize review of applications for essential drugs, i.e. move them up in the queue. If the FDA felt unable to make this largely economic evaluation about priority, the DHHS Office of the Assistant Secretary for Planning and Evaluation could do this. Second, the FDA could temporarily permit compounding. And third, the FDA could "temporarily permit the importation of drug products reviewed/approved by competent regulatory authorities outside the United States".^[17]

Public Health Solutions

Discounts

Private insurers can negotiate discounts, and discounts are mandatory for State Medicaid programs, administered by the Health Resources and Services Administration (HRSA).^[1] Per HRSA's 340B Drug Pricing Program drug manufacturers must provide outpatient drugs "to eligible health care organizations/covered entities at significantly reduced prices".^[23]

Value-based prices

Professional associations in Oncology and Cardiology have made efforts to determine reasonable price ranges for drugs commensurate with their value based on published evidence of their treatment benefit, including the Institute for Clinical and Economic Review, and the DrugAbacus.

Policy makers

The US Food and Drug Administration has a "priority review process" for drugs which compete with another drug whose price exceeds its value-based price. Congress could also grant the FDA the ability to change the exclusivity period for new drugs.^[1] The Pharmaceutical Research and Manufacturers of America has suggested that FDA clear its backlog in generic drug applications.^[24] The FDA could also temporarily allow the import of drugs approved for sale outside the United States.^[17]

In December 2015, the Department of Health and Human Services held a public meeting and both houses of Congress had hearings on off-patent drugs with limited or no competition.^[25]

Healthcare providers

Healthcare providerscan substitute three-month for one-month supplies of medicines. A three-month supply represented a 29% decrease in out-of-pocket costs and an 18% decrease in total prescription costs in one study.^[26]

Individual importation of lower cost prescription drugs from foreign countries - as done by 2% of U.S. consumers in 2011 and 2012-, is likely no effective public health solution.^[27]

Canada's Model

Advocates point to the success of Canada's Patented Medicine Prices Review Board, which puts a ceiling on prices for all drugs. Many of the drugs purchased in Canada are purchased by the government and gives low-income and elderly patients access. This system is very similar to how the United States purchases medications for military personnel, but Canada implements controls on a much wider scale.^[12]

See also

• Medicare Part D
• Medicare Prescription Drug, Improvement, and Modernization Act
• National pharmaceuticals policy
• Prescription costs
• Sri Lanka National Pharmaceuticals Policy

Further reading

• Malcolm Gladwell High Prices. How to think about prescription drugs. The New Yorker. October 25, 2004. accessed 28 November 2015.,
• Susan Jaffe USA grapples with high drug costs The Lancet. Volume 386, No. 10009, p2127–2128, DOI: http://dx.doi.org/10.1016/S0140-6736(15)01098-3. 28 November 2015.

References