Why U.S. Prescription Drugs Prices are the Highest in the World

It was hard to contain my outrage as I made my way through a special communication in the August 22/23, 2016 JAMA written by Aaron Kesselheim, Jerry Avorn, and Ameet Sarpatwari. The article is titled “The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform.” In this comprehensive review of the issue, the authors provide examples of drug pricing that will make you grind your teeth. The abuses go far beyond the most well-known example of egregious drug pricing—the infamous Turing Pharmaceutical company that raised the price of a 63-year old treatment for toxoplasmosis from $13.50 a pill to $750 a pill just because they could. Or the recent headliner, the 400% increase in the life-saving allergy treatment, the EpiPen.

• Between 2008 and 2015, prices for the most commonly used brand-name drugs increased 164%—much more than the 12% increase in the consumer price index.
• A treatment for a rare condition, Gaucher disease, was $150,000 per year when the drug was first released in 1991. Now, it is $300,000. Why?
• Generic drugs that were dirt cheap, when I was in practice, have seen price increases, such as a 5000% increase for colchicine, a drug that has been used to treat gout for centuries. Other examples are the inexplicable increases for very old cardiac drugs, such as a 2500% increase for isoproterenol, 1700% for nitroprusside, and 637% for digoxin. Even insulin has increased 300% between 2002 to 2013.
• In 2013, the per-person spending on drugs in the U.S. is more than double that of 19 other advanced industrialized nations (i.e., $858 vs. $400). It is more than quadruple if you compare the U.S. to Poland, the country with the lowest per capita spending listed in the study.

When you combine this with increasing prevalence of high-cost sharing health plans, you can see the stress this places on anyone who needs to take a prescription drug at some time in their life—and that is just about all of us. The economic toll is particularly hard for people with chronic illnesses who may need to take multiple meds per day, and people with serious or life-threatening illnesses, like cancer, for whom branded biologics may offer them the best hope for a cure at prices that may start at $100,000 per year.

Ah, you might be thinking, it costs a ton of money to develop these new therapeutics—and that is true. But the article points out that a lot of early innovation of these agents is actually done at academic institutions and is supported by money from the National Institutes of Health and other public sources of funding. Early stage development may also be funded via venture capital with the return on this investment paying off handsomely when the small company proves the value of the drug and it is gobbled up by a pharma giant.

Sales and research and development (R&D) expenditures of the 10 largest pharmaceutical companies range from only 7% (Teva) to 21% (AstraZeneca). Most of the others are in between having expenditures between 11-17%. Note these costs include the cost of sales, not just R&D. Direct-to-consumer pharmaceutical ads bombard us on TV as well as in other types of media, such as the internet. This costs the drug industry millions, if not billions, depending on the duration and intensity of the advertising.

What is causing these high prices?

After an extensive review of high-quality health policy literature, the authors conclude there are two major factors that contribute to the United States’ high cost of drugs:

“High drug prices are the result of the approach the United States has taken to granting government-protected monopolies to drug manufacturers, combined with coverage requirements imposed on government-funded drug benefits.”

One thing that is clear from this paper is that when it comes to prescription drugs, we do not have the much touted “free market.”

What can be done to fix the problem?

The authors acknowledge a quick fix to our prescription drug problem is not politically feasible. The pharmaceutical lobby is simply too powerful. They do, however, propose some possible strategies that could help limit the impact of high drug prices, including changing patent laws, policing anticompetitive business practices, and drug pricing strategies such as value-based pricing and government royalty-free license rights when products developed with government funding are excessively priced. They also suggest that policies related to generic substitution could be strengthened. There is also a role for doctors and healthcare organizations, although these strategies have been used in the past without a huge impact. Academic detailing programs and value-based formularies come to mind.

There is one strategy on the list that I believe has the most potential to moderate prices, but is also the most difficult politically. That is to…

“…Enable Medicare to negotiate drug prices for individual Part D plans and to exclude coverage for expensive products that add limited clinical benefit…”

Because other payors often follow Medicare’s lead, the impact of this strategy could be substantial.

But let’s face it. What we really need is a single-payer entity, a “Medicare for All,” that can use its mega-purchasing power to negotiate fair drug prices with the global pharma-oligopoly. “Arghh,” you might be thinking, “then we wouldn’t have any competition in healthcare.” But given the dramatic consolidation of providers, pharma, and health insurers, how much competition do we really have anyway?

Yes, getting to single payer is politically difficult. Yes, allowing negotiation of drug prices would mean that pharma will have to give up some of their substantial profits. But it is unlikely that it would lead to the dreaded decrease in innovation that the pharmaceutical industry predicts. What it would do is to make drugs accessible to more people, moderate drug prices that contribute almost 17% to healthcare costs, and, thus, it should make health insurance more affordable. Why should we aim for anything less?

Recommendation

Here is my recommendation. Download a copy of the JAMA paper HERE, read it—it is definitely worth the time. Then send it to everyone you know who has anything to do with pharmaceuticals—that means your doctor, your health plan administrator, your family and friends struggling to pay their health bills, your state and federal representatives, and your local newspapers. Write comments when stories on the topic appear on the internet. If we don’t rattle the cage, it will continue to be BIG business as usual and that is just plain WRONG.