Prescription drug prices in the United States have been among the highest in the world. The high cost 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 received renewed attention in 2015. High prescription drug prices have been attributed to government-granted monopolies to manufacturers and organizations lacking ability to negotiate prices.
Video Prescription drug prices in the United States
History
Pharmaceutical drugs are the only major health care service in which the producer is able to set prices with little constraint, according to Peter Bach from the Health Outcomes Research Group, Memorial Sloan Kettering Cancer Center, New York and Steven Pearson from the Institute for Clinical and Economic Review, Boston. As of 2004, prices of brand name drugs were significantly higher in the United States (US) 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.
One of the reasons drug prices are much higher in the US compared to other industrialized countries is that the U.S. lacks a national healthcare system that directly negotiates with the pharmaceutical industry. Rather, most negotiations occur between pharmaceutical companies and private insurers or vendors.
In 2003, a Republican-majority Congress created Medicare Part D, which prevented Medicare the country's largest single-payer health care system from negotiating drug prices. In effect, drug manufacturers in the US were allowed to set their own prices resulting in the unregulated pricing variation for prescription drugs. However, the government does employ drug pricing strategies for other smaller government health programs like the Veterans Health Administration, the Department of Defense, the 340B Drug Pricing Program (1992), and Medicaid.
In 2005, the Government Accountability Office (GAO) examined the change in US 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 had increased 24.5%. The average U&C prices for brand prescription drugs increased three times as much as the average for generic drug.
In 2007, the AARP published a series of studies showing that prescription drug prices have been rising significantly faster than general inflation. The American Enterprise Institute, a conservative think tank, criticized the methodology as overstating drug price inflation.
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", pointing in particular to strategies by Turing Pharmaceuticals and Valeant Pharmaceuticals for rights to make and sell generic drugs which had administrative exclusivity and then raise the prices dramatically, which were widely condemned in- and outside the pharmaceutical industry. In response, the Department of Health and Human Services and both houses of Congress held a public meeting and hearings respectively to investigate price gouging. In April 2017, Maryland became the first state to grant the state attorney general the authority to sue drug companies for dramatically increasing drug prices.
Maps Prescription drug prices in the United States
Drug expenditures
Spending on pharmaceuticals can be defined as expenditure on prescriptions medicines and over-the-counter products, excluding pharmaceuticals consumed in hospitals, This has been mentioned together with drug price, but is not the same.
In 1960, spending on pharmaceuticals accounted for 11.5% of U.S. national healthcare expenses, gradually falling to a low of 5.5% in 1980, before rising back up to 10.4% in 2000 and between 2000 and 2013, it ranged between 10% and 12%.
In 2010, prescription drug expenses were 10% of the $2.6 trillion of total health care spending in the US, and its third largest portion after hospital spending and physician and clinical services.
As of 2013, US "pharmaceutical spending," excluding hospital pharmaceutical spending, was $1,034 per capita in the OECD's international comparisons. In 2006, data from the Medical Expenditure Panel Survey was analyzed to determine the costs of healthcare for American households. It showed that 19.1% of Americans were considered to have a financial burden due to healthcare spending as they spent more than 10% of their income on it.
In 2003, data from the Medical Expenditure Panel Survey showed that only 9.5% of Americans with Medicare coverage had no prescription drug expenses, while 61.6% had prescription drug expenses up to $2,083, and 28.9% of those on Medicare had expenses higher than $2,084. low income families tended to have higher prescription drug expenses during the year: 18.9% of poor households paid more than $4,724 compared to 13.2% and 12.5% who had prescription drug expenses between $2,084-$4,723 and $1-2,083, respectively.
Effects
In 2006, data from the Medical Expenditure Panel Survey was analyzed to determine the costs of healthcare for American households. It showed that 19.1% of Americans spent more than 10% of their income on healthcare related expenses. Those Americans were considered to have a financial burden due to their healthcare spending. The high cost of prescription drugs has forced many Americans to use cost-cutting measures and has also led to reformed healthcare legislation.
Prescriptions from other countries
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". Prescription drugs also entered the country in large quantities through Canada because of the price differential of prescription drugs in the two countries. In 2004, it was estimated that Americans purchased more than $1 billion in US dollars in brand-name drugs per year from Canadian pharmacies to save money.
Prescription non-compliance
Another common way that people saved money, was to skip or reduce dosages or fail to fill a prescription entirely due to cost restrictions. A quarter of Americans taking prescription drugs said in June 2015, 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. Similar studies, done ten years prior, found numbers very similar to the 2015 numbers from the Kasier Family Foundation survey. In 2007, it was estimated that 23.1% of Americans (51 million) had did not adhere to their prescription instructions due to the cost of prescription drugs. This is compared to only 8% of Canadians who skipped doses or failed to fill a prescription in the same year because of the cost of prescription medications. The number of Americans who reported cost-related non-adherence to their prescriptions was more than double the number of Canadians. The factors that contributed to whether or not a person was more likely to not follow their prescribed medication instructions were age, the number of checkups with a physician, ongoing health problems, income, and insurance coverage. For example, adults between the ages of 18-35 were more likely to skip doses or fail to fill a prescription than those 75 years of age or older. Those with fewer visits to a physician and those with chronic illnesses or disabilities were also more likely to report noncompliance. The reason for those with ongoing illness or disabilities to skip doses is likely due to the increased complexity and the higher prices of the drugs needed. Income and insurance coverage were also major factors determining whether or not a patient would take their medication in the correct doses for the correct duration of time. Those who lacked insurance coverage or were in low-income brackets had very high rates of non-compliance with their medication, even though the United States has drug coverage policies for those with low incomes. Those whose healthcare spending is more than 10% of their income and causes a financial burden to the patient, are considered uninsured, whether they actually have health insurance or not.
Affordable Care Act
In 2010, the Patient Protection and Affordable Care Act, commonly known as Obamacare or the Affordable Care Act, was created. The goal was to increase the number of people who had healthcare in the United States and reduce the impact that individual healthcare spending had on households, especially since many Americans had lost their health insurance coverage in the Great Recession. Of its many provisions, two aim to reduce the burden of prescription drugs, both relating to the Medicare Part D coverage gap. Under current Medicare coverage, people pay the deductible until they reach the limit of $3,310. They then enter the coverage gap where they pay approximately half the total cost for the drug. Once the yearly out-of-pocket expenses reach $4,850, catastrophic coverage phase begins and the person only pays a very small amount for continued medication. The first provision enacted immediately in 2010, was a one-year, $250 rebate to those people in the coverage gap to help pay for their medication. The second provision, enacted in January 2011, created a 50% discount on brand-name prescription drugs for seniors within the coverage gap. Subsidies were to be provided until 2020, when the coverage gap was estimated be closed.
Reasons for high prices
Variability and non-transparency
As of 2015, the price of a pharmaceutical drug depends on who is paying and numerous other variabilities, per the acting administrator of the federal Medicare and Medicaid programmes: list price, wholesale price, average wholesale price (pharmaceuticals), rebates, supplemental rebates, markups from hospitals, markups for physicians, drug price for inpatients versus outpatients, formulary (pharmacy) tiers, mail order price, biosimilar prices, "patent expirations, compounds, samples, and many other ways that end up obscuring the reality of the price paid, who pays it, and how all of it influences treatment decisions."
Market exclusivity
In a market without price controls, competition is key to driving the price of drug products down. However, legal protection in the form of patents result in a government-approved monopoly on the sale of certain drugs. Typically, patents allow for market exclusivity for a maximum period of 20 years after patent approval. However, given that FDA approval of a drug can take anywhere from 10-12 years, pharmaceutical companies can be granted a patent extension that is valid for a maximum of 14 years after FDA approval of the drug.
But even as the patent term nears expiration, pharmaceutical manufacturers employ several strategies to delay the entry of generic drugs to market. This could include by obtaining additional patents on other aspects of a drug, such as "its coating, salt moiety, formulation, and method of administration". An example of this strategy is the company AstraZeneca PLC ("AstraZeneca") obtaining a patent on the enantiomer of omeprazole (Prilosec), a heartburn medication. The patent was obtained without significant evidence of the enantiomer's improved efficacy. As a result, AstraZeneca was able to sell its rebranded product esomeprazole (Nexium) at a 600% markup.
Pharmaceutical companies have also employed the "pay-to-delay" strategy in which they enter into reverse payment agreement with generic company to delay the generic drug's manufacture. This was the case in 2008, when an agreement between AstraZeneca and Ranbaxy Laboratories Ltd. ("Ranbaxy") was reached to delay Ranbaxy's launch of a generic version of AstraZeneca's patented heartburn drug Nexium until 2014.
Foreign subsidies
American pharmaceutical companies exempt foreign customers from the costs of R&D recouping the cost from the domestic consumer. Hooper and Henderson write that drug company's pricing correlates with the per capita income of foreign countries. In some cases foreign government drive hard bargains to the point that they don't contribute to the cost of R&D leaving "Americans to subsidize the R&D costs." Jeanne Whalen, writing in the Wall Street Journal says, "The upshot is Americans fund much of the global drug industry's earnings, and its efforts to find new medicines." Adding that the U.S. market is "responsible for the majority of profits for most large pharmaceutical companies."
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%)." CBS's MoneyWatch reports that in half of the 16 publicly held drugs companies in its study, profits exceeded R&D cost while in all but one of the companies, "corporate overhead" (which includes sales, administrative, and marketing) exceeded profits.
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".
Pharmacy benefit managers
Pharmacy benefit managers (PBMs) 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, or only an ambiguous, or a variable definition. This allows PBM's to classify drugs "for one purpose in one way, and for another purpose in another way", and to change the classification 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".
PBM's can make confidential business agreements with pharmaceutical companies, which PBM's have called collective buying power, then set a (lower) reimbursement maximum amounts to drugstores for generic drugs and set (higher) charges to insurers. This practice is also known as "spread pricing". There are examples where PBMs can double drug costs.
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 money it returns to the payer. In 2012, the aggregate in the US has been estimated at $40 billion per year.
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. An orphan drug may cost as much as $400,000 annually. The orphan drug business model could come under increased payer regulation.
FDA backlog in generic drug application review
The national debate over the rising cost of prescription medicines drew attention to the huge backlog of generic drug applications at the US Food and Drug Administration (FDA).
Usually, when enough generic drug products are introduced to the market, the cost to buy prescription medications decreases for both the insurer and the patient. Generic drugs have been shown to reduce healthcare costs in multiple ways, among them increasing competition which, in most cases, helps drive prices down. https://www.fda.gov/ucm/groups/fdagov-public/documents/image/ucm129445.gif
Companies that want to manufacture generic drugs must show in their applications to the FDA that they guarantee quality and bioequivalence. In July 2016, the FDA generic drug application backlog comprised 4,036 generics. On the other hand, the European Medicine Agency (EMA), Europe's equivalent to the FDA, had only 24 generics drug applications awaiting approval. This count includes biologically based biosimilars awaiting approval. The FDA's generic count doesn't include biosimilars, which are more complicated medicines to review. According to Generic Pharmaceutical Association, the median time it takes for the FDA to approve a generic is 47 months.
On July 9, 2012, Generic Drug User Fee Amendments of 2012 (GDUFA) was signed into law. The GDUFA was designed to build upon the 20-year-old Prescription Drug Fee Act and improve the generic drug review and approval process. According to the FDA website, the GDUFA enables the FDA to levy user fees "to fund critical and measurable enhancements to the performance of FDA's generic drugs program, bringing greater predictability and timeliness to the review of generic drug applications". The hiring of over 1,000 employees and the upgrade of the office's information technology were among the improvements generated by these funds.
The EMA along with the European Commission, which handles approval of marketing materials, are approving generics and brand-name drugs in about a year on average, according to the EMA. In fiscal year 2014, the FDA had not approved any of about 1500 such applications by the end of 2014. 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 Department of Health and Human Services (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".
In a January 2016 senate hearing, the director of the FDA's Center for Drug Evaluation and Research said, that increasing numbers of generic drug applications had "overwhelmed the FDA staff and created unpredictability and delay for industry", but that the FDA is ahead of schedule in reducing the backlog since then.
Relationship between drug research and development and retail price
Pharmaceutical companies argue, that the prices they set for a drug are necessary to fund research. 11% of drug candidates that enter clinical trials are successful and receive approval for sale. Although the cost of manufacturing is relatively low, the cost of developing a new drug is relatively high. 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." It has been stated that the U.S. pharmaceutical industry is able to invent drugs that would not be profitable in countries with lower prices, because of the high drug prices in the United States.
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.
European pharmaceutical companies are 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 of rival drugs determine which perform best.
Solutions
Discounts
Programs and strategies are available to cut prescription drug costs. When it comes to US drug prices, many factors are at hand to result in unaffordable drug prices for patients. There are programs in place to help the consumer navigate to obtain affordable drugs. One of the following programs is the 340B pricing program that allows hospitals and pharmacists to buy drugs at 30-50% off the retail prices. Per HRSA's 340B Drug Pricing Program, drug manufacturers are required to give certain organizations discounted drugs given these organizations fit the eligibility criteria for discounts. A big problem with 340B or similar programs is that pharmacies and hospitals can choose to bill for the discounted drugs at full price, defeating the purpose of the program to control drug prices and maintain affordability for low-income patients.
Prices vary from one pharmacy to another as listed prices determine what the insurance companies will have to pay for the drug. Therefore, patients are rarely expected to pay the high prices listed for each prescription. According to the 2017 consumer reports, it is important to compare prices of various retail pharmacies to get the best deal. Other tips include seeking 90-day prescription when possible, asking for the lowest price when deciding to pay for a medication, asking for generics (refer to "Generics versus Brand-name Products" for more details regarding generic drugs vs. brand-name drugs), comparing insurance plans and talking to your doctor about costs in order to find cheaper alternative(s).
Generics versus brand-name products
A generic drug is a chemically equivalent, cheaper version of a brand-name drug. A generic drug form is required to have the same dose, strength and active ingredient(s) as the brand name drug; thus, they carry the same risks and benefits. To ensure compliance, the FDA Generic Drugs Program conducts stringent reviews (3,500 inspections of manufacturing plants per year). Although generic drugs sound like a great money-saver, generic medicines can only be sold after the patents of the brand name versions end. Because of this mandatory period of exclusivity for many brand-name drugs (a period in which generic medicines cannot be sold), delay of generic drugs reaching the market is expected. The high cost of upfront research that the brand-name products have to go through to ensure safety and efficacy largely account for the high discrepancy in pricing between the two groups.
Value-based prices
An effort is being made to determine if the value of a drug justifies its price. Such measures include cost-minimization, cost-benefit, cost-effectiveness, and cost-utility analysis. They take into account the total costs, including hospital stays, repeated dosages, etc. and, comparing it to a similar treatment, determines whether a drug will actually minimize costs and whether it is more effective in curing the patient. These cost analyses can all be calculated from the point of view of the hospital, the healthcare system, the government, and the patient, so what is best for one party may not be best for another in terms of cost, making the value of a drug in terms of its price, sometimes a difficult thing to measure.
Quality-Adjusted Life Years (QALY) is a cost-effective measure that determines the value of a drug in terms of the quality of life achieved after taking a prescription drug, rather than the number of years the medication extends a patient's life. However, QALY is subjective to each patient and brings up moral dilemmas such as whether or not it is cost-effective to do a life-saving operation for someone who is elderly or has other complications. The subjectiveness of QALY is apparent on a case by case basis as it takes into account both the quality and quantity of life lived by an individual, with quality of life being the primary subjective factor. It is important to note that QALY does not completely reflect an individual's personal preferences in a particular clinical situation as their value based perspective of life is completely subjective.
Policy makers
The FDA 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. The FDA could also temporarily allow the import of drugs approved for sale outside the United States.
In December 2015, the DHHS held a public meeting and both houses of Congress had hearings on off-patent drugs with limited or no competition.
In 2017, Democratic party leaders announced a plan to enforce limits on how much pharmaceutical companies could raise drug prices. Under the plan, drugs with a "significant price increase" would have to explain the price rise to the HHS a minimum of 30 days before implementing the price hike. Although Turing Pharmaceuticals' Daraprim price rise of 5000% overnight would meet the proposal's definition of a "significant price increase," it is interesting to note that under the proposed plan, Mylan's well-publicized price increase for EpiPen would fall below the thresholds in the plan's criteria for enforcement.
New legislation
On October 9, 2017 Governor Jerry Brown of California passed Senate Bill 17 (SB-17) Health care: prescription drug costs. This bill focuses on transparency regarding pharmaceutical companies. This bill mainly focuses on two aspects. The first being that drug companies must give prior notice of price increases for prescription drugs. Drug Manufacturers must notify state purchasers such as CalPERS, Medi-Cal etc. 90 days prior to the planned effective date. The second focus is on the transparency of spending trends. This means that health plans and insurers have to annually report all covered drugs (categorizedby generic drugs, brand names, and specialty drugs)
- the 25 most prescribed drugs
- the 25 most costly drugs
- the 25 drugs with the highest year-over-year increase in total annual spending.
This information will help the public and policy makers see spending trends on medications and be able to shift focus on how best to utilize the healthcare dollar.
Canada's model
In Canada, the Patented Medicine Prices Review Board determines a maximum price for all drugs. In 1987, Bill C-22 established an extended period of protection for patents prior to licensing, which would allow for generics to enter the market. It also created the Patented Medicine Prices Review Board (PMPRB), an independent semi-judicial body, which had the purpose of establishing review guidelines of individual drug prices, conduct investigations for allegations of excessive pricing, and negotiations to a voluntary compliance agreement. These efforts are to ensure that manufacturer prices are within justification, and not excessive. Excessive is interpreted based on the following criteria:
"1. The price of an existing patented drug cannot increase by more than the Consumer Price Index (CPI)
2. The price of a new drug (in most cases) is limited so that the cost of therapy with the new drug is in the range of the costs of therapy with existing drugs in the same therapeutic class.
3. The price of a breakthrough drug is limited to the median of its prices in France, Germany, Italy, Sweden, Switzerland, Britain, and the United States. In addition, no patented drug can be priced above the highest price in this group of countries."
Low levels of drug spending in Canada are not solely attributable to the regulatory activities of the government, but also the actions of provincial and private insurance plans. These plans prevents price inflation through formulary management, independent clinical review of new products, reference-based pricing, the LCA, and limited use program. In reviewing formularies, the drug program reviews the therapeutic advantage of one product over the existing formulary, and only adds new drugs if program costs are unchanged. The reference-based pricing entails having a "reference product" for each category that is the baseline price, and utilizes an independent panel of pharmacists and doctors the University of British Columbia to evaluate the therapeutic discrepancies between drugs.The LCA, or low-cost alternative program establishes the price of generics for payment regardless if brand or genetics are used. The limited use program requires prior authorization for specific drugs, and restricts reimbursements to the approved rationale of prior authorizations (i.e. patients who have failed previous agents for the same indication).
The government is purchasing drugs similar to how the United States purchases medications for military personnel, but on a much wider scale.
Healthcare providers
Healthcare providers can help lower drug prices by helping patients navigate the medication formulary, prescribing drugs covered by formularies, and participating in formulary development through Pharmacy and Therapeutics committees. The formulary system's effectiveness is directly correlated to the education of physicians, pharmacists and patients in understanding the justification of formulary compositions. This education includes drug information monographs to provide adequate resources to physicians in making clinical prescribing decisions, pharmacy education regarding any changes in the formulary, and patient education within the managed care system.
Formularies should be easily accessible for patient access as well, such as the online Medicare Planfinder, which is part of the Medicare Part D Plan.
Healthcare providers can 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.
Prescribing combination drugs instead of two separate medications can also potentially reduce monthly copays.
Because the FDA has no regulations on drug companies in providing evidence that a new drug has a therapeutic advantage over an older drug, many physicians have a tendency to write prescriptions for drugs they are most familiar with. Oftentimes, these prescribing practices are influenced by manufacturer marketing to private practices or hospitals. Prescriber monitoring programs should be implemented to help physicians make cost-effective, evidence-based prescribing decisions, and foundation protocols should be established. This is important to ensure that the most clinically-effective drugs are selected, and if a more expensive drug is selected, that appropriate therapeutic equivalence is evaluated with research supporting this decision. However, some organizations believe that if the federal government modified reimportation laws, the FDA could conduct a comprehensive assessment on manufacturing standards in other countries, and allow importation of drugs that meet or exceed U.S. safety standards for drug manufacturing.
Individual importation of lower cost prescription drugs from foreign countries - as done by 2% of U.S. consumers in 2011 and 2012 - is likely not an effective public health solution. However, if the federal government modified reimportation laws, the FDA could conduct a comprehensive assessment on manufacturing standards in other countries, and allow importation of drugs that meet or exceed U.S. safety standards for drug manufacturing. However, if the federal government modified reimportation laws, the FDA could conduct a comprehensive assessment on manufacturing standards in other countries, and allow importation of drugs that meet or exceed U.S. safety standards for drug manufacturing.
See also
- Medicare Prescription Drug, Improvement, and Modernization Act
- Essential medicines policies
- Prescription costs
- Prescription charges
- Sri Lanka National Pharmaceuticals Policy
References
Further reading
- Malcolm Gladwell High Prices. How to think about prescription drugs. The New Yorker. October 25, 2004. accessed 28 November 2015.
Source of article : Wikipedia
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