Exorbitant Prescription Drug Prices: A Solvable American Problem
Health Letter, April 2017
By Azza AbuDagga, M.H.A., Ph.D.
Outrageously high prescription drug prices have been dominating headlines in recent years. The sixfold price increase (reaching over $600) since 2009 for a two-pen set of EpiPen — a product that combines the cheap but lifesaving severe-allergy drug epinephrine with an automated injector — and the more than $100,000 price tag on some new cancer treatments are just two examples of this problem.[1],[2],[3]
U.S. spending on prescription drugs reached an estimated $457 billion in 2015, accounting for 17 percent of the cost of overall personal health care services.[4] Insurers are increasingly shifting these high drug costs to consumers in the form of higher insurance premiums, deductibles and co-payments.[5],[6] Moreover, high prices have put essential drugs out of reach for many consumers: Nearly 1 in 10 U.S. adults report not taking their medications as prescribed in the last year in order to save money.[7] Moreover, nearly 17 percent of older U.S. adults report not receiving at least one prescription drug in the last year: They had either not filled a prescription or had skipped doses.[8]
A recent public opinion poll showed that 77 percent of Americans believe that the prices of prescription drugs are unreasonable.[9] Members of Congress have acknowledged the problem,[10] accusing the industry of “abusive price hikes” and “pure profiteering” that run the risk of bankrupting the American health care system.[11],[12] Even former President Barack Obama and President Donald Trump voiced concerns about high drug prices,[13],[14] but there continues to be no concrete action to bring tangible relief to outraged consumers and insurers.
U.S. fares worse than other nations
The U.S. has long spent more on prescription drugs than other countries. A 2015 study by Carleton University and Public Citizen showed that U.S. costs per capita for prescription drugs ($1,010) are the highest among all other 31 advanced industrialized countries that are members of the Organization for Economic Co-operation and Development (OECD) and that U.S. costs are more than twice the average of all OECD countries ($498).[15] Our study also showed that U.S. prices for 640 brand-name drugs are the highest of all of the countries; they are more than two times the OECD median. Importantly, Medicare pays 198 percent more than the median costs for these drugs in the other 31 OECD countries.
The majority of U.S. spending on prescription drugs is driven by high prices set by the pharmaceutical industry on brand-name drugs, which account for 72 percent of national drug spending.[16] Yet generic companies have also been sharply raising the prices for some drugs — sometimes by as much as 5,000 percent over a matter of days.[17]
Prescription drug corporations’ false claims
Industry executives do not release information concerning how they set drug prices. However, they have tried to justify their excessive pricing practices by claiming that the average research and development cost associated with a single new drug ranges from $1.2 to $2.6 billion.[18],[19] They argue that reducing drug prices will hinder investment in medical research and development, potentially interfering with patients’ access to necessary medications if pharmaceutical companies do not raise drug prices.[20] However, these executives conveniently fail to disclose that the pharmaceutical industry has been among the most profitable economic sectors in the U.S. for many years. Additionally, industry executives do not like to discuss the enormous profits they distribute to themselves and their shareholders.
Furthermore, there is no evidence that supports any association between drug research and development costs and drug prices.[21] In fact, large pharmaceutical companies invest only 10 percent to 20 percent of their revenue in research and development — these proportions are even lower if only innovative product development is considered.[22] In contrast, the industry spends up to twice as much or more on marketing and promoting their products as they do on research and development. For example, Johnson & Johnson spends about 30 percent of its revenue on selling, marketing and administrative expenses but just 13 percent on research and development.[23]
Another fact that prescription drug corporations do not publicize is that the federal government often plays a critical role in funding new drugs in the first place, without getting any opportunities to recoup these funds in terms of reduced drug prices for Americans whose taxes funded the development of these drugs: Nearly 75 percent of the most innovative drugs exist due to federal funding.[24]
Additionally, industry funding has focused on “me too” drugs, which are structurally very similar to already known drugs and are not truly innovative,[25] rendering the true innovation rate of new prescription drugs incommensurate with the vast amounts of money that the U.S. spends on them.[26]
The real causes
Despite being the nation’s top buyer of prescription drugs,[27] the U.S. government lacks the authority to dictate the initial prices that drug companies can set for their brand-name and generic drugs for patients covered under Medicare and commercial health plans. It also cannot restrict the extent to which drug companies can jack up their prices.[28]
Instead, drug companies charge whatever they think the U.S. market will bear.[29] The persistently high prices for most of the drugs for all consumers that have made headlines in recent years are a testament to this practice.
Additionally, the federal government has taken the approach of granting a period of monopoly rights, through patent protection and market exclusivity, to brand-name drug companies, even when taxpayer money helped to develop their drugs. It also allows drug companies to game the system by gaining additional exclusivity periods when they offer their old drugs in new forms,[30] such as offering an old orally administered drug in an injectable form or combining two old drugs into one. This practice is commonly known as “evergreening.”[31]
Prescription drug corporations have additional leeway to charge high prices because the U.S. does not have a single body to negotiate drug prices for all Americans, resulting in widely varying prices for the same drugs among different insurers and consumers. Although Medicaid, the Veterans Health Administration (VHA) and private insurance companies can negotiate prices separately with drug companies, these rebates are lower than those granted to other countries.[32] For example, the average discounted monthly U.S. dollar price in 2015 for the rheumatoid arthritis drug adalimumab (HUMIRA) was nearly $1,600 in Canada and the U.K., whereas the comparable discounted price for this drug in the U.S. was $2,500.[33]
Although Congress has allowed Medicare Part D insurers to negotiate drug prices with pharmaceutical companies, it banned the Department of Health and Human Services (DHHS) from directly negotiating drug prices for all Medicare Part D beneficiaries and also prevented DHHS from making use of a formulary, two measures that would bring drug prices down substantially.[34]
Remedies
It is clear that the outrageous drug prices in the U.S. have nothing to do with the cost of developing drugs. The fact is that prescription drug corporations charge so much because they can get away with it!
Therefore, to fix this problem, we need to address its root causes.
This begins with addressing industry abuses of monopoly power, limiting exclusivities for prescription drug corporations and allowing generic competition when drug companies insist on unreasonable prices for brand-name drugs, especially for the many instances in which taxpayer money played a key role in developing a drug. This also should include the use of “march-in rights” by the federal government when necessary to deter prescription drug corporations’ price hiking by licensing drug patents that are based on government-funded research.
A key measure in counteracting excessive drug prices during market exclusivity is aggressive price negotiation with prescription drug corporations. Congress should, at the very least, authorize DHHS to negotiate drug prices for Medicare Part D plans, as it does for nearly all other services. Doing so could save Medicare Part D up to $16 billion a year if the agency secured the same discounted prices that Medicaid or VHA receive on the same brand-name drugs, according to our 2015 study.[35] Medicare Part D would save even more money if DHHS aggressively negotiated drug prices to the levels attained by other OECD countries.
There is no evidence that the aforementioned common-sense measures would hinder research and development of new drugs.
The federal government is likely to continue to cave in to prescription drug corporations’ clout, given that the industry has recently invested in a $300 million lobbying campaign to fight Congressional efforts to reign in drug pricing.[36] But an active and vocal public can help push Congress towards action. On March 29, Senator Al Franken (D-Minn.) and nearly two dozen members of Congress introduced the Improving Access to Affordable Prescription Drugs Act, which includes a whole host of measures to curb the monopoly power of the pharmaceutical industry and to make prescription drugs affordable.[37] Public Citizen and its allies, representing millions of consumer and grassroots advocates, public health experts and health care providers across the country, sent a letter to Congress urging swift passage of this act.
Importantly, inducing fundamental reform to counteract prescription drug corporations and force them to play by the same rules as other industries will only be possible through a public movement that involves millions of Americans. Public Citizen is spearheading such a movement, and we call on the public to join us.[38],[39],[40]
References
[1] EpiPen maker Mylan becomes lead pharma villain. Worst Pills, Best Pills News. November 2016. http://www.worstpills.org/member/newsletter.cfm?n_id=1065. Accessed March 22, 2017.
[2] Moon S. Powerful ideas for global access to medicines. N Engl J Med. 2017;376(6):505-507.
[3] Parker-Pope T, Rabkin Peachman R. EpiPen price rise sparks concern for allergy sufferers. NYT. August 22, 2016. https://well.blogs.nytimes.com/2016/08/22/epipen-price-rise- sparks-concern-for-allergy-sufferers/?_r=1. Accessed March 22, 2017.
[4] Office of the Assistant Secretary for Planning and Evaluation. Observations on trends in prescription drug spending. ASPE issue brief. March 8, 2016. https://aspe.hhs.gov/system/files/pdf/187586/Drugspending.pdf{C}
. Accessed March 22, 2017.
[5] Collins S, Radley DC, Schoen C, Beutel S. National trends in the cost of employer health insurance coverage, 2003-2013. Issue Brief. 2014;32(December):1-9.
[6] Cox C. Health spending growth expected to bounce back in coming years. July 28, 2015. http://www.healthsystemtracker.org/2015/07/health-spending- growth-expected-to-bounce-back-in-coming-years/. Accessed March 22, 2017.
[7] Cohen RA, Villarroel MA. Strategies Used by Adults to Reduce Their Prescription Drug Costs: United States, 2013. NCHS Data Brief, No 184. Hyattsville, MD; 2015.
[8] Morgan SG, Lee A, Barnieh L, et al. Cost-related non- adherence to prescribed medicines among older adults: a cross-sectional analysis of a survey in 11 developed countries. BMJ Open. 2017;7(1):e014287.
[9] The Henry J. Kaiser Family Foundation. Public opinion on prescription drugs and their prices. Poll findings from 2015 and 2016 Kaiser Family Foundation health tracking polls. http://kff.org/slideshow/public-opinion-on- prescription-drugs-and-their-prices/. Accessed March 22, 2017.
[10] Carney J. Senate Dems, Sanders ask Trump to help lower drug prices. The Hill. December 20, 2016. http://thehill.com/blogs/floor-action/senate/311202-senate- dems-sanders-to-trump-help-lower-drug-prices. Accessed March 22, 2017.
[11] Carney J. Senate Dems, Sanders ask Trump to help lower drug prices. The Hill. December 20, 2016. http://thehill.com/blogs/floor-action/senate/311202-senate- dems-sanders-to-trump-help-lower-drug-prices. Accessed March 22, 2017.
[12] Mukherjee S. A bipartisan bashing: Rubio slams drug prices, pharma’s ‘pure profiteering.’ October 20, 2015. http://www.biopharmadive.com/news/a-bipartisan-bashing-rubio- slams-drug-prices-pharmas-pure-profiteering/407651/. Accessed March 22, 2017.
[13] Obama B. United States health care reform: Progress to date and next steps. JAMA. 2016;316(5):525-532.
[14] Nocera, J. Commentary: Trump had a good idea on drug costs. He ditched it after meeting with pharma execs. Chicago Tribune. February 2, 2017. http://www.chicagotribune.com/business/ct-trump-drug-costs- 20170202-story.html. Accessed March 22, 2017.
[15] Gagnon MA, Wolfe S. Mirror, mirror on the wall: Medicare Part D pays needlessly high brand-name drug prices compared with other OECD countries and with U.S. government programs. July 23, 2015. https://www.citizen.org/docume nts/2269a.pdf. Accessed March 22, 2017.
[16] Kesselheim AS, Avorn J, Sarpatwari A. The high cost of prescription drugs in the United States: Origins and prospects for reform. JAMA. 2016;316(8):858-871.
[17] Lorenzetti L. This 62-year-old drug just got 5,000% more expensive. Fortune. Sep 21, 2015. http://fortune.com/2015/09/21/turing- pharmaceuticals-drug-prices-daraprim. Accessed March 22, 2017.
[18] Office of the Assistant Secretary for Planning and Evaluation. Report to Congress. Prescription drugs: Innovation, spending, and patient access. December 7, 2016. https://delauro.house.gov/sites/delauro.house.gov/files/Prescri ption-Drugs-Innovation-Spending-and-Patient-Access-12-07-16.pdf. Accessed March 23, 2017.
[19] DiMasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: New estimates of R&D costs. J Heal Econ. 2016;47:20- 33.
[20] Hwang TJ, Kesselheim AS. Public referendum on drug prices in the US: Will it bring relief? BMJ. 2016;355(i5657).
[21] Kesselheim AS, Avorn J, Sarpatwari A. The high cost of prescription drugs in the United States: Origins and prospects for reform. JAMA. 2016;316(8):858-871.
[23] Is there a cure for high drug prices? A special investigation from Consumer Reports Best Buy Drugs. Consum Rep. August 2016.
[24] Mazzucato M. How taxpayers prop up big pharma, and how to cap that. LA Times. October 27, 2015. http://www.latimes.com/opinion/op- ed/la-oe-1027-mazzucato-big-pharma-prices-20151027-story.html. Accessed March 22, 2017.
[26] Gaffney A, Lexchin J, Angell M, e al.; For the US/Canadian Pharmaceutical Policy Reform Working Group. Healing an ailing pharmaceutical system: A prescription for reform. Working Paper. 2017.
[27] Is there a cure for high drug prices? A special investigation from Consumer Reports Best Buy Drugs. Consum Rep. 2016;81(8):52- 60.
[28] Is there a cure for high drug prices? A special investigation from Consumer Reports Best Buy Drugs. Consum Rep. 2016;81(8):52- 60.
[29] Kesselheim AS, Avorn J, Sarpatwari A. The high cost of prescription drugs in the United States: Origins and prospects for reform. JAMA. 2016;316(8):858-871.
[30] Is there a cure for high drug prices? A special investigation from Consumer Reports Best Buy Drugs. Consum Rep. 2016;81(8):52- 60.
[31] Access Campaign. Evergreening’ drugs: An attack on access to medicines. March 20, 2012. https://www.msfaccess.org/content/evergreening- drugs-attack-access-medicines. Accessed March 22, 2017.
[32] Kesselheim AS, Avorn J, Sarpatwari A. The high cost of prescription drugs in the United States: Origins and prospects for reform. JAMA. 2016;316(8):858-871.
[33] Langreth R, Migliozzi B, Gokhale K. The U.S. pays a lot more for top drugs than other countries. December 18, 2015. http://www.bloomberg.com/graphics/2015-drug-prices/. Accessed March 22, 2017.
[34] U.S. Government Publishing Office. 42 USC. §1395: Health insurance for aged and disabled.
[35] Gagnon MA, Wolfe S. Mirror, mirror on the wall: Medicare Part D pays needlessly high brand-name drug prices compared with other OECD countries and with U.S. government programs. July 2015. https://www.citizen.org/sites/default/files/2269a.pdf. Accessed March 1, 2017.
[36] Weissman R. Mylan must lower EpiPen price. Public Citizen News. September/October 2015. https://www.citizen.org/pc_news_issues/2017/current/files/asset s/basic-html/page3.html. Accessed March 2, 2017.
[37] Public Citizen. Press release: Landmark legislation would lower U.S. prescription prices. March 29, 2017. https://www.citizen.org/pressroom/pressroomredirect.cfm?ID=10228. March 30, 2017.
[38] Standing up to Big Pharma. Public Citizen News. January/February 2017. https://www.citizen.org/pc_news_issues/2017/Jan- Feb/files/assets/basic-html/page10.html. Accessed March 1, 2017.
[39] Public Citizen. Mylan must lower EpiPen price. Statement of Rick Claypool. Aug. 30, 2016. https://www.citizen.org/pressroom/pressroomredirect.cfm?ID=7992. Accessed March 1, 2017.
[40] Weissman R. A remedy for Big Pharma side effects. Public Citizen News. November/December 2015. https://www.citizen.org/pc_news_issues/2015/Nov- Dec/files/assets/basic-html/page3.html. Accessed March 1, 2017.