Drug Prices
Costs and Outrage Rise in the U.S.
By Robert Langreth
Updated Nov 9, 2016 2:00 PM UTC - Bloomberg
Americans spend more on prescription drugs — average costs are about
$1,100 per person per year — than anyone else in the world. Itfs true that
they take a lot of pills. But what really sets the U.S. apart from most other
countries is high
prices. Cancer drugs in the U.S. routinely cost $10,000 a month. Even prices
for old drugs are spiking, as companies buy up medicines that face no
competition and boost
charges. While private insurers and government programs pick up the biggest
share of the bill, high drug costs are ultimately passed down to the public
through premiums and taxes. More than three-quarters of Americans in one poll said
that the federal government should make drug affordability its first health-care
priority.
The Situation
Drug companies increasingly have become the subject of outrage and scrutiny
in the U.S. Lawmakers have probed how they set
prices, and the Justice Department is investigating possible price
collusion by more than a dozen companies that make generic drugs. Some
politicians, notably Democratic presidential candidate Hillary Clinton in her
unsuccessful campaign for the U.S. presidency, have accused drugmakers
of price
gouging. Martin
Shkreli became a symbol of greed in 2015 when the company he then
headed, Turing Pharmaceuticals, bought rights to an old anti-parasitic drug
and raised its price more than 50-fold to $750 a pill. Turing later offered
hospitals discounts on the drug of up to 50 percent. Prescription drug spending
in the U.S. began
to surge in 2014 after six years of increases held
down by the spread of generic drug use. It rose 8.5
percent in 2015. Specialty
drugs (high-cost treatments, mostly for complex conditions) account for much of
the spending growth. The current backlash first erupted
in 2013 when Gilead Sciences released the groundbreaking hepatitis cure Sovaldi
at $84,000 for a 12-week course. The steep price and stampede of patients to get
the drug led many insurers to restrict
coverage to the sickest patients.
Source: Organization for Economic Cooperation and Development
The Background
Unlike other nations, the U.S. doesnft directly regulate medicine prices. In
Europe, the second-largest pharmaceutical market after the U.S., governments
negotiate directly with drugmakers to limit what their state-funded health
systems pay. The U.K.fs National Health Service has refused
to pay for some cancer drugs widely used in the U.S. on the grounds that
they donft constitute value for money. In the U.S., drug companies can more or
less set whatever price the market will bear. For most outpatient drugs
reimbursed through Medicaid, the public health program for the poor, drugmakers
must provide the government rebates.
But most medicine costs are paid for by Medicare, the government program for the
elderly, or by private insurers. When prescription-drug benefits were added
to Medicare under a 2003 law, the pharmaceutical industry successfully lobbied
to prohibit
the federal government from using its huge purchasing power to negotiate drug
prices. Private payers typically rely on third-party pharmacy-benefit
managers, such as Express Scripts, to negotiate discounts. Often they make
exclusive deals with drugmakers, which
limits the choice of drugs patients have. Patients directly pay
about 17
percent of prescription medicine costs out of their own pockets. In a 2013
survey,
one in five adults in the U.S. said they failed to complete a prescribed course
of medicine because of cost. The figure was one in ten in Germany, Canada and
Australia.
Source: Agency for Healthcare Research and Quality, U.S. Department of Health and Human Services
The Argument
Pharmaceutical companies argue that they need robust profits to bankroll the
development of future medical advances and that restricting prices would
harm innovation. They highlight the benefits of medicines such as
Sovaldi, which has a cure
rate superior to treatments that cost nearly as much. Critics point to the
industryfs fat
profit margins and say companies exaggerate drug-development
costs. Doctors and insurance executives worry that many medicines are rapidly
becoming unaffordable.
Clinton has
proposed that the federal government determine how much long-available drugs
should cost and use mechanisms such as fines or mandatory rebates to punish
companies that raise prices on them excessively. Advocates of greater price
regulation argue that
it neednft hamper innovation. They say drugmakers could reduce spending on
marketing and cite an
analysis that found promotional budgets exceed
those for research and development at most big companies.
The Reference Shelf
- A Bloomberg news analysis
of drug pricing practices.
- A Center for American Progress report
advances proposals for addressing high drug prices.
- An article
in the Harvard Business Review argues that U.S. consumers are footing the
global bill for developing new drugs.
- A Congressional Research Service report
examines policy concerns around specialty drug prices.
- An IMS Institute for Healthcare Informatics report
reviews drug spending shifts in the U.S.
- Pharmaceutical companies defend drug costs on an industry website.