The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform

By Aaron S. Kesselheim, MD, JD, MPH; Jerry Avorn, MD; Ameet Sarpatwari, JD, PhD
JAMA, August 23/30, 2016

Abstract

Importance
The increasing cost of prescription drugs in the United States has become a source of concern for patients, prescribers, payers, and policy makers.

Objectives
To review the origins and effects of high drug prices in the US market and to consider policy options that could contain the cost of prescription drugs.

Evidence
We reviewed the peer-reviewed medical and health policy literature from January 2005 to July 2016 for articles addressing the sources of drug prices in the United States, the justifications and consequences of high prices, and possible solutions.

Findings

Per capita prescription drug spending in the United States exceeds that in all other countries, largely driven by brand-name drug prices that have been increasing in recent years at rates far beyond the consumer price index. In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 other industrialized nations. In the United States, prescription medications now comprise an estimated 17% of overall personal health care services. The most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents. The availability of generic drugs after this exclusivity period is the main means of reducing prices in the United States, but access to them may be delayed by numerous business and legal strategies. The primary counterweight against excessive pricing during market exclusivity is the negotiating power of the payer, which is currently constrained by several factors, including the requirement that most government drug payment plans cover nearly all products. Another key contributor to drug spending is physician prescribing choices when comparable alternatives are available at different costs. Although prices are often justified by the high cost of drug development, there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.

Conclusions and Relevance
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. The most realistic short-term strategies to address high prices include enforcing more stringent requirements for the award and extension of exclusivity rights; enhancing competition by ensuring timely generic drug availability; providing greater opportunities for meaningful price negotiation by governmental payers; generating more evidence about comparative cost-effectiveness of therapeutic alternatives; and more effectively educating patients, prescribers, payers, and policy makers about these choices.

Possible solutions

Federal
* Patenting
* Anticompetitive strategies
* Price negotiation
* Addressing extraordinary shortage or pricing problems
* Generic drug policies
* Follow-on biologic policies

State
* Drug product selection laws
* Price negotiation

Health Care Organizations
* Price negotiation
* Information dissemination

Improving Competition
(Use the link below to access a more detailed explanation of how they would “improve competition”)

Government Efforts to Reduce Drug Prices
In theory, the most effective way for a government to reduce drug prices would be for it to set them for the entire marketplace, as central governments do in countries such as Sweden, or to engage in international reference pricing and set prices at levels similar to those of other countries. Taking such a step in the United States would have major marketplace ramifications and is not at present politically feasible, in part because of the power of the pharmaceutical lobby in Washington, DC.

http://jama.jamanetwork.com/article.aspx?articleid=2545691

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Americans pay more than double what other nations pay for drugs

By Stephen Feller
UPI, August 23, 2016

The cost of prescription drugs in the United States far outpaces prices in similarly industrialized countries, and the continuously rising costs are causing concern in every part of the healthcare industry, from patients and doctors to insurance companies and government officials.

Researchers at Harvard Medical School suggest in a new study, published in the Journal of the American Medical Association, that the nature of the American drug marketplace, as designed and regulated by the government, bears a large part of the blame.

A doctor’s group called for the United States to move to a single-payer health insurance system, potentially similar to those in Canada and England, to make care more available to everyone while bringing down costs.

They argue that between the number of people seeking care and the single-payer system creating the ability to aggressively negotiate the cost of drugs, overall healthcare costs in the United States would go down, while people get healthier.

“I do think there are a lot of improvements that can be made to the U.S. system without tossing it out the window and starting over with the type of system you’d find in a European country,” Kesselheim said.

http://www.upi.com/Health_News/2016/08/23/Americans-pay-more-than-double-what-other-nations-pay-for-drugs/8501471964588/

This JAMA article provides a comprehensive explanation as to why pharmaceutical prices are so high in the United States, and they even provide a few suggestions as to what might be done about it. The major error they make is that they assume that the problem should be addressed by US-style quasi-market solutions but not through a government solution that they say “would have major marketplace ramifications and is not at present politically feasible, in part because of the power of the pharmaceutical lobby in Washington, DC.”

We are already deeply involved in supposed marketplace solutions, and yet drug prices continue to skyrocket. We really do need a  government health care financing infrastructure that is designed to serve patients rather than private sector shareholders. The obvious model which would be most suitable for the United States would be a single payer national health program.

The lead author, Aaron Kesselheim, says, “I do think there are a lot of improvements that can be made to the U.S. system without tossing it out the window and starting over with the type of system you’d find in a European country.”

But we would not be starting over with the delivery system which is really what counts in health care. We would improve it and make it non-profit, but its basic structure in delivering health care would remain the same. It is only the financing system which would change dramatically, making it far more equitable, efficient and effective, while finally slowing health cost increases to sustainable levels.

JAMA is allowing free access to this article (link above). It is well worth reading if you want to understand why we are in this mess with pharmaceutical pricing. But as you read their suggestions, think about how a single payer system would be so much better.

Above all, reject the same old, tired and worn out argument they present that a better system is not “politically feasible,” and the industry lobbyists would not let us make the changes anyway. The logical conclusion we should arrive at is that we need to replace our legislators who are listening to the lobbyists with legislators who will, instead, listen to us, the people.