Can U.S. Drug Costs Be Contained?

Harvard team offers solutions

The increasing cost of prescription drugs in the United States has become a source of growing concern for patients, prescribers, payers, and policy makers. Researchers at Brigham and Women’s Hospital and Harvard Medical School have reviewed the origins and effects of high drug prices in the U.S. market and have considered policy options that could contain the cost of prescription drugs. Writing in the Journal of the American Medical Association, they suggest that costs might be reduced by limiting market exclusivity for brand-name medications and by changing coverage requirements for government health plans.

Although brand-name drugs account for only 10% of all dispensed prescriptions in the U.S., they make up 72% of drug spending, the authors say. They also point out that, between 2008 and 2015, prices for the most commonly used brand-name drugs jumped 164% in the U.S., far outpacing the 12% growth in the consumer price index, which measures what people pay for retail goods.

Further, the authors report that per capita prescription drug spending in the U.S. exceeds that in all other countries, largely driven by brand-name drug prices. In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 other industrialized nations. Prescription medications now comprise an estimated 17% of overall personal health care services in the U.S.

The authors also note that many new cancer drugs are debuting with price tags exceeding $100,000 for a course of therapy. And the average price of insulin for diabetes surged 300% from 2002 to 2013.

The Harvard team searched the peer-reviewed medical and health policy literature from January 2005 to July 2016 for articles that addressed the sources of drug prices in the U.S., the justifications and consequences of high prices, and possible solutions.

“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 authors write. “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.”

At the same time, the negotiating power of the payer––the primary counterweight against excessive pricing during market exclusivity––is constrained by several factors, including the requirement that most government drug payment plans cover nearly all products. Another key contributor to drug spending, the authors say, is physician prescribing choices when comparable alternatives are available at different costs.

“Although prices are often justified by the high cost of drug development,” the authors write, “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.”

The investigators conclude that high drug prices in the U.S. are the result of the approach this country has taken to granting government-protected monopolies to drug manufacturers, combined with coverage requirements imposed on government-funded drug benefits. The authors offer the following “realistic short-term strategies” to address high prices:

  • 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 the comparative cost-effectiveness of therapeutic alternatives
  • More effectively educating patients, prescribers, payers, and policy makers about these choices

Sources: JAMA; August 23/30, 2016; and Reuters; August 23, 2016.