America spends a tremendous amount for prescription drugs—$424 billion last year alone. And that number is rising fast with no sign of slowing down anytime soon. We often encounter horror stories of drug companies that decide to raise prices to astronomical levels, and we wonder why they get away with such reprehensible behavior. The answer is, sadly, because they can!
We have long known that when new drugs are patented, the originating company gains the exclusive right to be a de facto monopoly for the life of the patent, ordinarily 17 years. After that, competition is allowed to enter and, in theory, provide generic versions, which should cause the prices to drop considerably. But now we are witnessing a significant increase in both new and some older drugs as well.
Let’s look at some reasons for such high prices:
Reason 1): Drug companies can charge whatever price they want. There is simply no regulatory source, government or otherwise, that has the power to control drug pricing. When asked why they are charging apparently exorbitant prices, they often respond by claiming they are recouping very high costs for research and testing. This is partially true, but, for large companies such as Pfizer, approximately 16% of their revenue is devoted to research, whereas they spend about 30% on selling, marketing, and advertising expenses. Moreover, taxpayers already shoulder a substantial portion of those research costs. About 38% of all basic science research is paid for with tax money through federal and state governments, according to a recent study published in the AMA journal.
There is also no restraint on companies’ raising prices on already marketed drugs that continue under patent protection. For instance, in the past year or so, Abilify, given for bipolar disorder and other mental problems, increased over 10% to approximately $1,000 per average monthly prescription.
Reason 2): Insurance companies are charging you more. In theory, these companies should be protecting you against high prices, but instead, they have been passing on the elevated prices through raising your co-pay or deductible amounts, or simply raising your premiums, all of which, in effect, pass on much of the high costs directly to the consumers.
Reason 3): Old drugs are being reformulated as costly “new” drugs. One example is that of insulin, a drug that is over 100 years old. But companies repeatedly change its formulation, allowing them to get new patents each time. For instance, one new form of insulin is called Toujeo, given by an injection that lasts for about 1 week. Each dose of 450 units may cost about $350, and depending upon how much one requires, can amount to tidy sums for the company.
Reason 4: Generic drug shortages can trigger massive price increases. For various reasons, shortages of basic ingredients of generic drugs can arise and lead to price gouging. One example is that of the old drug, colchicine, commonly used for the treatment of gout, a form of arthritis. In past years this drug could be purchased for mere pennies, but now, it retails for approximately $8 per pill, and often as many as 8-10 pills or more can be necessary for a single attack. A daily dose of one pill or more may also be needed on an extended basis.
Reason 5): “Specialty” drugs can be “out of sight”. The rise of super-expensive, so-called specialty drugs is a real threat. For example, the hepatitis C medications, Sovaldi and Harvoni, can cost up to $95,000 for a single 12 week course of treatment.
At present, according to a recent report by the Congressional Research Service, these drugs account for less than 1% of prescriptions in the U.S. but represent about one-third of total drug spending by consumers. Since drug companies push heavily in the direction of such highly profitable products, it is likely that by 2020 very expensive drugs will constitute an even bigger chunk of drug spending.
More than half of the 56 medications approved by the FDA in 2015 were of this specialty variety, and more than 900 biologic drugs are currently under development. While these products offer great hope for the future, this raises the important question of how society is going to afford them.
Compounding this problem, competition in this specialty arena may not eventually bring down prices as one would usually expect, for many such drugs are biologics—medications derived from living microorganisms. That makes them much more difficult to copy than conventional drugs, meaning that cheaper generics are far more difficult to produce in a reasonable period of time.
HOW CAN WE DEAL WITH THIS PROBLEM?
The drug companies should be encouraged to adopt a more humane policy, which would involve controlling prices at a more reasonable level, certainly in line with overall inflation. But at least they should be forced by the public to justify apparently unreasonable prices. For instance, Vermont passed a bill that requires these companies to justify high costs and price increases, and to calculate the financial effect on insurance premiums with many specified drugs. This measure at least raises public awareness and provides misbehaving companies with bad PR, something that should get their (and their stockholders’) attention. In most foreign countries, governmental intervention causes prices for the same drugs to be considerably less than in the U.S. For instance, in the U.K., a centralized advisory board calculates the value of a medication by taking into account a drug’s efficacy, safety, and total benefits to the healthcare system. As a result the price of the same drugs in that country averages about 50% less then here. Although reasons vary from country to country, prices in the U.S. are far greater than all the other western nations.
Our government should do more to curb these prices, and could accomplish this through the following means: First they could set a limit on out-of-pocket costs, providing protection against very high or sudden spikes in prices. For instance, California enacted a law limiting a consumer’s burden at $250 for a single prescription drug per month, or $500 for certain high-deductible plans. Second, they could more rapidly approve more generic versions of common drugs, currently a slow process. Third, they could allow limited importation of drugs from legitimate Canadian and European sources, which is currently illegal under U.S. law. Fourth, they could use their so called “march in” rights, that is, in cases of high prices of drugs developed in part from taxpayer money, the Department of Health and Human Services could force the company to allow another manufacturer to make a generic version that is cheaper for the consumer. Finally, the government should prohibit direct to consumer advertising of prescription drugs; other than New Zealand, we are the only nation that allows such promotion.
Perhaps the most potent means to control excessive pricing is through the enactment of a single payer system in the U.S., i.e. Medicare for all, which I have discussed before, http://www.mortontavel.com/2015/12/31/. This would allow the government to negotiate directly from a position of power with all pharmaceutical companies. This provides another good reason—of many—to move to the single payer format. Some have estimated that such an intervention could reduce drug prices by about 40%.
Finally, the consumer can fight back on a personal level. Ask your physician, before he or she writes a prescription, what the expected costs are likely to be, and if there are equivalent cheaper generics available. Although you could mention a given drug advertised on TV, do not insist that you receive it unless this is agreed upon by your own doctor. Also, there are many instances of older drugs, while not identical to the newer patented variety, are just as effective and far less expensive.
In all instances, consider shopping around for the lowest prices, which includes online sources such as GoodRx to learn a drug’s “fair price.” Prescriptions can be filled by legitimate sources such as HealthWarehouse.com. Be careful, however, since fraudulent sites abound, use only those operating within the U.S. and display the VIPPS symbol to show that it’s a Verified Internet Pharmacy Practice Site.
Unfortunately, the ultimate answer may lie with our government, which has to power to restrict such excesses, while, at the same time, must avoid stifling necessary research. This is a daunting task, but for those that believe that government should stay away from this problem altogether, be ready to suffer the consequences!