The Cost of Prescriptions

Updated: Apr 12


a variety of medications

The Cost in Financial Terms

The previous CIPKY blog addressed many issues created by Pharmacy Benefits Managers (PBMs), including the increased prices of prescribed medications. As we stated, “The impact of higher costs is not insignificant: “about three in ten (29%) of all adults report not taking their medicines as prescribed at some point in the past year (2018) because of the cost.”(1) In this article, we will go a bit more in-depth about just how the cost of prescriptions in the United States are so unlike the rest of the world’s, and look at the industry’s other outliers.


Don’t Blame It All On COVID – Comparing Markets Pre- and- Post Pandemic

In a 2019 peer-reviewed, open-access article appearing in Blood Cancer Journal, the research cited predictions of “Global spending on prescription drugs in 2020 is expected to be ~$1.3 trillion; the United States alone will spend ~$350 billion.”(2,3)  In fact, “According to the American Society of Health-System Pharmacists, the U.S. spent $535.3 billion on prescription drugs alone in 2020, a shocking increase from 2019’s $369.7 billion expenditure, due to increasing drug use.”(4) Of that difference (~ $165.6 billion), it is estimated that approximately half of that, or $88 billion, was due to COVID-19 medications – “or a compound annual growth rate (CAGR) change of 4.6%, compared with 4.5% if the pandemic hadn’t happened.”(5,6)


American Exceptionalism

The non-profit consumer advocacy group Public Citizen released a report in late September of this year that of the twenty best-selling medications on the market, the United States spent nearly twice as much for them than the rest of the world – combined.(7,8) The obvious supposition would be that the US takes more medications, which would be erroneous: “The journal Health Policy found that Americans use prescription drugs for 12 percent fewer days per year than their counterparts in other wealthy countries.”(9,10) One thing that does make the US unique is the direct-to-consumer advertising of prescribed medications. Worldwide, the “United States and New Zealand are the only countries where drug makers are allowed to market prescription drugs directly to consumers.” Harvard Health Publishing further declares in a 2017 article, “The ad blitz of expensive brand-name drugs is often cited as a factor for rising health care costs. Prescription drugs accounted for nearly 17% of total health care spending in 2015, up from about 7% in the 1990s before the revised FDA guidelines went into effect.(11)


Repercussions

In addition to the hit consumers receive, S. Vincent Rajkumar, the author of the Blood Cancer Journal article, posits that there are impacts to healthcare budgets, other areas of public investment, higher insurance premiums, and although counterintuitive, possibly even slowing innovation within the industry.(2) In addition to the current outsized costs, he states research that “These high spending rates are expected to increase at a rate of 3–6% annually worldwide.”(2) Not surprisingly (considering where this article appears), he also cites that, “In 2018, global spending on cancer treatments was approximately $150 billion, and has increased by >10% in each of the past five years.”(2,12)


All these startling numbers pose obvious questions: what are other possible causes of these trends and just as importantly, what can be done if anything?


Reasons and Solutions

In his article, The High Cost of Prescription Drugs: Causes and Solutions, Rajkumar also lays out in table format (reproduced below) some of the prevailing reasons of, and his proposed solutions to the current model of prescription pricing. It presents a very succinct and insightful analysis.(2) Some of the points we have addressed in previous blogs, which are linked to related topics, and have made or shared numerous social media posts about them too.

Factors Contributing to High Price

Proposed Solutions

Global Policy Level

Monopoly/Oligopoly

Patent reform, including fixed duration of patent protection, starting with first approval and prohibiting additional patents on approved drugs that seek to increase patent life. Penalties for pay-for-delay schemes and frivolous lawsuits that delay generic or biosimilar entry. Expedite approval processes for generics and biosimilars, including reciprocal approval arrangements among countries. Nonprofit generic manufacturing.

Seriousness of the disease

Greater use of compulsory licensing if negotiations on reasonable price are not successful for life-threatening diseases.

Drug development costs

Regulatory reform to minimize the amount of supplemental data needed for approval. Harmonize differences in regulatory standards for submission and approval between the United States and Europe. Discourage approval of drugs with statistically significant but clinically insignificant benefits.

Transparency in lobbying spending. Transparency in funds received by professional and patient organizations from drug manufacturers.

United States policy level

Agency that sets value-based ceiling prices as currently done in Western Europe must be adopted. Medicare authorized to directly negotiate prices. Caps on price increases of approved drugs that are under patent protection. Permit importation of prescription drugs for personal use.

More favorable reimbursement for more expensive drugs

Abolish reimbursement to doctors as a percentage of the price of the drug, and replace it with a fixed reimbursement, regardless of drug price.

Transparency on arrangements between pharmaceutical companies and pharmacy-benefit managers (PBMs). Rebates issued by PBMs are passed on to patients.

Physician level

Lack of awareness

Awareness of drug prices and discussing affordability with patients.

Lack of advocacy

Reduce conflicts of interest that prevent physicians and physician organizations from advocating for policies that lower prescription drug costs.


As Rajkumar readily admits, “There are no easy solutions to the problem of high drug prices. The underlying reasons are complex; some are unique to the United States compared with the rest of the world,” as the table indicates.


We have previously addressed our own takes on tackling some of these issues from both employers’ and patients’ perspectives and will continue to do so in future installments of this blog.


Cost-Containment Strategies

Contact Commonwealth Insurance Partners today for other ways to ensure that you are working with a transparent and not a traditional PBM, highly ranked physicians and facilities, and to be certain that your healthcare benefits spending is correlated to the best care and medications.


References

  1. https://www.benefitnews.com/advisers/news/the-pharmaceutical-industry-may-be-on-the-brink-of-change

  2. https://www.nature.com/articles/s41408-020-0338-x

  3. https://www.iqvia.com/insights/the-iqvia-institute/reports/the-global-use-of-medicine-in-2019-and-outlook-to-2023

  4. https://www.benefitnews.com/advisers/news/the-pharmaceutical-industry-may-be-on-the-brink-of-change

  5. https://www.cidrap.umn.edu/news-perspective/2021/06/covid-19-raised-global-drug-spending-88-billion-report-says

  6. https://www.iqvia.com/insights/the-iqvia-institute/reports/global-medicine-spending-and-usage-trends-outlook-to-2025

  7. https://www.citizen.org/article/united-we-spend-big-pharma-us-international-revenue-report/

  8. https://www.citizen.org/news/report-for-17-top-selling-drugs-big-pharma-made-more-from-u-s-sales-than-from-the-rest-of-the-world-combined/

  9. https://www.nytimes.com/2018/11/12/upshot/why-prescription-drug-spending-higher-in-the-us.html

  10. https://www.sciencedirect.com/science/article/abs/pii/S016885101830246X

  11. https://www.health.harvard.edu/drugs-and-medications/do-not-get-sold-on-drug-advertising

  12. https://www.iqvia.com/insights/the-iqvia-institute/reports/global-oncology-trends-2019

Other Resources

There are countless articles on the discrepancies of costs that the United States pays for prescribed medications to the rest of the world.  Here are just a few that we encountered in our research for this blog entry.

  1. https://www.lif.se/contentassets/a0030c971ca6400e9fbf09a61235263f/international-comparison-of-medicines-usage-quantitative-analysis.pdf

  2. https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/#item-spendingcomparison_gdp-per-capita-and-health-consumption-spending-per-capita-2019

  3. https://www.statista.com/statistics/272181/world-pharmaceutical-sales-by-region/

  4. https://pharmanewsintel.com/news/us-prescription-drug-prices-256-higher-than-other-countries

  5. https://www.singlecare.com/blog/how-to-get-cheaper-prescriptions/

  6. https://www.usnews.com/news/health-news/articles/2021-01-29/compared-to-other-countries-americans-pay-much-more-for-prescription-drugs

  7. https://www.commonwealthfund.org/publications/issue-briefs/2017/oct/paying-prescription-drugs-around-world-why-us-outlier