Prescription drug prices
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Prescription drug prices rose to prominence as an issue in the public eye after Turing Pharmaceuticals raised the price of Daraprim, a generic drug for parasitic infections, by 5,556 percent in 2015. While some other generic drugs have seen spikes in their prices as well, more pressing issues for healthcare experts have been increases in prices for specialty drugs and brand name drugs, which rose by about 15 percent and 9 percent, respectively, in both 2014 and 2015.
There are many possible reasons for increasing drug prices that have been presented. Pharmaceutical companies often assert that the cost to develop a drug is high and climbing higher. In addition, they argue that their medicines bring better value to the healthcare system than existing treatments. Others argue that patents and increasingly niche markets limit drug companies' exposure to competition, allowing prices to be set higher than they would be otherwise.
In response to high prices for hepatitis C drugs in particular, many insurance companies and public health programs limit coverage of those drugs to patients that already have liver damage. Lawsuits challenging this policy have been filed in five states against Medicaid programs and prison systems; decisions in the plaintiffs' favor could have serious implications for state budgets. In addition, Congress held multiple hearings to investigate the causes of drug price increases and the 2016 presidential candidates made prescription drug prices a central part of their platforms.
- See Ballotpedia's page on prescription drug sales by state to learn more about total spending on prescription drugs in your state.
Overview
Overview
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For 2014, the Centers for Medicare and Medicaid Services (CMS) found prescription drug spending grew by 12.2 percent to reach $297.7 billion, about 10 percent of total healthcare spending, compared to an increase of 2.4 percent in 2013. Meanwhile, prices for prescription drugs rose by 10.9 percent in 2014, according to Truveris, a research firm that follows trends in drug pricing. Truveris also found significant differences in price increases by type of drug:[1][2][3]
| “ | Brand drug prices spiked 14.8%, while specialty drug prices jumped 9.7%. Generics, historically intended to curb costs, are contributing to prescription price inflation, increasing 4.9% last year.[2][4] | ” |
The prescription drug portion of total healthcare spending has remained relatively steady since the early 2000s, despite rising prices. However, these prices are "causing increasing concern" among insurers, consumers and lawmakers. Specialty drug and generic drug prices garnered much attention in 2014 and 2015, while prices for brand-name drugs continued to increase by double digits in 2013, 2014, and 2015.[5]
Pharmaceutical companies have programs to provide medication at a discount or for free to those who can't afford them, and insurance companies often negotiate to pay less than the listed price. Still, some consumers have seen their prescription drug copays and deductibles increase in response to rising prices, and state governments are struggling to figure out how to pay for costly medications.
Specialty drugs
Specialty drugs are drugs that generally have one or more of the following characteristics:[6][7][8][9]
- Difficult to develop and manufacture
- Treat complex, chronic and rare conditions such as cancer, rheumatoid arthritis and muscular dystrophy
- High-cost, "both in total and on a per-patient basis"
- Require special handling, storage and administration
- Require significant patient education and continued monitoring
Specialty drugs began gaining wider attention in the 2000s as the number of such drugs on the market increased. According to the American Journal of Managed Care (AJMC), "there were 10 specialty drugs on the market" in 1990. According to the National Center for Biotechnology Information, in the mid-1990s, there were 30 specialty medications, and there were 200 by 2008. AJMC reported that number to have increased to nearly 300 just four years later. Additionally, according to America's Health Insurance Plans, specialty drugs now make up over half of all medicines approved by the Food and Drug Administration (FDA), indicating that specialty drugs are being used more widely by greater numbers of people:[10][11]
| “ | Specialty drug approvals by the FDA exceeded traditional drug approvals for the first time in 2010—a trend that has continued each year since. In 2014, 27 of the 51 drugs approved by the FDA were specialty drugs.[12][4] | ” |
Specialty drugs also compose an increasing share of spending on prescription drugs. In its 2014 Drug Trend Report, Express Scripts found that specialty medications made up 1 percent of all drugs prescribed, but accounted for 32 percent of all prescription drug spending. This figure was up from 25 percent in 2012 and 20 percent in 2010. A study in Health Affairs posited that this figure will reach 50 percent by 2018.[9][13][14][15]
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These trends have stakeholders and researchers concerned about the sustainability of specialty drug costs for insurance plans, governments and consumers. The AARP Public Policy Institute found that in 2013, the average cost of 115 specialty drugs was $53,384 per year, about $1,000 higher than the median income. The report also noted that 64 specialty drugs that have been on the market since 2006 saw price increases of an average of 161 percent between their introduction and 2013. Another study from Express Scripts found that about 576,000 Americans incurred drug costs of "more than the median household income ... in 2014," and 140,000 of these patients incurred costs of over $100,000. "The total cost impact to payers ... is an unsustainable $52 billion a year," the report stated. Nine in ten of these patients used specialty drugs, and the average out-of-pocket cost was $2,782.[5][16]
In particular, the 2013 introduction of Sovaldi and its 2014 successor Harvoni, drugs for hepatitis C with a 90 percent cure rate and price tags of $84,000 to $95,000, brought specialty drugs and their potential effects on healthcare spending into greater focus. As medicines that could treat 3.2 million individuals in the United States, members of the healthcare industry have expressed concern that their cost could place significant strain on the healthcare system.[17]
In addition to the impact of these costs for individual patients, increasing use of specialty drugs could also raise premiums and deductibles for others and present budgetary challenges for governments.[18]
Generic drugs
Generic drugs, or off-brand versions of brand-name drugs, "account for about 80 percent of all prescriptions." Generics are produced after a branded drug's patent expires. While the price of a brand-name drug tends to increase over the length of its patent, generic drugs see quick drops in price and end up much cheaper—a generic drug may cost as low as 20 percent of the price of its brand-name counterparts. According to the Food and Drug Administration, "generic drug use is estimated to have generated more than $1.2 trillion in savings to the health care system."[19][20][21]
Because of their wide affordability, recent spikes in the prices of certain generic drugs caused widespread alarm. Some researchers found that beyond the spikes, generic drug prices in general have increased. Truveris, a research firm, found that prices for generic drugs rose by 3 percent in 2015 and 4.9 percent in 2014. Drug Channels, a pharmaceutical economics blog, found that while generic drug prices declined by 3 percent in 2013, there was no change in prices in 2014, and 50 percent of generics saw price increases.[2][22][23][24]
However, an agency within the U.S. Department of Health and Human Services (HHS) found that despite the "spikes in the prices of some generic drugs," two-thirds of generics saw price decreases in 2014, and "generic drug prices are not an important part of the drug cost problem facing the nation." Additionally, while a separate report from the HHS Office of Inspector General found that 22 percent of generic drug prices rose faster than inflation between 2005 and 2014, this was a smaller percentage than found in its previous report for 1991 to 2004, in which 35 percent of generics rose faster than inflation.[25]
In general, any price increases occurring within the generic drug market have been attributed to product shortages and decreased competition due to mergers and acquisitions.[3][23][25][26]
Reasons for prices
Reasons for prices
Research and development
One reason given for the high prices of brand-name and specialty drugs is the costs associated with researching and developing new medicines. Such costs are affected by the complexity of the drug and changes in federal regulation over time. It's difficult to pin down exactly how much the research and development (R&D) process costs; many studies have been conducted and few have reached the same number due to differences in methodology and data used:
- A 2014 study from the Tufts Center for the Study of Drug Development finds that a new drug takes on average 10 years and $2.6 billion to develop.[27]
- A 2013 analysis by Forbes found that for a small company focused on producing one drug, the cost was around $350 million. For a larger company working on several medicines at once, the cost was estimated to be $5 billion, "[i]n part because so many drugs fail."[28]
- A 2012 study by the Office of Health Economics found the average cost of research and development to be $1.5 billion.[29]
- A 2012 study by The BMJ, a medical journal formerly known as the British Medical Journal, found "that the cost of R&D to bring a new drug to market is $60 million and $90 million."[30]
The pharmaceutical industry argues that drugs are priced to recoup high R&D costs and incentivize investment in new drugs, while others argue that their estimated costs of R&D are inflated and do not make up the majority of company expenditures. For instance, Express Scripts contends that pharmaceutical companies on average spend more on advertising and marketing than they invest in research and dedicate "[o]nly about 15 percent" of their budget to developing new drugs.[20][31]
Patents and monopolies
To allow prescription drug companies to recoup the cost of their investment, the federal government awards them patents for their drug that give them exclusive rights to produce and sell the drug for 20 years. Patents are typically approved while the drug is still in development, and by the time a drug is marketable, eight to 12 years may have elapsed on its patent, shortening the time to recoup the investment and incentivizing higher prices. Brand-name drugs also often increase in price as the patent expiration date draws closer.[20][18]
Additionally, between 2011 and 2013, many major pharmaceutical companies had popular, widely sold drugs go off-patent, leading to large losses. According to Drugsdb.com, a "pharmaceutical information resource," in 2011 Pfizer's sales declined 19 percent after its drug Lipitor lost its patent, and Eli Lilly's sales declined 73 percent after its drug Zyprexa lost its patent. Bloomberg, citing the IMS Institute for Health, reported that in 2013, "[i]ncreases in prices for existing branded prescription drugs accounted for $20 billion of the industry’s 2013 sales growth before discounts and rebates. That largely offset $19.3 billion in revenue declines because of patent expirations." Expiring patents of popular drugs can incentivize pharmaceutical companies to price their other drugs higher in order to offset losses.[32][33]
While drugs are under patent, their makers essentially hold a monopoly and do not face direct competition for the drug. Some argue that this monopoly allows drug companies to charge "[w]hat the market will bear," or what consumers, insurers and governments are willing to pay. For a drug with little competition, the price those entities are willing to pay may be higher than it would be otherwise. Similarly, in 2014 and 2015 there was a wave of mergers and acquisitions in the pharmaceutical industry; such consolidation may increase a company's drug prices due to greater "pricing power it may have when negotiating with payers."[17][34]
Value
Rather than basing drug prices on the cost of research and development, some health economists argue that pharmaceutical companies price drugs based on a calculation of their value to the healthcare system. To determine the value of a new medication for a particular illness, a company may calculate the current cost of the illness to the healthcare system. This would include the cost of surgeries, "clinical services, hospitalizations, and other less effective medications that untreated patients would otherwise incur." The calculation may also include the costs of lost productivity due to the illness, or if there are no treatment alternatives, the total cost of "allowing that disease to remain untreated." The company may then set the price based on this calculation and the expected savings its new medicine will bring, which could lead to very high prices for some medications.[17][35]
An analysis by the Mayo Clinic found that such calculations do not always result in the accurate pricing of a drug. According to the paper, which focused on cancer drugs, "[o]ne drug may prolong life by years and another by days, yet both carry similar price tags."[36]
Price negotiations
Before paying for a drug, insurance companies, hospitals, government programs (excepting Medicare) and other payers negotiate with pharmaceutical companies for a lower price:
| “ | Administrators at Medicaid, which provides insurance for low-income people, have a "best price" rule that entitles them to the lowest negotiated price that a drug company has offered private insurers. The agency typically earns at least a 15 percent discount off the list price of any drug. In addition, the 340 B Drug Pricing Program gives discounts of 25 to 50 percent to hospitals that serve low-income populations. The Department of Veterans Affairs is entitled to discounts of 25 to 50 percent based on federal law, and the Federal Bureau of Prisons has secured a 44 percent discount on Sovaldi for inmates.[17][4] | ” |
Pharmaceutical companies also often provide rebates after the purchase and have programs to provide medications at a discount or for free to those who can't afford them. Due to these negotiations, it's been argued that few people actually pay the full list price for a drug. Some have also theorized that the expectation, and in some cases requirement, to negotiate and offer discounts incentivizes pharmaceutical companies to "inflate the list price" higher than it would be otherwise.[17][37][38]
Small markets
As evidenced by the increasing number of specialty medications, more and more new drugs are for conditions which affect a small percentage of the country's population, such as rare diseases and "cancer subtypes involving a particular genetic mutation." The medications to treat these diseases are complex, and thus costly to develop and manufacture. To recoup the costs of investment for these drugs that can only be sold to very few people, and because they may be the only drugs available for the diseases they treat, companies may set higher prices for these drugs than for those that treat common conditions.[39][40]
Noteworthy events
Noteworthy events
Lawsuits
Sovaldi and Harvoni are newly developed drugs that have a 90 percent cure rate for hepatitis C, but cost $84,000 to $95,000 for a course of treatment. A standard course of treatment consists of a single pill daily for 12 weeks. About 3.6 million individuals in the United States have hepatitis C. A study published in August 2015 in the Annals of Internal Medicine found that due to the cost of the drugs, Medicaid programs in 34 states restrict coverage of Sovaldi and Harvoni to patients with some form of liver damage. Many prison systems and insurance companies have a similar policy. In 2015 and the beginning of 2016, federal class-action lawsuits were filed in five states against Medicaid programs and prison systems for denying coverage of the drugs:[41][42]
- May 1, 2015: a federal class-action lawsuit is filed in Minnesota against the state prison system.[43]
- June 10, 2015: a federal class-action lawsuit is filed in Massachusetts against the state prison system.[44]
- June 12, 2015: a federal class-action lawsuit is filed in Pennsylvania against the state prison system.[45]
- November 25, 2015: a federal class-action lawsuit is filed in Indiana against Medicaid.[46]
- February 17, 2016: a federal class-action lawsuit is filed in Washington state against Medicaid.[47]
The lawsuits argue that it's illegal for states to deny coverage of the drugs because of cost. According to the Pew Charitable Trusts, by law, Medicaid programs can only deny coverage of a drug "if its prescribed use 'is not for a medically accepted indication' as determined by the FDA." Prisons are required to provide adequate healthcare for inmates, but have more leeway in how they deliver that care, as long as they don't deliberately ignore serious medical needs.[41]
States contend that purchasing the drugs for every Medicaid patient or prisoner with hepatitis C would present a significant, if not impossible, budgetary challenge. Oregon estimated "it would cost more than $200 million to treat Oregon prisoners with the disease, an amount four times greater," than the prison system's entire healthcare budget. Washington estimated providing the drugs for every Medicaid patient in the state with the disease would cost $3 billion per year, about 29 percent of its 2014 Medicaid budget. States say that although providing the drugs now may generate savings for their systems in the future (by avoiding future hospitalizations and complications), they are required to balance their budgets every year, making paying for the drugs now "unimaginable."[41][47]
Gilead Sciences, the maker of Sovaldi and Harvoni, has faced nationwide backlash for its pricing of the drugs; the company received a letter from the Massachusetts attorney general's office in late January warning the company to lower its prices or face legal action. The letter indicated that the state was considering filing a lawsuit against the company, alleging that the prices of Sovaldi and Harvoni "may constitute an unfair trade practice in violation of Massachusetts law." Gilead says that its prices are fair based on the drugs' effectiveness and that the drugs will "save the healthcare system much more money in the long run, by preventing liver transplants and cancer."[41][48][49]
Congressional hearings
In late 2015 and early 2016, Congress held two separate hearings regarding drug prices. On December 9, 2015, the Senate Special Committee on Aging held a hearing specifically on generic drug prices. The purpose of the hearing was to investigate the practice of some companies purchasing old generic drugs and raising their prices. The committee heard testimony from four doctors and policy analysts about why such price increases have occurred and how they have affected doctors and patients.[50][51][52]
The committee's focus was on Turing Pharmaceuticals for raising the price of Daraprim and Valeant Pharmaceuticals International for raising the price of Isuprel. Although representatives for the companies were not present at the hearing, the committee sent letters to them asking for "information about their pricing practices," and also sent letters to two other companies, Rodelis Therapeutics and Retrophin Inc. The witnesses testified that the price increases have caused doctors to turn to alternatives first and think twice about using the drugs in emergency situations. Solutions offered included increasing competition in the generic drug industry and shortening the time it takes for a generic drug to be approved by the Food and Drug Administration (FDA).[50][51][52]
| An excerpt from the hearing held on February 4, 2016, by the House Oversight Committee on prescription drug prices |
On February 4, 2016, the House Oversight Committee held a hearing on increases in drug prices. The purposes of the hearing were listed on the committee's website as follows:
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The hearing drew wide attention for the presence of Martin Shkreli, former CEO of Turing Pharmaceuticals, who refused to answer questions. Representatives from Valeant Pharmaceuticals International, the FDA, and the Pharmaceutical Care Management Association were also present. Included in the committee's list of takeaways were that the two main causes of generic drug price increases were the lack of competition in the market and a lengthy FDA review process that "is causing a massive backlog of more than 3,700 applications."[53]
Recent news
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See also
Footnotes
- ↑ Centers for Medicare and Medicaid Services, "National Health Expenditures 2014 Highlights," accessed February 16, 2016
- ↑ 2.0 2.1 2.2 Truveris, "Americans Faced Double Digit Increases in Prescription Drug Prices in 2014, According to Truveris National Drug Index," January 26, 2015
- ↑ 3.0 3.1 The Wall Street Journal, "Prices for Prescription Medicines Rose How Much Last Year?" January 26, 2015
- ↑ 4.0 4.1 4.2 4.3 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
- ↑ 5.0 5.1 AARP Public Policy Institute, "Rx Price Watch Report: Trends in Retail Prices of Specialty Drugs," November 20, 2015
- ↑ America's Health Insurance Plans, "Issue Brief: Specialty Drugs—Issues and Challenges," accessed February 18, 2016
- ↑ Midwest Business Group on Health, "No Single Definition for Specialty Drugs," accessed February 18, 2015
- ↑ HealthInsurance.org, "Specialty Drug," accessed February 18, 2016
- ↑ 9.0 9.1 Optum, "What makes a specialty drug special?" July 22, 2014
- ↑ American Journal of Managed Care, "The Growing Cost of Specialty Pharmacy—Is it Sustainable?" February 18, 2013
- ↑ National Center for Biotechnology Information, "The Evolution of Specialty Pharmacy," accessed February 19, 2016
- ↑ America's Health Insurance Plans, "Issue Brief: Specialty Drugs—Issues and Challenges," accessed February 19, 2016
- ↑ AARP, "Feeling the Pain of Costly Prescription Drugs," accessed February 18, 2016
- ↑ Health Affairs "Specialty Medications: Traditional And Novel Tools Can Address Rising Spending On These Costly Drugs," accessed February 19, 2016
- ↑ Express Scripts, "Drug Trend Report," accessed February 23, 2015
- ↑ Express Scripts, "Super Spending: U.S. Trends in High-Cost Medication Use," May 13, 2015
- ↑ 17.0 17.1 17.2 17.3 17.4 International Business Times, "Why Are Prescription Drugs So Expensive? Big Pharma Points To The Cost Of Research And Development, Critics Say That's No Excuse," May 19, 2015
- ↑ 18.0 18.1 Business Insider, "Here are the 6 reasons why prescription drugs are so expensive," September 25, 2015
- ↑ AARP, "Prices Spike for Some Generic Drugs," accessed February 25, 2016
- ↑ 20.0 20.1 20.2 Express Scripts, "Why are brand-name medications more expensive than generic medications?" accessed February 25, 2016
- ↑ U.S. Food and Drug Administration, "Celebrating 30 years of easier access to cost-saving generic drugs," September 24, 2014
- ↑ TruTalk, "2015 OneRx NDI℠ Annual Report shows drug prices jumped more than 10%," January 12, 2016
- ↑ 23.0 23.1 Drug Channels, "Retail Generic Drug Inflation Reaches New Heights," August 12, 2014
- ↑ Drug Channels, "Retail Generic Drug Costs Go Up, Up, and Away," November 19, 2013
- ↑ 25.0 25.1 Office of The Assistant Secretary for Planning and Evaluation, "Understanding Recent Trends in Generic Drug Prices," January 27, 2016
- ↑ Forbes, "Why Are Generic Drug Prices Shooting Up?" February 27, 2015
- ↑ Tufts Center for the Study of Drug Development, "Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion," November 18, 2014
- ↑ Forbes, "The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To Change," August 11, 2013
- ↑ Office of Health Economics, "Overview of the OHE Study on the Cost of Drug Development Presented," January 29, 2013
- ↑ The BMJ, "Pharmaceutical research and development: what do we get for all that money?" accessed February 27, 2016
- ↑ Pharmaceutical Researchers and Manufacturers of America, "Wanted: A Balanced Discussion on Health Care Costs," January 15, 2015
- ↑ Drugsdb.com, "How Long Is A Drug Patent Good For?" August 26, 2012
- ↑ Bloomberg, "Big Pharma's Favorite Prescription: Higher Prices," May 8, 2014
- ↑ Wired, "How Prescription Drugs Get So Wildly Expensive," September 23, 2015
- ↑ Health Affairs, "Rising Cost Of Drugs: Where Do We Go From Here?" August 31, 2015
- ↑ Mayo Clinic Proceedings, "Why Are Cancer Drugs So Expensive in the United States, and What Are the Solutions?" accessed February 27, 2016
- ↑ The New York Times, "Valeant’s Drug Price Strategy Enriches It, but Infuriates Patients and Lawmakers," October 4, 2015
- ↑ MSN, "Merck Takes on Gilead With Sharply Lower Hepatitis C Drug Price," January 29, 2016
- ↑ Business Insider, "Here are the 6 reasons why prescription drugs are so expensive," September 25, 2015
- ↑ Forbes, "Five Reasons Branded Drug Prices Will Keep Rising," August 25, 2010
- ↑ 41.0 41.1 41.2 41.3 The Pew Charitable Trusts, "Are States Obligated to Provide Expensive Hepatitis C Drugs?" February 9, 2016
- ↑ Annals of Internal Medicine, "Restrictions for Medicaid Reimbursement of Sofosbuvir for the Treatment of Hepatitis C Virus Infection in the United States," August 4, 2015
- ↑ Prison Legal News, "Minnesota DOC Sued Over Failure to Provide New Hepatitis C Treatment Protocol," July 31, 2015
- ↑ United States District Court for the District of Massachusetts, "U.S.D.C. (D. Mass.), Case No. 1:15-cv-12298-NMG," June 10, 2015
- ↑ United States District Court for the Eastern District of Pennsylvania, "U.S.D.C.(E.D. Penn.), Case No. 2:15-cv-03333-JP," June 12, 2015
- ↑ American Civil Liberties Union, "Stepping in for Hep C patients whose lives are at risk," accessed February 28, 2016
- ↑ 47.0 47.1 The Seattle Times, "Lawsuit targets Medicaid policy that limits spendy hepatitis C drugs," February 17, 2016
- ↑ The Boston Globe, "AG warns maker on hepatitis drug costs," January 27, 2016
- ↑ FiercePharma, "Gilead faces legal action in Massachusetts if it doesn't cut hep C prices: State AG," January 27, 2016
- ↑ 50.0 50.1 The New York Times, "Senators Condemn Big Price Increases for Drugs," December 9, 2015
- ↑ 51.0 51.1 The Washington Post, "Doctors, hospitals condemn out-of-control drug prices as Senate investigation begins," December 9, 2015
- ↑ 52.0 52.1 U.S. News & World Report, "Senators Question Pricing of Generic Drugs," December 9, 2015
- ↑ 53.0 53.1 House Committee on Oversight and Government Reform, "Developments in the Prescription Drug Market: Oversight," accessed February 28, 2016
