Why do drugs in the U.S. cost so much?
Prescription drug prices in the United States are among the highest in the world. The cost of insulin tripled between 2002 and 2013. EpiPen, a medication for severe allergic reactions, costs $609 for two injectors. Bavencio, a new cancer drug, has a price tag of $156,000 per year.
Although the cost of drugs may not be felt by people who are relatively healthy and rarely use medication outside of the occasional course of antibiotics, high drug prices affect everyone.
Spending by Medicare and Medicaid is passed on to all Americans in higher taxes and cuts to public programs. People who are disabled are at a particular disadvantage because their income is already low and their cost of living is higher due to expenses incurred in managing their medical conditions.
Pharmaceutical companies defend pharmaceutical prices by pointing to the high cost of research and development of new drugs.
Studies are performed where new compounds are tested on animals and human tissue to determine how they are absorbed and distributed by the body. When a drug proves safe and effective, the drug company applies to the Food and Drug Administration (FDA) for a license to manufacture and produce the new drug.
The FDA regulates testing of drugs and has strict criteria for approval; only one out of 10,000 compounds is actually approved by the FDA.
It takes seven to ten years to develop a new drug that gains market approval at a cost of $2.6 billion. Millions more are spent on marketing and educating health care providers. If a drug is not approved, any money spent developing the drug is lost and any expense incurred by the pharmaceutical company must be covered by revenue from existing approved drugs. Drug companies argue that the price of a drug must cover not only the development of approved drugs, but failures and marketing, and earn a profit.
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But even after research and development costs, drug companies are one of the most profitable industries in the United States and have benefited from several factors that influence the price of drugs.
- Patent law.
When a new drug is approved by the FDA, the patent on the drug lasts for 20 years. This means the drug company that owns the patent can raise the price as much as it likes without competition. As the demand for a drug increases, the price will often increase. Drug companies can extend a patent by slightly changing the formula of an existing drug, for example, manufacturing a sustained release formula, or combining two drugs into one pill.
- Limits on Medicare.
By law, Medicare is not permitted to negotiate drug prices. In contrast, the Veterans Health Administration (VHA) can negotiate prices for brand name drugs and as a result, the VHA pays up to 80% less than Medicare. Additionally, Medicare and Medicaid are required to cover all drugs approved by the FDA.
- Lack of information on drug choices and effectiveness.
Patients do not choose the drugs they are prescribed or have access to research studies on whether a new drug is actually better than an existing medication. Instead, doctors usually prescribe the drug they are most familiar with for patients. The information a doctor receives about a drug comes from pharmaceutical companies that spend millions each year marketing to health providers. A doctor may not consider an alternative, less expensive drug or one that might be more effective.
- Pharmacy Benefit Managers acting as middlemen.
Patients who are only responsible for a co-pay do not know the real price of a medication. Pharmacy Benefit Managers (PBMs) negotiate directly with pharmaceutical companies to lower prescription drug prices, drive competition for more generic drugs, and secure savings for customers through rebates and discounts. CVS and ExpressScripts are examples of PBMS. Because PBMs are paid based on the number of rebates they negotiate, critics warn that it is possible for them to retaliate against manufacturers who cut prices by dropping them or placing them on a higher tier. Others contend that PBMs keep some of the rebates instead of passing them to consumers through lower out-of-pocket costs.
While a low percentage of its healthcare costs is spent on drugs, the U.S. has some of the highest drug prices in the world.
In the United States, Advair Diskus, a drug for people with asthma and COPD, carries a price tag of $386.97 (with a coupon at Rite Aid!), while in Canada, the price is $131.87. Humira, a drug to treat rheumatoid arthritis, costs $2,246 in the United States and $1102 in England. Cymbalta, a drug for depression, costs patients $194 in the U.S., but only $46 in England. Why are prices for prescription drugs in the U.S. so much higher than in Europe and Canada?
In other countries, the healthcare system is much simpler.
There are not as many organizations trying to buy drugs, and groups can exert more pressure on pharmaceutical companies to lower costs. The United Kingdom’s Health Service purchases the country’s entire supply of drugs while in the U.S. drug purchasing falls to hospitals, insurance companies and various drug plans buying on behalf of individual clients, resulting in unregulated pricing. Because buyers are limited in other countries, drug companies are forced to negotiate if they want to compete in a market. Canada has a drug review board that evaluates the clinical, economic, and patient evidence on drugs, and provides reimbursement recommendations and advice to Canada’s federal, provincial, and territorial public drug plans. This helps healthcare providers determine what price they are willing to pay for a drug. Also, drug companies are willing to sell their pharmaceuticals for less in Canada because they can sell the same drugs at a higher price in the U.S.
The public outcry against high drug prices found a voice in the last election cycle and Congress is still debating remedies.
Among proposals discussed is allowing Medicare to negotiate drug prices, allowing for import of less expensive drugs from other countries, creating transparency in drug pricing, and providing for simpler drug comparisons. Other proposed bills would remove some barriers to cheaper generic drugs. Some states such as Vermont, New York, California and Utah are proposing their own laws to address the problem.
In the meantime, there are several actions an individual can take to lower their own prescription drug costs:
- Buy generic drugs.
- Know your insurance coverage. Each plan has a list of drugs it covers, divided into tiers. The higher the tier, the higher the copay. If a medication you use falls into a high tier, ask your doctor if you can substitute a drug in a lower tier.
- Order by mail. The price of a 90-day supply of a medication can be as much as one-third lower.
- Use a preferred pharmacy.
- Use drug discount cards. Drug discount cards can lower prescription costs, but cannot be used with health insurance, including Medicare.
- Seek financial assistance. Drug companies usually offer assistance to qualified individuals through programs such as NeedyMeds.org, Partnership for Prescription Assistance, and Patient Advocates.org.
- Split pills when safe. Instead of taking a 10 mg pill, you may be able to split a 20 mg pill in half, but always talk to your doctor or pharmacist first. Some medications cannot be divided and still be effective.
Finally, if you are concerned about the high cost of prescription drugs, contact your Congressman and Senators.
They need to hear from you about this important issue and how it impacts you.
Disability benefits are an important source of income for those who are unable to work. If you not able to work due to accident or illness, you may be eligible for Social Security Disability or Long Term Disability benefits. If you have applied for benefits and been denied, contact the attorneys at Bemis, Roach and Reed for a free consultation. Call 512-454-4000 and get help NOW.
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