With 79% of Americans saying prescription drug costs are “unreasonable,” and 70% reporting lowering prescription drug costs as their highest healthcare priority, the popular prescription drug debate is not whether drug costs should be reduced but how to reduce prescription drug costs. One consideration is whether the United States federal government should regulate prescription drug prices.
A prescription drug is a medication that may only be obtained with a medical professional’s recommendation and authorization. In some US states, physician assistants, nurse practitioners, pharmacists, clinical psychologists, and other medical professionals are permitted to write prescriptions in addition to doctors. Prescription drugs are generally divided into two categories: brand-name drugs and generic drugs.
In the United States, drug companies (also called pharmaceutical companies) set prescription drug prices, which are largely unregulated by the US federal government. Some drug companies will be familiar due to their names being attached to COVID-19 vaccines or other common products: Johnson & Johnson and Pfizer, for example. Others may not be household names but command large portions of the market nonetheless: Swiss companies Roche and Novartis, to name two. Read more background…
Pro & Con Arguments
High drug costs can force people to choose between life-saving drugs and other essentials.
24% of people taking prescription drugs reported difficulty affording the drugs, according to a Kaiser Family Foundation (KFF) poll. 58% of people whose drugs cost more than $100 a month, 49% of people in fair or poor health, 35% of those with annual incomes of less than $40,000, and 35% of those taking four or more drugs monthly all reported affordability issues. Additionally, 30% of people aged 50 to 64 reported cost issues because they generally take more drugs than younger people but are not old enough to qualify for Medicare drug benefits.
Tori Marsh, Director of Research at GoodRx, explained some of the consequences of having to buy expensive prescription drugs: “In 2020, 20.7% of people reported taking on debt or declaring bankruptcy due to the cost of their prescription medications. Borrowing from friends or family was the most common financial action (16.8%), followed by getting loans (5.0%), taking out another mortgage (1.2%), and filing for bankruptcy (1.0%).”
Because of high drug costs, 29% of adults surveyed in the KFF poll said they did not take their medication(s) as prescribed, 19% did not fill a prescription, 18% took an over-the-counter (OTC) drug instead, and 12% cut pills in half or skipped doses. Similar results were found among respondents to a Healio Internal Medicine poll.
As explained by Truth in Rx, an American Medical Association campaign for drug price transparency, “[p]rescription drug price increases can lead some patients to not be able to afford critical medicine…. The result? Among this group, three in ten say their condition got worse.”Read More
Too many companies with too many private interests are involved in drug pricing, resulting in high prices and limited access to important drugs due to corporate greed.
Drug prices are first set by drug companies that have an interest in recouping R&D costs and raising corporate revenues. Drug costs are then negotiated by pharmacy benefit managers (PBMs), which are private companies interested in profit. PBMs keep a portion of the rebate, which were negotiated without public disclosure, and some health insurance companies reported that they saw none of the rebates. Then consumer drug prices are set by insurance companies that want to increase their bottom lines. Without government regulation, drug prices can be increased by the drug company, rebates can be withheld by the PBMs, and insurance companies can refuse to cover a drug, leaving the patient with few options.
EpiPen, a life-saving drug for patients who experience severe allergic reactions to things like bee stings and certain foods, contains about $1 worth of epinephrine and cost about $57 in 2007. The price jumped 400% when the drug company Mylan acquired the drug the same year, raising the cost to $500 or more. Even an insured patient could pay upwards of $400. Raising the price allowed the drug to account for 40% of Mylan’s operating profits in 2015.
Millionaire Martin Shkreli was dubbed the “most hated man in America” for raising the price of Daraprim, an AIDS drug, from $13.50 a pill to $750. And other drugs have seen similar increases. Why did drug companies raise the costs of these drugs? As journalist Emily Willingham stated, “because they could.” Life-sustaining and life-saving medications should not be subject to the whims of corporations and millionaires.  Read More
Without regulation, drug costs are inconsistent and often hidden, leaving doctors struggling to provide appropriate care to their patients.
Doctors frequently do not know and may not have access to prescription drug costs for their patients. Because patients have a variety of insurance policies with varying prescription drug coverage, doctors are left to prescribe drugs without knowing if the patient will be able to afford the drug at the pharmacy.
74% of physicians believe considering patients’ medical benefits is important when choosing which drug to prescribe. And 59% want to be able to compare drug costs at the point of prescription. However, 29% of physicians did not trust the information they could access about prescription drug costs. Additionally, 59% reported that knowledge of their patients’ out-of-pocket prescription drug costs was “high-priority,” but only 11% could access that information easily.
Without prescription drug costs information, doctors are left to guess. In a survey of 371 primary care physicians, gastroenterologists, and rheumatologists who were given insurance information for a hypothetical patient, only 20% correctly determined the patient’s out-of-pocket costs for a drug that costs $1,000 per month.
Jules Lipoff, Assistant Professor of Clinical Dermatology at the University of Pennsylvania, stated “patients appreciate it when doctors have a well-thought-out backup plan (for example, an over-the-counter or other prescription alternative) and bring up costs during an office visit. Patients do not like being told reflexively to call if there’s an issue filling the medication at the pharmacy — that puts the responsibility on them to figure out a complicated system.”
As Lipoff explained, “doctors must remember our responsibility to consider the whole patient, including his or her financial livelihood, and make a point of bringing up the cost of care with each of our patients. If patients with limited means spend more money on medications, that expense means less money for the rest of their budget, with real consequences. With better transparency and advocacy on behalf of our patients, we as physicians must strive for the most cost-effective care.”
Robert Popovian, pharmaceutical economist, asked, “We know that the correct data exist, so why don’t physicians have access to it when they are prescribing these medications?”
For doctors to be able to meet their patients’ needs, they must have accurate cost information. One way to achieve this is via Congressional action to make costs transparent and drugs more affordable.Read More
Revenue from prescription drug sales fund research and development of new drugs.
Research and development (R&D) of a new drug costs between almost $1 billion and more than $2 billion. Considering that only approximately 12% of drugs tested are approved by the FDA, the average R&D cost per approved drug is significantly higher (about 12.5 billion).
The Congressional Budget Office (CBO) reported, “In 2019, the pharmaceutical industry spent $83 billion dollars on R&D. Adjusted for inflation, that amount is about 10 times what the industry spent per year in the 1980s. Between 2010 and 2019, the number of new drugs approved for sale increased by 60 percent compared with the previous decade, with a peak of 59 new drugs approved in 2018.”
Drug companies can more reliably fund R&D for new drugs with revenue from drug sales than they could with venture capital or other outside investments. Studies have shown that cuts in drug companies’ revenue results in drops in future research and the number of new drugs.
Further, R&D is attached to drug companies’ long-term growth strategy not only in terms of revenue but also copyrights, patents, and trademarks. Without R&D and new drugs, the companies could fail to produce the growth and revenue needed to keep older drugs on the market.
Drug companies spent about 25% of revenues on R&D in 2018 and 2019, and were outpaced in R&D spending only by the semiconductor industry (a component of electronics). As Investopedia editors summarized, “R&D is the pharmaceutical industry’s lifeblood. The success of major drug companies almost wholly depends upon the discovery and development of new medicines.”Read More
Expanded access to affordable insurance that better serves customers by covering a larger percentage of prescription drug costs would more effectively lower drug costs for patients.
David A. Ricks, CEO of drug company Eli Lilly, explained that drug companies negotiate lower prices for government programs including Medicare and for private insurance companies.
However, Ricks stated, “What the US system does poorly is sharing these negotiated savings with patients who use the medicines. In fact, patient costs for medicines are increasing even while net drug manufacturer prices are decreasing. This paradox exists because no matter how much of a discount an insurer or provider negotiates, most [insurance] plans don’t pass the discount to patients.”
“Policy makers,” suggests Ricks, “need to focus on fixing broken health [insurance] plan designs that shift too much cost to the sick in order to lower premiums for the healthy.”
A 2021 study found that while drug companies offer rebates to health insurance companies, those rebates do not translate to lower out-of-pocket drug costs for customers. The rebates were tied to higher costs for consumers per prescription drug: $6 for those with commercial insurance, $13 for those with Medicare, and $39 for people without insurance.
The study’s authors emphasized that “uninsured individuals were more likely to be in racial minority groups, amplifying pre-existing disparities in healthcare access,” and people who were “uninsured were younger, in poorer health, and… had lower personal income compared with our overall sample
If Congress were to expand affordable, quality insurance with appropriate prescription drug coverage, the drug cost problem could be alleviated, if not eliminated, while providing better healthcare for everyone.Read More
The US federal government is already over-involved in healthcare and should leave prescription drugs to the free market.
Under the Affordable Care Act, insurance companies are required to cover at least one drug from every United States Pharmacopeia (USP) category and class.
Because of this requirement, patients should be able to find a drug, covered by insurance, that will treat most conditions. The cost debate is largely over relatively few name-brand drugs.
Tom Coburn, the late former Senator (R-OK), explained, “The problem with drug prices… is not that they start out expensive, but that they stay expensive for years after they have been on the market. The main culprit here is the regulatory environment that limits the creation of a free, functioning and competitive market for prescription drugs…. Rather than doubling down on government regulation, we should rely on the free market, which is the best way to allocate these scarce resources, increase competition, lower prices and continue to foster medical innovation for years to come.”
Other free market options include making more drugs available over-the-counter (OTC) such as birth control pills and statins, which are available OTC in other countries and would lower costs if available OTC in the United States; and deregulating the ban on marketing or sharing information about drugs in research with insurers and doctors, which would lower advertising costs after FDA approval.
Further, most Americans support allowing drug imports from Canada: 79% of Independents, 78% of Democrats, and 76% of Republicans.
Americans should be able to import drugs from Canada and Mexico. Drug companies lobbied to ban drug imports to prevent competition that would lead to American companies having to reduce their prices.
A 2019 Vice investigation found patients were crossing the border into Mexico to buy Novolog insulin pens for $17 because the cost in the United States jumped from $289 in 2013 to $540 in 2019. Other insulin prices also rose: Humalog went up from $35 in 2001 to $234 in 2015, and Lantus from $244 to $431.
Allowing Americans to utilize the global free market without more government interference is the most effective way to force US drug companies to lower prices.Read More
|Did You Know?
|1. Out-of-pocket costs for prescription drugs averaged $163.72 in the United States from 2004 to 2019.
|2. In 2019, total drug costs (including private insurance, government programs, and out-of-pocket spending) in the United Kingdom were $284.84 per person, compared to $1126.27 in the United States.
|3. 79% of Americans said prescription drug costs were “unreasonable,” and 70% reported lowering prescription drug costs as their highest healthcare priority.
|4. Utah established the Pharmacy Tourism Program, which allows public employees to travel to an accredited hospital in Tijuana, Mexico, to fill certain expensive prescriptions. The program also pays for roundtrip airfare for two, transportation to and from the Tijuana hospital, and a one-night hotel stay in San Diego.
|5. Drug companies spent about 25% of revenues on R&D in 2018 and 2019, and were outpaced in R&D spending only by the semiconductor industry (an electrical component in electronics).
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