Last updated on: 1/29/2024 | Author:

History of Prescription Drug Costs

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. [1]

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. [2] [3]

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. [4]

In 2020, total global drug company revenue totaled more than $1.27 trillion, which included drugs and other products sold by the companies (such as shampoo and baby products). Drug sales accounted for about $904 billion in revenue. Johnson & Johnson had $82.6 billion in total 2020 revenue, the highest for any drug company worldwide, $45.5 billion of which was drug sales. Roche followed at a distant second with $62.05 billion in total 2020 revenue, $49.5 of which was drug sales. Global drug revenue is expected to continue to rise. [5] [6] [7]

While there is speculation about how drug companies price drugs–including competing drugs, medical uniqueness, and the overall market–drug companies are not required to reveal how or why a drug is priced as it is, why or when a drug price may be raised, or why drug costs sometimes exceed research and development (R&D) expenses for the drug. [4] [8]

The cost to the patient is determined by three agents. First, the drug company, which sets a price for a drug it has developed or purchased from another company. Second, pharmacy benefit managers (PBMs), who negotiate rebates and savings on behalf of health insurance companies, Medicare Part D drug plans, large employers, and other groups. (These agreements, however, are generally not publicly disclosed so actual cost savings to patients are unknown.) And third, health insurance companies, which determine which drugs will be approved for their customers’ use, how much the insurance company will pay for the drug, and how much the patient will pay. The patient may not know their out-of-pocket cost for a drug until standing in line at the pharmacy, and, due to disparate insurance coverage, one patient may pay more than another for the same drug. [8] [9] [10]

According to the Rand Corporation, prescription drug prices in the United States were 2.56 times higher on average than prices in 32 other Organisation for Economic Co-operation and Development (OECD) countries, with brand-name drugs coming in at 3.44 times higher. While generic drugs in the US cost slightly lower than the global average, and accounted for 84% of drugs sold, they made up only 12% of spending in the United States. Total drug spending for the countries included in the study?? was estimated to be $795 billion, with the US accounting for 58% of sales and 24% of volume. [11]

Two legislative efforts to reduce prescription drug prices were in the US Senate as of Apr. 1, 2022, having passed the House in 2021 and 2022. The first is a provision in the Build Back Better Act, passed by the US House of Representatives on Nov. 19, 2021. According to the Kaiser Family Foundation, the act would, among other things, 

  • “Allow the federal government to negotiate prices for some high-cost drugs covered under Medicare Part B and Part D
  • Require inflation rebates to limit annual increases in drug prices in Medicare and private insurance
  • Cap out-of-pocket spending for Medicare Part D enrollees and other Part D benefit design changes
  • Limit cost sharing for insulin for people with Medicare and private insurance
  • Eliminate cost sharing for adult vaccines covered under Part D
  • Repeal the Trump Administration’s drug rebate rule” [12]

The second is a bill passed by the House on Mar. 31, 2022, that would limit the cost of insulin to $35 a month or 25% of the insurance plan’s negotiated price, whichever is lower. Neither provision faced good odds in the Senate. [13] [14]

Section 804 of the Federal Food, Drug, and Cosmetic Act (FD&C) “allows importation of certain prescription drugs from Canada to: [1] significantly reduce the cost of these drugs to the American consumer, [2] without imposing additional risk to public health and safety.” [47]

On Jan. 5, 2024, the FDA authorized Florida to import prescription drugs from Canada. The authorization is the first for the nation just the first step in Floridians importing prescription drugs. Canada, however, has restrictions in place to prevent the export of drugs if doing so “will… cause or exacerbate a drug shortage in Canada.” The population of Florida is roughly half that of Canada and Canada has had shortages of drugs from cancer medications to weight-loss and diabetes medications, making export unlikely according to experts. [44] [45] [46]