JAMA study: Why are drug prices so high, and what can be done about it?
Key Takeaways
Net spending on prescription drugs in the United States increased by about 20% between 2013 and 2015, which outpaced a forecast 11% increase in aggregate health care expenditures.
Such increases in prescription drug prices are due not only to the rising cost and complexity of drug development, but are also the result of government agencies granting market-exclusivity provisions to drug manufacturers, combined with payers being restricted from meaningfully negotiating prices, according to researchers who published these findings online August 23, 2016 in the Journal of the American Medical Association.
“A lot of physicians and patients are increasingly expressing frustration about the high costs of drugs,” said the study’s lead author Aaron S. Kesselheim, MD, JD, MPH, Associate Physician in the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital in Boston, MA.
Dr. Kesselheim and colleagues undertook this study to investigate the sources and effects of high drug costs in the US, as well as some potential policy solutions to the issue. To do so, they combed through peer-reviewed medical and health policy journals from 2005 to 2016, searching for rigorous empirical articles that addressed drug prices.
Reasons for high drug prices
“We found that, indeed, drug prices in the United States are much higher than anywhere else in the world and that the main contributors to that are [exclusivity in] the US drug marketplace which allows drug companies to charge whatever the market will bear and, in many respects, places limitations on payers’ abilities to try to negotiate lower drug prices,” explained Dr. Kesselheim, who is also an Associate Professor of Medicine at Harvard Medical School.
Brand-name drugs comprise only 10% of all prescriptions dispensed in the US, yet they account for 72% of drug spending, the researchers found. Prices for the most commonly used brand-name drugs increased 164% from 2008 to 2015, far greater than the 12% consumer price index.
The only consistent and substantial intervention to lower drug prices in the US is competition from generic drugs, the researchers reported. “What maintains high drug prices for brand-name companies is market exclusivity,” Dr. Kesselheim explained. “When a generic drug is available, that can lead to substantial reductions in the price of the drug.”
The researchers noted that the price of a drug drops to about 55% of the brand-name price when two generic manufacturers produce it, to 33% with five generic manufacturers making it, and to 13% with 15 manufacturers.
Another primary reason for high drug prices is that the US marketplace constrains the ability of public and private payers to negotiate for lower drug prices, including the requirement that most government drug payment plans cover nearly all products.
Even doctors are contributing to the high cost of prescription drugs. “A lot of physicians don’t know about the prices of the drugs that they prescribe and often don’t ask their patients about the effects of drug prices on patients’ abilities to purchase…and adhere to their medications,” Dr. Kesselheim said. Also, physicians may prescribe a brand-name drug when a generic drug is available, he added.
One of the main justifications made by pharmaceutical companies for high drug prices is the extensive cost of their research and development. “However, we found that there is no real association between costs of drugs and the development of new products,” Dr. Kesselheim said.
“Most brand-name manufacturers spend only about 10% to 15% of their revenues on research and development, and in fact most of the transformative innovation in pharmaceuticals tends to occur in government labs and academic medical settings funded by publicly-funded sources" such as the National Institutes of Health, he explained.
Ways to lower drug prices
The researchers proposed several ideas to slow or reverse the increase in drug prices without impeding pharmaceutical innovation:
Enforce more stringent requirements for market exclusivity and patent extension.
Enhance competition by ensuring generic drugs are available in a timely manner and adequate supply.
Provide greater opportunities for meaningful price negotiation by payers.
Increase research on the comparative cost-effectiveness of therapeutic alternatives.
Expand education for patients and physicians about the implications of high drug prices.
“There is little evidence that such policies would hamper innovation, and they could even drive the development of more valuable new therapies rather than rewarding the persistence of older ones,” the researchers concluded.