Six Reasons Drug Prices Are So High in the US

Florida’s plan to save money importing drugs from Canada, authorized this month by the Food and Drug Administration, has renewed attention on the cost of prescription drugs in the United States.

Research has consistently found that drug prices in the United States are significantly higher than those of other rich countries. In 2018, they were almost double those in France and Britain, even taking into account discounts that can substantially reduce what American health plans and employers pay.

“The US market is the bank of pharmaceutical companies,” said Ameet Sarpatwari, a pharmaceutical policy expert at Harvard Medical School. “There is a strong feeling that the best place to try to extract profits is the United States because of its existing system and its dysfunction.”

Here are six reasons why medications in the United States cost so much:

Other rich countries rely on a single negotiating body (usually the government) to decide whether to accept the price a pharmaceutical company wants to charge. In the United States, negotiations with drug makers are divided among tens of thousands of health plans, resulting in much less negotiating power for buyers.

Other nations also conduct careful analyzes of how much additional benefit a new drug presents over drugs already on the market, and at what cost. If the cost is too high and the benefit too small, those countries are more willing to say no to a new drug.

“Our lack of negotiation consolidation is a key reason we pay more than other countries, but also this lack of willingness to negotiate so hard,” said Stacie Dusetzina, a health policy expert at the University’s School of Medicine. from Vanderbilt.

The Inflation Reduction Act, signed into law in 2022, authorized Medicare to negotiate directly with pharmaceutical companies on prices for a small number of drugs years after they enter the U.S. market. Health policy analysts say this is a start, but much broader negotiating authority is needed to lower drug prices overall.

Drug companies argue that higher prices come with an added benefit: Industry-funded analyzes have found that patients in the United States are getting drugs fasterand with fewer insurance restrictions than those in other countries.

Some countries Set limits on how much they will pay for medications. FranceFor example, it limits the sales growth of pharmaceutical companies: if sales exceed that threshold, the government gets a refund.

Pharmaceutical companies in the United States have avoided legal restrictions on prices for patients covered by commercial insurance and on introductory sticker prices when drugs first enter the market.

“Drugs are very expensive in the United States because we let them sit,” said Michelle Mello, a Stanford law and health policy professor. “We designed a system in terms of drug costs that is all motors, no brakes.”

Pharmaceutical companies aren’t the only ones making money from high drug costs. Doctors, hospitals and a host of middlemen also earn higher revenues when costs soar.

An example: Under Medicare policies for some drugs, doctors pay in advance for drugs they give patients intravenously in their offices, such as chemotherapy. To recover their costs, they bill Medicare for both the cost of the drug and a percentage of that cost, set by Medicare, to cover their overhead costs. That billing system creates an incentive for a doctor to choose a higher-priced drug. For example, a 6 percent Medicare rate on a $10,000 drug would pay $600, much more than the $6 fee paid for the infusion of a $100 drug.

Experts also see misaligned incentives arising from pharmacy benefit managers, or PBMs, large companies that negotiate with manufacturers on behalf of employers and health plans that pay most prescription drug bills.

PBMs make more money in fees from manufacturers when a drug’s sticker price is higher. They sometimes require patients to take a higher-priced medication even when a cheaper alternative is available.

Pharmaceutical industry executives often complain that they are unfairly blamed for high prices, while other parties, including PBMs and insurers, are profiting from an increasing share of drug spending and burdening consumers. patients with high out-of-pocket costs.

“The United States is the only country that allows middlemen, like PBMs, to profit from drugs without control,” said Alex Schriver, an official at Pharmaceutical Research and Manufacturers of America, or PhRMA, the pharmaceutical industry’s main lobbying group.

Manufacturers keep only half of the money healthcare payers initially spend on prescription drugs before discounts are applied, according to a study. study 2022 funded by PhRMA.

The system is so confusing that doctors and patients trying to decide between seemingly comparable medications have no easy way to determine what their actual cost will be at the pharmacy counter.

Even researchers have trouble analyzing the system—particularly the complex agreements made between drugmakers, middlemen, and insurers—as they try to identify problems and find solutions.

Around the world, countries grant patents to pharmaceutical companies that give them temporary monopolies during which lower-priced generic competitors cannot enter the market. But in the United States, pharmaceutical companies have been especially successful in finding ways to prolong that period of monopoly, using tactics such as piling up patents to protect inventions that are only tangentially related to the drug in question.

For example, pharmaceutical company AbbVie delayed competition for its blockbuster anti-inflammatory drug Humira for more than four years longer in the United States than in Europe. Patents were a key factor: Several AbbVie patent applications were rejected by European patent examiners or revoked after being challenged, report says analysis by the Medicines, Access and Knowledge Initiative, a nonprofit organization that tracks drug patents.

AbbVie declined to comment for this article.

Pharmaceutical industry executives often say that their prices reflect the value their products offer to society. For example, a $3 million one-time cure may be a bargain if it ends up avoiding $10 million in hospital bills and lost wages.

But a comparison with other valuable resources shows how that model could send prices out of control. “If we allowed water companies to charge us the full value of water in our lives, society would collapse very quickly,” said Christopher Morten, a pharmaceutical law expert at Columbia University.

Pharmaceutical companies also say drug prices reflect the huge and rising costs of conducting clinical trials and the need to recoup costly investments in failed drugs. But academics have discovered no relationship between what pharmaceutical companies spend on research and what they charge.

The reality, experts say, is that companies set their prices as high as the market will bear them.

Reed Abelson contributed reports.