The problem of high drug prices is widespread in the U.S. Six out of 10 Americans say they use a prescription drug, and 8 out of 10 Americans say drugs are unreasonably priced.
Andrew Mulcahy is a senior policy researcher at the RAND Corporation whose research focuses on prescription drugs and health care policy evaluation. He spoke to Scripps News about the scope of the problem compared to other, similar wealthy nations.
"The U.S. is one of the only countries in the world where drug companies can set whatever prices they like," Mulcahy said. "What we found in our study comparing U.S. drug prices to those in other countries is that even after controlling for negotiated discounts between manufacturers and health plans and the PBMs, U.S. prices are still about twice as high as those in other countries."
So, why is that the case?
"The problem boils down to several different important pieces: One of them is that drug companies are able to pile protections onto the drugs that they have, keeping competition out and keeping prices high," said Robin Feldman, a lawyer and professor at UC San Francisco's law school.
Feldman, a legal expert on pharmaceutical and intellectual property, spoke to Scripps News about those protections — things like drug patents that are put in place to protect intellectual property and encourage scientific innovation.
"Unfortunately, drug companies have become adept at piling new patents over and over again onto the same drug," she said. "It keeps competitors out, and it keeps drug prices high."
When drugs first come out, their primary patents last on average a little less than 10 years. But many pharmaceutical companies are able to re-up their patent protections with slightly different formulations once the original patents expire or are close to expiring. These can then be released with marketing and new patents around being "extra strength" or "slow release" versions of the original — tactics known as "product hopping" or "evergreening."
But, as Feldman said, that's all just one important piece of the puzzle.
"The second problem is that middle players, often called pharmacy benefit managers, are able to siphon off a lot of the costs from this system and also set secret deals that push health insurance companies to keep drugs on their formularies, on their reimbursement lists, even if those drugs are more expensive, and to favor them over the less expensive drugs," Feldman said. "Those types of perverse incentives push people towards paying more than they need."
That's how Big Pharma and middle players like insurance companies keep up skyrocketing prices. So, what's being done about them?
The Inflation Reduction Act of 2022 signed into law by President Biden in August last year includes several provisions to lower prescription drug costs for Americans, especially those with Medicare.
"The hope for the Inflation Reduction Act is that as Medicare goes, so goes the nation," Feldman said. "The idea is that perhaps these negotiations that happen in the context of Medicare will begin to influence the private drug markets to follow suit."
Over the next several years, the law hopes to reduce drug spending by the federal government through a few different ways:
- First, by requiring drugmakers to pay rebates if certain drug prices rise quicker than inflation. That's a provision that kicks in this year.
- In 2024, the law caps annual out-of-pocket spending at $2,000 and eliminates the 5% cost sharing that Americans on Medicare pay in the so-called "catastrophic" phase of coverage. That's expected to be a huge relief for folks on expensive brand-name drugs that reach this catastrophic level of coverage quickly and are stuck with thousands of dollars in bills through the rest of the year.
- Then by 2025, it hopes to add $2,000 to the out-of-pocket cap for seniors on Medicare, and the government plans to continue negotiating prices for drugs in the years after.
The legislation took shape during strong public support for the government to address rising drug costs but has been receiving pushback from the pharmaceutical industry and still has loopholes that are concerning many experts too.
For example, it doesn't cover drugs that have generic versions. Generics are typically way cheaper than brand-name formulas of any drug — unless the brand manipulates those prices itself to control profits by taking out its own "authorized" generic.
"They don't increase the total number of generics across time, and they triple the magnitude of the brand price increases that happen over time," Feldman said. "Each of the effects means that the market for generics is less effective."
The pharmaceutical industry's stronghold over the market means American families are paying the price, quite literally.
Most prescription drug prices increase in either January or July every year, with the greater chunk of those usually happen in January; according to data from the Department of Health and Human Services, the number of increases in both months during 2022 was higher than in previous years.
In January last year, the average list price increase was nearly $150 per drug or 10%, and in July 2022, it was $250 or 7.8%. More than 1,200 drug price rises outpaced inflation, with several drugs upping list prices by more than $20,000 — or by more than 500%.
Drugmakers already increased prices on more than 300 drugs this January. The Inflation Reduction Act, or IRA, aims to curb costs on just 10 of those drugs. These are likely going to be older but vital drugs that have had significant time as patented products on the drug market, not newer drugs.
"I think the IRA provisions have the potential to really help out in a subset of drugs where right now the U.S. is paying very high prices across the board without any kind of negotiated discounts," Mulcahy said. "That applies to oncology drugs, some other kinds of very expensive specialty drugs."
The exact decisions on drugs included for the Medicare Drug Price Negotiation Program isn't due until September 1, 2023, and while it's not exactly clear how the rollout of these provisions will play out, experts say legal challenges to these reforms are expected from Big Pharma.
"They fight intensely in the legislatures that are looking at passing them; then when the particular provisions passed, they are often challenged in court," Feldman said. "I wouldn't be surprised to see the pharmaceutical industry challenge various aspects of the Inflation Reduction Act in court in these years before everything goes fully into effect."