Drug Pricing in America

The National Academies of Science, Engineering and Medicine recently released a report on drug pricing.  They also touch on drug shortages. They conclude with Overall sales of biopharmaceuticals globally is over $900 million.  The US accounts for 46% of these revenues.  The next most important region is Europe that accounts for only 21%. Americans spend 30-70% more on drugs on a per capita than other developed countries. 

In one of the most ironic observations for me, the report notes that the median monthly cost of cancer drugs at the time of FDA approval increased from approximately $1,500 in 1965 to $150,000 in 2016, stated in constant 2014 dollars…. The complexity of these issues is noted in one study that found that the average price of an episode of treatment using anti-cancer drugs is $65,900 and results in an average survival benefit of 0.46 years (not quality-adjusted). At the same time, the antibiotics market, for drugs that actually save lives, has withered.

Why is this true, what should we do about it and what are the potential consequences of our decisions? The National Academies report delves into this subject in detail and with gust. They provide a number of key recommendations falling under eight general categories.  But – there is little new here and there is nothing we haven’t known for years.  When I was working at Wyeth in the 1990s, the US accounted for 55% of global pharmaceutical sales and profits far outstripping the contributions of other regions.  The reason was and remains the drug pricing structure in the US.  We remain one of the few nations in the world that has no national negotiation for drug pricing. Every time this topic would come up back then (and even now), the industry would cry that any change that reduced their ability to charge higher prices would have an effect on innovation.  And that might be true.  The industry supports its research and development with its profits – usually plowing 10-20% of profits back into research. In this sense, many would argue that the US is subsidizing pharmaceutical research for the rest of the world. If the US were to become like other countries with a more rational approach to negotiation for drug pricing, these revenues would fall. Therefore, research dollars would also likely decline. Why, you might ask, would other countries not pick up the slack? Are you kidding? That seems unlikely to me. But national negotiations for drug pricing is one of the top recommendations by the Academies.

Another key recommendation is to speed generic entry where drug prices can fall as much as 80% or more. At the same time, the loss of competition among generic manufacturers through mergers and other agreements has led to dramatic increases in generic drug prices over time. An overwhelmed FDA has been slow to approve generics – another area that could use improvement – as in more resources.

Drug shortages is a complex problem with multiple causes none of which seem to be the major cause. I refer you to the report for more details here.

The key recommendations from the Academies are listed below.

Recommendation A: Accelerate the market entry and use of safe and effective generics as well as biosimilars, and foster competition to ensure the continued affordability and availability of these products.

Recommendation B: Consolidate and apply governmental purchasing power, strengthen formulary design, and improve drug valuation methods.

Recommendation C: Assure greater transparency of financial flows and profit margins in the biopharmaceutical supply chain.

Recommendation D: Promote the adoption of industry codes of conduct, and discourage direct-to-consumer advertising of prescription drugs as well as direct financial incentives for patients. (I have always hated direct-to-consumer advertising).

Recommendation E: Modify insurance benefits designs to mitigate prescription drug cost burdens for patients.

Recommendation F: Eliminate misapplication of funds and inefficiencies in federal discount programs that are intended to aid vulnerable populations.

Recommendation G: Ensure that financial incentives for the prevention and treatment of rare diseases are not extended to widely sold drugs.

Recommendation H: Increase available information and implement reimbursement incentives to more closely align prescribing practices of clinicians with treatment value.