Why does the US pay more for prescription drugs than any other country? Monopolies and a government that can't negotiate, scientists said in a paper that may provide ammunition for lawmakers aiming to lower drug costs.
Researchers from Harvard Medical School dug through medical and health policy papers published in the last 10 years to figure out why people in the US spent almost twice as much on prescription drugs in 2013 compared to 19 other industrialized nations — and why prices are still going up. They found that FDA regulations and patents protect drug companies from competition, and federal law prevents Medicare from negotiating drug prices. All of which work together to allow drug companies to set their own prices, according to a special communication published today in the Journal of the American Medical Association.
Unreasonably high drug prices have been in the news lately. Just yesterday, STAT reported that senator Amy Klobuchar called for an investigation into the pharmaceutical company Mylan, which jacked up prices for the EpiPen injection that fights life-threatening allergic reactions. And Amphastar, the makers of a widely used antidote for opioid overdoses, came under fire when they hiked prices after former Massachusetts governor Deval Patrick declared the opioid epidemic a public health emergency. Pharma bro Martin Shkreli became the smirking poster child for pharmaceutical price gouging when his company, Turing Pharmaceuticals, upped the price of a 63-year-old drug for the parasite toxoplasmosis by 5,500 percent.
"He was one of the major stories in the last year that’s brought attention to this issue, but it’s been the case that high drug prices and their effects on patient care have been an issue for a long time," says the study’s lead author Aaron Kesselheim, a professor at Harvard Medical School and the director of Harvard’s Program on Regulation, Therapeutics, and Law. They’re an issue because when people can’t afford a medication, they stop taking it. Sales of Turing Pharmaceuticals’ toxoplasmosis drug plummeted from 25,000 pills to just 600 after the price change.
Kesselheim and his colleagues propose a number of solutions. Those include giving Medicare the power to negotiate prices, as well as removing some of the regulations that keep generics from speedily entering the market. The authors also suggest educating payers, providers, and patients about how effective competing treatments are, and having pharmacies automatically substitute cheaper generic drugs for pricey brand name prescriptions. All these potential solutions suggest there probably isn’t a one-size-fits-all fix for sky-high drug costs.
One source of high drug prices the authors discuss is that Medicare, which pays 29 percent of the money spent on prescription drugs in the US, can’t negotiate with drug companies. In other countries with nationalized health care systems like the UK, government organizations negotiate prices and coverage of drugs based on how effective they are compared to other, similar treatments. But when the Medicare Modernization Act of 2003 established prescription drug benefits in the US, the law also prohibited the Department of Health and Human Services from getting involved in price bargaining.(Individual prescription drug plans within Medicare can negotiate, and see lower drug prices as a result, according to a working paper for the National Bureau of Economics Research.)
"It’s kind of a silly thing, but there’s a lot of legislation that doesn’t allow them to do that," says Richard Scheffler, a health economist at the University of California, Berkeley who was not involved in this paper. "That one change would be enormously helpful in moderating the increase in pharmaceutical prices."
But Kesselheim thinks allowing Medicare to negotiate is small potatoes compared to making sure there’s competition in the pharmaceutical marketplace.
The JAMA paper describes two forms of legal protection that give brand name pharmaceuticals an effective monopoly. The first is exclusivity granted by the FDA that gives new small molecule drugs (like aspirin) and biologics (such as antibody or protein drugs) windows of five to seven years and 12 years, respectively, before generic versions can be sold. And patents can protect the active ingredient and chemical structure of a drug — as well as less fundamental aspects like its formulation and coating — for 20 years or more. Generic manufacturers can sue to challenge these patents, but in a practice called pay for delay, big name pharma companies settle the suits and pay generics manufacturers to wait it out until the patent expires.
It costs a lot of money to bring a drug to market
"I would think that the priority efforts on the government side should be focused on making markets more competitive," says Pinar Karaca-Mandic, a public health and health economics investigator at the University of Minnesota. She adds that the Biologics Price Competition and Innovation Act that speeds licensing for biologic drugs similar to those that already exist was a step in the right direction. But so far, it’s only led to approval for two drugs in the last five years.
The argument for keeping the regulatory and patent protections in place is that it costs a lot of money to bring a drug to market — $2.6 billion dollars, according to a 2014 estimate by the Tufts Center for the Study of Drug Development that The New York Times warns to take with a grain of salt. (Other estimates range from from $161 million to $1.8 billion in 2009 dollars, the Times reports.)
Kesselheim says that the high cost of developing drugs makes exclusivity important — to a point. "I think that in some cases market exclusivity can run too long, or that it can be applied in similar fashion to innovative products and also non-innovative products," he says. He and his colleagues propose to limit patents secondary to the initial one issued for the drug’s main ingredient.
But Darius Lakdawalla, a professor studying health care economics and risk at the University of Southern California, argues in a 2015 editorial for the New York Times that any changes that wind up cutting drug prices would kill innovation — a risk that outweighs any penny-pinching benefit. Harvard’s Kesselheim notes that there’s evidence that lot of the innovation that goes into new drug development actually happens in academia and government laboratories. "I don’t think that heading towards a more rational drug price system would necessarily reduce innovation as long as you enhance public funding of science," he says.
Scheffler adds, "You’re not picking on an industry that’s bordering on going out of business."
Along those lines, Klobuchar—the senator who called for an investigation into EpiPen price hikes — is co-sponsoring several bills that could, if they passed, help increase competition in the pharmaceutical marketplace by enabling Medicare price negotiation, allowing patients to import pharmaceuticals from Canada, and preventing pharmaceutical companies from blocking generics entering the marketplace.
Ben Handel, a healthcare economist from UC Berkeley, adds that strategies for cutting costs don’t need to be limited to just drugs: "Those things could be applied to the health sector overall," he says. "I view this as crucial for the long term thinking about how are we’re going to keep costs in check."