Matej Mikulic
Research expert covering health, pharma & medtech
In the United States, drug prices are a more hotly debated topic than in any other developed country. And this, of course, is no surprise. The U.S. alone generates nearly half of all global pharmaceutical revenues, derived largely from the high price tags on drugs. Namely branded, patent protected drugs reach very high prices in the U.S., often multiple times higher than in other comparable countries. Per capita spending on pharmaceuticals stands at approximately 1,400 U.S. dollars in the U.S., while it is distinctly below 900 dollars in neighboring Canada. Among comparable countries, the U.S. is also the country with the highest annual growth of drug prices.
So, what is the reason for this?
There is no single reason to explain the drug pricing ‘issue’ in the United States. Instead, it is a mix of several factors that lead to the U.S. being the ‘cash cow’ for the pharmaceutical industry. However, the fact that there is no fully integrated universal health coverage in the U.S., is among the biggest reasons. Whereas in Canada or in the United Kingdom a governmental body negotiates with pharmaceutical players to slow down prices or just skip too expensive drugs all together, the drug manufacturers in the U.S. negotiate – more or less – directly with the market. Thus, pharmaceutical companies in the U.S. tend towards setting drug prices to the very maximum that the market can bear. Although some politicians and large parts of the U.S. public agree that there should be more governmental negotiation power, Congress has so far been unable to pass adequate legislation.More generics could be a solution, but…
Generics, copies of brand-name drugs, with the same active ingredients, safety, and efficacy level, help to significantly decrease drug prices, and thus drug spending. However, the U.S. is well-known for the fact that drug manufacturers of branded products have several instruments to delay market entries of generics. One of these instruments are the so-called “pay-for-delay” settlements, by which the patent-holding company pays the generic manufacturer good money to not enter the market with a generic drug. For patent-holders this still makes sense, because a drug’s price drops to only 50% of the original price once two generics enter the market. If more generics enter the market, prices can drop even far lower. Thus, we have a situation where the interests of the patent holder are opposed to the interests of patients and payers.There are also other factors
The U.S. is the world’s leading hub for life sciences, including pharmaceutical and biotechnology companies. Even many non-American companies have their core business in the United States, R&D investments are very high, and large parts of key research is done here. This leads to the fact that U.S. consumers have the fastest and largest access to new drugs worldwide, which then comes with a high price. U.S. companies also state that they are doing most of the research and that R&D costs for developing a new drug, including the cost of failures, are between two and three billion U.S. dollars. The argument here is that only the market of the world’s strongest economy can bear these costs – through higher drug prices. On the other side, critics argue that R&D costs are in fact only a small fraction of pharma companies’ costs and that actually much more money is spent, for example, on marketing and administration.What do Americans think about drug prices?
Almost two thirds of American adults are taking at least one prescription drug. It’s interesting that, according to recent surveys, around 70 percent of those say that affording them is not a problem, although 83 percent of all Americans think that prescription drug costs are unreasonably high. When looking at those who have problems affording their medicines, persons who use multiple drugs, persons with serious conditions, and persons from households with a lower income are most affected. Nearly three out of ten prescription drug users stated that they haven’t taken their medication as prescribed due to cost reasons. An overwhelming majority of Americans support actions against high drug costs and are especially in favor of making it easier for generics to enter the market. Since not only drug prices themselves, but also their annual growth rates, are a huge problem, Americans would also like to see annual price growth bound to the inflation rate, as a maximum. As it was discovered for 2019-2020, half of all drugs covered by Medicare had price increases above the inflation rate. Within Medicare Part D, 23 of the 25 top spending drugs saw an increase above the rate of inflation.
