Economy

Six reasons why drug prices are so high in the United States

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Florida’s plan to save money by 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 shown that drug prices in the United States are significantly higher. upper than those of other rich countries. In 2018, they were almost double those of France and Britain, even taking into account reductions that can significantly reduce the amounts paid by U.S. health plans and employers.

“The U.S. market is the bank for drug companies,” said Ameet Sarpatwari, a drug policy expert at Harvard Medical School. “There is a strong feeling that the best place to try to make a profit is the United States, because of its existing system and its dysfunctions.”

Here are six reasons why drugs are so expensive in the United States:

Other wealthy countries rely on a single negotiating body — usually the government — to decide whether to accept the price a drug company wants to charge. In the United States, negotiations with drug manufacturers are spread across tens of thousands of health plans, significantly reducing buyers’ bargaining power.

Other countries also conduct careful analyzes of what additional benefits a new drug has over drugs already on the market – and at what price. If the cost is too high and the benefits too low, these countries will be more likely to say no to a new drug.

“Our lack of consolidation in negotiations is one of the main reasons we pay more than other countries – but also this reluctance to negotiate as hard,” said Stacie Dusetzina, a health policy expert at the Faculty of Medicine. Medicine from Vanderbilt University.

The Inflation Reduction Act, signed into law in 2022, allowed Medicare to negotiate directly with pharmaceutical companies on prices for a small number of drugs years after they entered the U.S. market. Health policy analysts say it’s a start, but much broader bargaining power is needed to reduce drug prices overall.

Drug companies say the higher prices come with added benefits: Industry-funded analyzes have found that patients in the United States are getting the 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, caps the sales growth of pharmaceutical companies: if sales exceed this threshold, the government gets a rebate.

Pharmaceutical companies in the United States have avoided legal restrictions on prices for commercially insured patients and on introductory drug prices when drugs first enter the market.

“Drugs are so expensive in the United States because we let them,” said Michelle Mello, a professor of health law and policy at Stanford. “We have designed a system in terms of drug costs that is all engines and not brakes.”

Pharmaceutical companies aren’t the only ones making money from the high cost of drugs. Doctors, hospitals and many middlemen also see their revenues increase when costs skyrocket.

A typical example: Under Medicare policies for certain drugs, doctors pay upfront for medications they administer to patients intravenously in their office, such as chemotherapy. To recover their costs, they send a bill to Medicare showing both the cost of the drug and a percentage of that cost, set by Medicare, to cover their overhead costs. This billing system encourages the doctor to choose a more expensive drug. For example, a 6% Medicare rate on a $10,000 drug would yield $600, far more than the $6 paid for the infusion of a $100 drug.

Experts also see misaligned incentives coming 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 the price of a drug is higher. They sometimes require patients to take a drug with a higher price, 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, profit from a growing share of drug spending and sadden patients with high personal expenses.

“The United States is the only country that allows middlemen, such as PBMs, to profit from uncontrolled drugs,” said Alex Schriver, head of Pharmaceutical Research and Manufacturers of America, or PhRMA, the leading pharmaceutical group. pressure from the pharmaceutical industry.

Manufacturers keep only half of the money health care payers initially spend on prescription drugs before discounts are applied, a study finds. Study 2022 funded by PhRMA.

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

Even researchers struggle to analyze the system — especially the complex deals between drugmakers, middlemen and insurers — when trying to identify problems and find solutions.

Countries around the world issue patents to pharmaceutical companies that grant them temporary monopolies during which cheaper generic competitors cannot enter the market. But in the United States, pharmaceutical companies have been particularly successful in finding ways to extend this period of monopoly, through tactics such as accumulating 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 Humira in the United States by more than four years compared to Europe. Patents played a key role: a number of AbbVie’s patent applications were refused by European patent examiners or revoked after being challenged, according to a analysis by the Initiative for Medicines, Access and Knowledge, a nonprofit organization that tracks pharmaceutical patents.

AbbVie declined to comment for this article.

Pharmaceutical industry executives often claim that their prices reflect the value their products bring to society. For example, a one-time $3 million treatment may be a good deal if it saves $10 million in hospital bills and lost wages.

But a comparison with other valuable resources shows how this model could drive prices out of control. “If we allowed utilities to charge us the full value of the 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 growing costs of clinical trials and the need to recoup costly investments in failed drugs. But academics have discovered no relationship between how much pharmaceutical companies spend on research and how much they charge.

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

Reed Abelson contributed reporting.