Study links high U.S. drug costs to lack of price negotiations

epipen-photoStaff photo

Drug costs for Americans continue to climb. Latest example: the $600 EpiPen.  And a study published in the Journal of the American Medical Association pins the blame squarely on the way the U.S. deals with drug manufacturers.

Researchers at Brigham and Women’s Hospital and Harvard Medical School say it’s all about market exclusivity.  Once the Food and Drug Administration approves a drug and it’s patented the drug’s manufacturer is the only company allowed to sell it. The price of that drug will rise as high as the demand for it will allow.  Once a drug’s patent expires lower-cost generic drugs should then become available.  However, the report notes that the availability of a generic can be delayed by numerous business and legal strategies.

No negotiating drug price in the U.S.

The study rep0rts that drug costs are higher in the United States than in the rest of the industrialized world because drug insurance providers can’t negotiate the price of the drugs their policies.  In countries that have national health insurance systems, on the other hand, the government negotiates drug prices.  If the price is deemed too high either the manufacturer lowers the price or the government rejects coverage for that drug.

The researchers say the ability to keep a lid on these prices is also limited because most government drug payment plans require that nearly all drugs be covered.  Also, doctors often prescribe high cost drugs when there are lower costing alternatives.

High drug prices linked to brand names

Brand-name drugs comprise only 10% of all dispensed prescriptions in the United States, say the researchers, but they account for 72% of drug spending.  Drug manufacturers frequently argue that the high cost of their drugs are justified by the high cost of their research and development.  However, the researchers report they can find no evidence of an association between R&D costs and the selling price of a drug.

Steps to lower drug costs

The Brigham and Women’s Hospital researchers suggest that several things can be done to lower prescription drug prices:

  • Enforce more stringent requirements for the award and extension of exclusivity rights
  • Enhancing competition by making sure generic drugs are available sooner
  • Provide more opportunities for meaningful price negotiation by government drug plans
  • Provide more evidence about cost-effective alternative therapies and do a better job of educating patients, prescribers, payers, and policy makers about these choices

Dr. Aaron Kesselheim and his colleagues reviewed medical and health policy literature from January 2005 to July 2016 for articles addressing the sources of drug prices in the United States, the justifications and consequences of high prices, and possible solutions.  They conclude: “There is little evidence that such policies would hamper innovation, and they could even drive the development of more valuable new therapies rather than rewarding the persistence of older ones.”


About the Author

Ed Tobias
Ed Tobias brings more than four decades of reporting and news management experience to his work at Rx411. Tobias managed news coverage for Associated Press Radio for over twenty years. This included coverage of the 9/11 attacks, the Iraq War, Hurricane Katrina, the death of Princess Diana, the Challenger and Columbia shuttle disasters and national election primaries, conventions and campaigns. He was part of the team that built AP’s on-line video operation. Prior to joining AP, Tobias was News Director at all-news WTOP in Washington, D.C.