Drug Prices Set on ‘What Market Will Bear’: Study
Harvard Medical School researchers Arnold Kesselheim, Jerry Avorn, and Arneet Sarpatwarni say that prescription drugs are priced in the U.S. “primarily on the basis of what the market will bear.” Writing in a Journal of the American Medical Association Special Communication (subscription required), the three say that the much higher cost for drugs in the U.S. compared to other countries relates primarily to grants of market exclusivity built into the regulatory system.
The study examined peer-reviewed medical health and policy literature from 1/2005 to 7/2016 for articles addressing the sources of drug prices in the U.S., the justifications and consequences of high prices, and possible solutions. The researchers found that per capita prescription drug spending in the U.S. exceeds that in all other countries. In 2013, per capita spending on prescription drugs in the U.S. was $858, compared with an average of $400 for 19 other industrialized nations. They say that prescription drug prices have increased in recent years at rates far exceeding the consumer price index.
“The most important factor that allows manufacturers to set high drug prices is market exclusivity,” the report says, “protected by monopoly rights awarded upon FDA approval and by patents. The availability of generic drugs after the exclusivity period is the main means of reducing prices in the U.S., but access to them may be delayed by numerous business and legal strategies. The primary counterweight against excessive pricing during market exclusivity is the negotiating power of the payer, which is currently constrained by several factors, including the requirement that most government drug payment plans cover nearly all products. Another key contributor to drug spending is physician prescribing choices when comparable alternatives are available at different costs.”
The researchers shoot down the widely-held notion that there is a correlation between high drug prices and research and development costs for new drugs, saying there is “no evidence of an association between research and development costs and prices.” They cite several reasons for their conclusion, including the fact that much research is conducted in government and academic settings and that the biopharmaceutical industry has been financially strong in the U.S. for many years.
In the article’s conclusion, the authors say that high drug prices are the result of the increasing cost and complexity of drug development but also arise in large part from the approach the U.S. has taken to the granting of government protected monopolies to drug manufacturers, combined with restriction of price negotiation at a level not observed in other industrialized nations.
“Opportunities to address these problems,” they say, “include paying greater attention to potentially unjustified granting and extension of patent exclusivity, enhancing competition by ensuring timely generic availability, providing greater opportunities for price negotiation by government payers, generating more evidence about comparative cost-effectiveness of therapeutic alternatives, and actively educating physicians and patients about such choices to promote more value-based decision making. 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. Medications are the most common health care intervention and can have a major benefit on the health of individuals, as well as of populations, but unnecessarily high prices limit the ability of patients and healthcare systems to benefit fully from these vital products.”