Rising Drug Costs
According to National Health Expenditure data, an estimated $333 billion was spent on prescription drugs in 2017, up from $236 billion in 2007—an increase of over 40%. Because of these inflated prices, many patients have found it necessary to skip medications or treatments, putting their lives at risk.
In a study conducted by Peterson-Kaiser, 24% of adults who take a prescription drug reported that they had difficulty affording their medication. Due to the increase in price of prescription drugs, affording good health has been considered a luxury.
For the 1 in 11 Americans diagnosed with diabetes, medical expenditures can reach up to $16,800 a year.
The American Diabetes Association released a report in March 2018 estimating that the total cost of diabetes and diabetes related issues in the United States has risen 26% in the last 5 years. Hospital inpatient care, prescription medications, anti-diabetic agents/diabetes supplies, and physician office visits are the largest components of medical expenditures. Indirect costs can include absenteeism, reduced productivity at work for the employed population, and the overall inability to work as a result of disease-related disability.
The price of Lantus, a brand-name insulin and a mainstay in treatment for diabetics, saw a 54% price increase in 2014 alone, even though it's been on the market at more reasonable costs for decades. Novolog, a similar product to Lantus, cost the consumer around $40 in 2001, however, as of July 2018, topped out at $289. About one in four people that suffer from diabetes reported rationing insulin because of the cost, and while a small amount of these patients were without insurance, the out-of-pocket expenses were still too costly for those that were insured.
There have been numerous accounts of people with type 1 diabetes dying of ketoacidosis simply because they couldn’t afford their insulin.
For those that can’t afford it, skipping or rationing insulin has become the new normal, but is detrimental to patient health and wellness. “It’s very shortsighted to skimp on insulin,” Kasia Lipska, an endocrinologist and diabetes researcher at Yale School of Medicine, remarks. “In the long term, it’s going to cost us much more.”
Poor glycemic control can lead to kidney failure, blindness, amputation, or a stroke. In the short term, patients who stop taking enough insulin can lapse into diabetic ketoacidosis, a condition where blood sugars get too high and the body’s blood becomes acidic. It can become fatal in just hours or a few days.
A recent article in the Washington Post details the tragically short life of Alec Smith, a 26-year-old from Minneapolis who lost his life because he couldn’t afford the insulin he needed to survive, due to its hefty price—more than $1200 a month—which was nearly his entire paycheck. Smith’s story is not an isolated case, either. A vibrant 22-year-old Antavia Worsham, like Smith, rationed her supply due to the high monthly price, costing her life. Shane Patrick Boyle died in March of 2018 because he was $50 short of reaching his GoFundMe goal of $750 to buy a month’s worth of insulin.
With a price tag of around $100K a year for new cancer drugs, hundreds of thousands of people are delaying care, cutting their pills in half, or skipping drug treatment entirely.
In a 2013 study on healthcare costs, one-quarter of all cancer patients make the decision not to fill a prescription because of the cost and 20% filled part of the prescription or took less than their prescribed amount.
Even with medicare, cancer patients can pay thousands of dollars out-of-pocket for lifesaving drugs. Revlimid, a medication for multiple myeloma and lymphoma can cost upwards of $11,000 a year. Gleevec, used by leukemia patients and for those with gastrointestinal stromal tumors, comes with a yearly cost of $8.5 thousand. Zytiga, a prostate cancer medication, can cost the patient more than $7,000 a year for a disease that, according to the American Cancer Society, affects 1 in 9 men, and is the second leading cause of death in American men.
The high cost of drugs isn’t saved exclusively for the most extreme illnesses. Several years ago, a second grade teacher from Texas died in the ICU days later after contracting the flu because the medication that was prescribed to her, Tamiflu, would have cost her $116, but she couldn’t afford it at the time and didn’t think her illness would affect her as drastically as it did.
Despite some efforts to reduce the rising costs of drugs, an Associated Press analysis discovered that during the first seven months of 2017 there were 96 price increases for every cut. The U.S. Drug Accountability Office has recently published an article stating that prescription pharmaceutical sales increased from roughly $500 billion to $700 billion between 2005 and 2015. Profits have risen almost 18% over the same time period. The trend in rising healthcare costs is becoming a real issue, and the need to keep it from continuing is great.
Understanding the Issues
The pharmaceutical business is unique, in that there isn’t a diverse market. A lack of competition within drug manufacturing ensures that prices can and will stay high. Based on a study in 2017, generic medication costs compared to the branded medication decreases noticeably when there are three or more manufacturers of the generic version, so getting more generics on the market is crucial for drug costs to stay at a lower price. However, it is quite expensive to develop new drugs. The estimated cost to get one drug to market successfully is now more than $2.8 billion, a 145% increase over the estimated cost in 2003, correcting for inflation. So while it is imperative that there is some competition in pharmaceuticals, it does come with a big price tag.
In addition to being expensive to develop, there are many name-brand medications that are patented. In 2016, Valent Pharmaceuticals—now going by the name Bauch Health—came under fire for purchasing Nitropress and Isuprel, heart medications that had cost $950 for a vial, and raising costs for the same volume to $27,000. The three giants of insulin manufacturing have even gone so far as to file a lawsuit to halt the development of generic bio-equivalents. This all occurred under the watchful eye of Congress and our government regulators. On top of the murky regulations surrounding pharmaceuticals, our current Medicare laws do not allow Medicare to negotiate drug prices which allows drug companies to demand nearly any price point that they think they can achieve.
Lack of transparency in the United States’ pharmaceutical world has been a point of contention for a long time.
Insurance companies often negotiate fixed-cost copays for patients and pharmacy benefit managers. Under the guise of providing "rebates" to patients, PBMs—in effect—push the cost of drugs higher in order to amass larger commissions. It is important to remember that these "rebates" benefit both insurance companies and drug makers, as well as PBMs, by allowing them to charge even higher prices, forcing the patients and taxpayers to ultimately to foot the bill. Patients remain unaware of what drugs actually cost and cannot negotiate price or treatment choice due to this lack of clarity in pricing.
“We’ve asked for transparency… and haven’t really got it,” Gerald Harmon, a former president of the American Medical Association, stated. “We have asked Congress to require manufacturers, PBMs and insurance plans to uncloak their pricing mechanisms.” Drugmakers say list price isn’t what patients actually pay due to various rebates, and PBMs say the drug companies are ultimately responsible for setting prices, so it seems that there is a bit of finger pointing within the current convoluted system.
There is talk of legislation regarding insurers passing along rebates directly to the customers at point of sale and proposals earlier this year include allowing patients on fixed incomes to buy less expensive drugs from other countries and/or permitting Medicare to negotiate prices for its 44 million recipients. Another bill was proposed in January to prevent drug companies from paying competitors to delay the introduction of lower priced generics, and another for capping out-of-pocket costs and to let the government manufacture generic drugs. Requiring biopharma companies to justify their high prices by disclosing how much they spend in research, manufacturing, and marketing is also in motion.
According to Dr. Christoph Bieri, a managing partner at Kurmann Partners AG, the pharmaceutical industry sees more merger and acquisition activity than any other industry. Including both the amount of money spent and number of deals. an estimated $100B was spent on mergers and acquisitions in the first half of 2018.
“Giant drug companies only care about one thing: raking in profits on the backs of patients. Mergers that mean more money for drug company CEOs while patients pay the price are not a solution to skyrocketing drug costs,” U.S. Senator Elizabeth Warren tweeted. While the country is divided in a slew of topics, not being able to afford medication is a bipartisan issue.
In one report, researchers used the wholesale acquisition cost data for more than 27,000 prescription drugs from First Databank, a company that collects prescription drug sales data and compared that data to claims data from the University of Pittsburgh Medical Center's health plan, a sample that mirrors the population as a whole. They then compared new and existing drugs and separated the data into brand-name, generic and specialty categories to come up with cost increase estimates. According to the study, prices for drugs of all types and from all classes (brand-name, specialty, generics/oral or injectable) have been rising faster than inflation over the study period, from 2008 to 2016, according to the review of wholesale prices for thousands of drugs.
When drug makers combine efforts and expand their drug portfolios, they have more bargaining power with PBMs and can set prices higher.
There is no transparency to these negotiations, and ultimately the costs are passed on to government, insurance payers, taxpayers and, unfortunately, patients as well.
The United States doesn’t directly regulate the cost of medicines, unlike other countries.
The 20 top-selling medicines are, on average, three times higher in the U.S. than in Britain. These drugs are a large source of profits for some of the top pharmaceutical companies. A representative of Pharmaceutical Research and Manufacturers of America stated in an interview that international comparisons are misleading because list prices aren’t taking discounts in to consideration, but similar discounts are offered to European buyers, like Britain’s National Health Service. In Britain, generics account for around three-quarters of prescriptions filled, while the U.S. is slower to see generic competition.
The objective is getting the prices lowered so that everybody can afford the drugs, but at the same time bringing enough money into the system—increasing the volume—so that pharmaceutical companies can continue to innovate.
What we hope is that if you cut the price by a factor of five, you'll get five times more people to take the drug. Then, essentially everybody benefits, and the drug company gets the same amount of money, but we get five times more people who get these drugs,” Gerard Anderson, a professor at Johns Hopkins University suggests when asked what alternatives he believes could fix the current drug pricing model. He continues, “We want to make sure that everybody gets access to drugs, and right now the market does not seem to guarantee good access to these expensive pharmaceuticals. So, I think we probably need some kind of government regulation to get us to a place where all of us have access.”
Demanding that there is transparency in pricing, and holding lawmakers, insurance companies, and pharmaceutical companies accountable for their actions are the steps that need to be taken so that drug costs fall. Being able to afford good health shouldn’t be a luxury, it should be a right.