Prescription drug spending in U.S. among highest worldwide

Prescription drug spending in the United States exceeds spending in nine other high income countries, with generic drugs comprising 84 percent of the total pharmaceutical market. Besides the U.S., a Commonwealth Fund issue brief looked at prescription drug spending in Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom.

Prescription drug spending in U.S. increases in 1990s

According to the Commonwealth Fund review, spending on prescriptions drugs increased substantially in the mid-1990s due largely to the growth of the pharmaceutical industry. For instance, FDA approved drugs were at an all-time high and sales of cancer drugs increased. Additionally, drug spending increased due to the expansion of federal programs such as the Children’s Health Insurance Program, Medicaid, and Medicare.

Prescription drug spending increased by 20 percent over a period of two years during the mid-2000s. The growth was primarily due to introducing many expensive specialty drugs to treat hepatitis C, cystic fibrosis and other conditions. Passage of the Affordable Care Act likely led to such increases as well. U.S. spending on pharmaceuticals surpassed $1,000 per person in 2015 and was 30 percent to 190 percent higher than in the nine other countries. The next countries, behind the U.S., in spending in 2015 were Switzerland with $783, Germany with $686, and Canada with $669.

Reasons U.S. spending on prescription drugs is so high

The Commonwealth Fund offered possible reasons to explain why the U.S. spends so much on prescription drugs, including country population and volume of drugs consumed, drug utilization per person, type and mix of drugs consumed (e.g., generics versus brand-name drugs), and prices at which drugs are sold.

Although the U.S. population is ranked among the largest and has the highest prescription drug spending as a country, spending per capita remains much higher in the U.S. than that of other countries. Higher per person spending is not due to the large population of the U.S., however.

The impact of generic prescription drugs

Generic drugs make up 84 percent of the total U.S. pharmaceutical market, which is a larger share than in all other countries, excluding the U.K., which is tied with the U.S. with 84 percent. Followed by the U.S. are Germany with 81 percent, Netherlands with 71 percent and Canada with 70 percent of the share of generic prescription drugs. Lower prescription drug prices in the other countries reflect more centralized processes for obtaining pharmaceuticals and setting coverage.

Conclusion. Price continues to play a primary factor in the high prices associated with prescription drugs in the U.S. The reasons can be attributed to the fragmented nature of health care delivery and payment, as well as separate negotiation arrangements between drug manufacturers and payers and complicated arrangements for federal and state health programs. Also, the U.S., unlike other countries, allows for greater latitude for monopoly pricing of brand name drugs.

Unit prices for drugs rising rapidly; more competition needed

Drug costs for hospital inpatients increased more than 38 percent per admission between 2013 and 2015, with unit pricing increasing both low- and high-volume branded and generic drugs, according to a report by the University of Chicago commissioned by the American Hospital Association (AHA) and the Federation of American Hospitals (FAH). Almost half of the drugs evaluated for the study had no generic competition.

The researchers conducted a survey of all U.S. community hospitals and analyzed the results of 712 that responded. Additionally, two group purchasing organization (GPOs) representing more than 1,400 community hospital contributed price and spending data on a subset of drugs to the study. Of the drugs sampled, many were high-volume drugs, and in most cases the drugs were not new entrants into the market.

Increases in unit prices outpace Medicare reimbursement

Between fiscal years 2013 and 2015, annual inpatient drug spending saw an increase of 23.4 percent on average—a per-admission increase of 38.7 percent. More than 90 percent of the hospitals involved in the study reported that the price increases had a moderate or severe effect on the ability to manage the cost of patient care overall; one-third reported that the effect was severe. Growth of the unit prices for drugs, and not volume, was the primary cause of the increase in drug spending. The report noted that, because of delays in updating the pharmaceutical index, Medicare reimbursement cannot keep up with the rapid rise in drug prices, and the method of reimbursement for hospitals—based on a single prospective amount for all non-physician services—compounds the impact of rising drug costs. In these cases, hospitals must absorb the excess costs.

AHA’s recommendations

To address these issues, the AHA recommends an increase in generic competition, improved transparency, the adoption of a value-based payment model for drug purchasing, increased access to needed drugs, and the alignment of incentives toward high value. With the goal of increasing generic competition, the federal government should appropriate additional resources to the FDA to process new drug applications and consider fast-tracking generic applications when no or limited generic competition exists. The AHA also recommends deeming pay-for-delay tactics presumptively illegal. Additionally, the lack of information available regarding drug pricing challenges payers’ abilities to make decisions regarding coverage and pricing. To address the issue, the AHA suggests increasing disclosure requirements related to drug pricing, research, and development at the time of application. Consumer- and provider-facing reports on drug pricing would help providers and consumers to make informed decisions.

The AHA argues that a value-based payment model for drug purchasing, under which payment varies for a drug based on clinical effectiveness for the indications for which it has been approved, would help drugs become more affordable for patients and providers. Thus, a comparative effectiveness evidence base would be critical to supporting providers in making care decisions. To improve access to needed drugs, the AHA recommends that the government allow providers and patients to reimport drugs that were manufactured in the U.S. and sent to other countries for sale and distribution and require mandatory, inflation-based rebates for Medicare drugs. Finally, the AHA argues aligning incentives toward high value by implementing stricter requirements on direct-to-consumer advertising, removing tax incentives for drug promotion activities, and developing prescriber education and clinical decision support tools.

An impossible course: navigating the generic drug label delay

In May 2016, the FDA put off until 2017 a decision about a Final rule that would allow generic drug companies to update their labels with new safety information similar to their reference product counterparts. This marks the third time since the FDA proposed the rule that it has been shelved in the face of opposition from the pharmaceutical industry and some lawmakers. The delay, with major ramifications for consumers and industry alike, was initially discovered in an update to a timetable for the rule and officially appeared in a Federal Register Notice in mid-June. The development dismayed consumer groups and representatives for trial lawyers, who had urged the agency to close a legal loophole that prevents patients harmed by generic drugs from suing manufacturers.

Unlike brand-name drug makers, generic drug makers are not permitted to make changes to a drug’s label without the FDA’s approval unless the brand name drug maker makes the label change first. Instead, generic drug makers must wait for the FDA to order them to change their label. Since the passage of the Drug Price Competition and Patent Term Restoration Act (P.L. 98-417) in 1984, known as the Hatch-Waxman Act, the FDA has approved over 8,000 generic drugs. The Hatch-Waxman Act provides an expedited approval process for generic drugs that have an identical reference listed drug (RLD). As a result, nearly nine in 10 prescriptions filled today in the U.S. are for generic drugs, yet only account for 28 percent of drug expenditures.

Two Supreme Court decisions have helped to establish the conflicting division faced by patients and drug makers regarding drug label. Under the federal Food, Drug, and Cosmetic Act (FDC Act) and the subsequent Hatch-Waxman Act amendments, a generic drug company “may not unilaterally change its labeling or change its design or formulation and cannot be required to exit the market or accept state tort liability.” Consequently, a state law is preempted in the event a generic drug manufacturer must take one of the aforementioned actions to comply with a state law duty. Thus, patients taking a generic prescription drug are unable to recover for alleged injuries from either the brand name or generic drug maker. The brand name drug maker is not liable because it did not sell the drug directly to the patient and the generic drug maker faces the “impossibility” of providing updates to the drug label without direction from the brand name drug maker.

This White Paper provides an overview of the laws and regulations establishing the foundation of drug labels. The White Paper will also discuss the impact of the Supreme Court decisions on consumers’ ability to sue a drug maker for its drug labels. Finally, this White Paper examines whether industry pressure or consumer sentiment will carry the day. As the public service announcement from the FDA attests, it may be difficult to get generic drug approval, but as follows in this White Paper, generic drug makers are also harder to sue.

Read further: “An impossible course: navigating the generic drug label delay.”

Mylan and Congress agree: the epinephrine auto-injector market needs a generic

Lawmakers are concerned about a lack of generic competition in the epinephrine auto-injector market after news broke that the cost of the EpiPen® auto-injector increased over 400 percent since the product’s manufacturer—Mylan—purchased the allergy medication device in 2007. Members of the House Committee on Energy and Commerce sent a letter to FDA Commissioner Robert Califf, on August 29, 2016, seeking answers to questions regarding the FDA’s prioritization and review of competitor products for EpiPen, inquiring specifically as to the agency’s review of abbreviated new drug applications (ANDAs) for generic epinephrine auto-injectors. On the same day, Mylan announced the release of its own generic EpiPen® Auto-Injector, which the manufacturer plans to sell for $300—a 50 percent discount off of its branded product.

EpiPen

The EpiPen is the primary epinephrine auto-injector available in the U.S. for the emergency treatment of life-threatening allergic reactions. In 2007 when Mylan acquired the drug-device combination, the list price for a single EpiPen was $57. The list price for the Epi-Pen 2-Pak® is now $608 (see Mylan attempts to mitigate EpiPen® cost hike controversy, Health Law Daily, August 25, 2016). When news of the price hike spread, Mylan announced it would double eligibility for its patient-access program. The manufacturer is attempting to further increase access through its generic product. With the release of a generic EpiPen, Mylan is offering a product identical to the branded product in terms of functionality and drug formulation. Mylan expects to release the product in several weeks, after labeling revisions are finalized.

Letter

The letter from lawmakers to the FDA raises concerns that federal laws and regulations are not adequately tailored to promote a competitive prescription drug market—a fact made apparent by the Mylan EpiPen controversy. The letter asked the FDA Commissioner to answer: (1) how many ANDAs have been submitted to the FDA relying on Mylan’s EpiPen?; (2) has the FDA prioritized review of those ANDAs?; (3) what are the factors the FDA considers when deciding whether to approve an ANDA which references a drug-device combination like EpiPen?; and (4) has the agency issued any guidance documents that would be of interest to a company seeking approval of a generic epinephrine auto-injector?