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.

Senate committee works to understand balance between drug innovation, affordability

Drug pricing is a complex system in the United States, and costs vary significantly between different payers and consumers for a number of reasons, including rebates and discounts offered by manufacturers, drug patents, agreements with insurers, and changes from volume- to value-based payment systems. In a hearing before the U.S. Senate Committee on Health, Education, Labor & Pensions titled “The Cost of Prescription Drugs: How the Drug Delivery System Affects What Patients Pay,” experts testified about who pays for prescription drugs, and what that money pays for. In his opening statement, Committee Chair Sen. Lamar Alexander (R-Tenn) explained that this is the first of three planned hearings; the second hearing will consider the full drug delivery process and its associated costs, and the third hearing will focus on ensuring patient access to affordable drugs.

Dan Mendelson, President, Avalere Health, said in his testimony that consumer drug prices are “determined jointly by health system design, pharmaceutical company pricing, and decisions by health plans, pharmacy benefit management (PBM) practices, and other transactions involving distributors and pharmacies along the supply chain.” He explained that total costs often include payments for (1) the product; (2) services provided; (3) shipping; (4) rebates; (5) pharmacy reimbursement; and (6) costs associated with PBMs and third-party payers including reimbursement, share of rebates, and contractual obligations. Mendelson noted that most patients pay cost-sharing for prescription drugs based on list price, not net price, because many rebates are not shared directly with consumers. He added that the patient protections included in the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) led to payers increasing deductibles for consumers in order to offer lower monthly premiums. However, he said, the ACA’s cost-sharing reductions have allowed individuals using the health insurance exchange to pay less for drugs; Mendelson reminded committee members that the American Health Care Act (AHCA) (H.R. 1628) in its current form would repeal cost-sharing reductions.

Allan Coukell, Senior Director of Health Programs, Pew Charitable Trusts, testified that net pharmaceutical spending has increased 42 percent since 2006, but two-thirds of that growth has occurred in the past four years. He listed the following limitations on effective drug pricing competition:

  • monopoly pricing for new drugs;
  • lack of competition for some older drugs;
  • misaligned incentives and incomplete information for stakeholders, including payers, providers and patients at many points in the system, and
  • a historical willingness to cover new therapies without ensuring that their clinical benefits justify the price.

Coukell said that the cost of new medicines is rising, and that is largely responsible for increased drug spending—for example, high-cost specialty products, particularly biologics that are not used by many individuals, account for more than 40 percent of drug spending. He suggested that the 12 years of exclusivity granted to biologic manufacturers, particularly when compared with the five years that drug manufacturers get, is excessive.

Paul Howard, Ph. D., Senior Fellow and Director of Health Policy, Manhattan Institute, also spoke about the challenges involved with specialty medicines, such as those that treat hepatitis C, cystic fibrosis, and rheumatoid arthritis. He said noted that the vast majority of prescription drugs are “highly affordable,” and that the “outlook for innovation has never been brighter,” but mentioned the need for increased competition to reduce waste and ineffective care. Howard recommended that Congress “create incentives that reward providers who use medicines (both generic and branded) and technology to deliver care as efficiently as possible, while also empowering patients with the information they need to identify high quality providers.” He suggested changes to the 340B drug discount program, HHS and FDA coordination on safe harbors for innovative contractual arrangements, and broader Medicare, Medicaid, and patient-empowerment reforms.

Gerard Anderson, Ph.D., Professor of Medicine, Johns Hopkins University School of Medicine, also blamed high costs on specialty drugs and chronic conditions, but added that state and federal health care programs cannot afford to continue paying high prices for these expensive drugs for Medicare and Medicaid recipients, and are being forced to make “life or death decisions.” His recommendations are increasing competition and changing policies to increase access to pharmaceuticals, such as including drugs in bundled payments and accountable care organizations (ACOs) while eliminating rebates from PBMs and prescription drug plans. Anderson also recommended cracking down on abuse of orphan drug designations and allowing branded drugs to move to the generic market sooner. He suggested that negotiating drug prices, specifically by a single designated federal agency using existing authority under 28 U.S.C. §1498, and enacting price-gauging legislation.

Voters split on ACA, but most say Rx drug costs are unreasonable

The majority of Americans—including Democrats, Republicans, and independents—support several policy changes to control the cost of prescription drugs, according to a September 2016 Kaiser Family Foundation (KFF) Health Tracking Poll. The poll found, however, that Americans remain divided on whether the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) is working well, with 47 percent reporting an unfavorable view and 44 percent reporting a favorable one.

Drug costs

According to a KFF press release, the poll, taken between September 14 and 20, 2016, found that 77 percent of Americans view drug costs as unreasonable, up from 72 percent in an August 2015 poll, and only 21 percent seeing drug costs as reasonable. Despite these findings, the poll found that 73 percent of Americans say paying for their drugs is easy and 26 percent say it is difficult to pay for their drugs. The poll also found that the majority of Americans favor the following policies:

  • 82 percent favor allowing the federal government to negotiate with drug companies to get a lower price on medications for people on Medicare;
  • 78 percent favor limiting the amount drug companies can charge for high-cost drugs for illnesses like hepatitis or cancer;
  • 66 percent favor creating an independent group that oversees the pricing of prescription drugs;
  • 86 percent favor requiring drug companies to release information to the public on how they set drug prices; and
  • 71 percent favor allowing Americans to buy prescription drugs imported from Canada.

The poll, however, also found that only 47 percent of Americans favor eliminating drug advertisements and 42 percent favor encouraging people to buy lower cost drugs by requiring them to pay a higher share if they choose a similar, higher cost drug.

Views of the ACA

Not surprisingly, the poll found that a Democrats largely support the ACA, Republicans largely oppose it, and independents lean unfavorable. When asked if the health insurance marketplace in their own state is working well, 48 percent said it was, while 43 percent said it was not. However, when asked if the marketplaces were working well nationally, the percent responding no grew to 49 percent.

The poll also asked an interesting question regarding the public’s awareness of the uninsured rate under the ACA. When asked if the uninsured rate was at an all-time high or low, only 26 percent knew it was at an all-time low, while 21 percent thought it was at an all-time high. Thirty-eight percent of Democrats and those who thought favorably of the ACA were aware of that the uninured rate was at an all-time low. Only 17 percent of Republicans and those who thought unfavorably of the ACA were aware that the uninsured rate was at an all-time low. Twenty-seven percent of independents were aware that it was at an all-time low.

Voting factors

Finally, in polling completed after the first presidential debate, 67 percent of voters say the candidate’s plan to address the future of the ACA is very important. The percentage of voters who say the candidate’s plan to address the following factors is important to their vote is as follows:

  • the cost of health insurance premiums (60 percent);
  • the cost of health insurance deductibles (55 percent);
  • prescription drug prices (51 percent);
  • the number of uninsured Americans (43 percent);
  • the ongoing opioid epidemic (43 percent); and
  • the Zika virus outbreak (26 percent).

ACA has another good year with prescription drug savings and preventive care

Medicare beneficiaries continued to see savings as a result of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) in 2015. Since 2010, when the health law was enacted, almost 11 million Medicare beneficiaries have received discounts totaling over $20.8 billion on prescription drugs. Additionally, in 2015 an estimated 39.2 million people with Medicare took advantage of preventive services made possible through the ACA.

Prescription drugs

The ACA’s efforts to narrow Medicare Part D’s “donut hole” continued to show promise in 2015. The outlook is promising for plans to close the coverage gap by 2020. Under the ACA, individuals who are in the donut hole in 2016 will receive discounts of 55 percent on the cost of brand name drugs and 42 percent of the cost of generics. The total savings of the ACA’s measures to close the donut hole have saved an average of $1,945 per beneficiary since 2010. The impact of the discounts varies somewhat among the states, but, across the board, the results are significant.

Preventive services

The ACA also took steps to incentivize the use of preventive services by adding coverage of an annual wellness visit and eliminating coinsurance and the Part B deductible for certain Medicare preventive services, including many cancer screenings. While 39.2 million benefited from the increased access to preventive screenings in 2015, an increase from the previous year, another 9 million Medicare beneficiaries took advantage of the annual wellness visit in 2015.