Unaffordable Drugs: Simple Greed or a Complex Market?

Prescription drug prices are under the microscope again and the intense scrutiny is unlikely to fade anytime soon. That’s because those prices are hurting people who need the drugs. The prime example of unaffordable drugs is insulin. In the short time between 2012 and 2016 alone, costs of insulin almost doubled. Some patients who need it to stay alive face a choice of rationing it or losing all financial security. It’s not a pretty picture.

Simple explanations and solutions are buzzing around, but none have taken hold yet. Is it a simple problem of unchecked greed? Or an impossibly complex market where innovation comes at an unaffordable price?

Let’s look at a few of the factors that are feeding the problem.

1. Pricing Pressure

It’s a simple fact. U.S. Prices for prescription drugs are sky high compared to the rest of the world. For instance, consider Humira – an injection used for arthritis, psoriasis, and Crohn’s disease. In the U.S., a dose might cost $2,700. But in the U.K., it would only be half of that. In Switzerland, it would be even less – around $900.

The reason is simple, most other countries regulate or negotiate drug prices. The U.S. mostly does not.

2. Specialty Drugs

Complex specialty drugs for rare diseases are bringing some amazing medical advances. Hepatitis C is now curable because of these specialty drugs. Immunotherapy is bringing important advances for cancer care. But these specialty drugs are also bringing very high prices. The cure for hep C can cost nearly $100,000, for example. Highly targeted drugs for rare forms of obesity are on the way. Even more expensive million-dollar specialty drugs are on the way, says the Wall Street Journal.

No doubt, these are valuable drugs, but someone has to pay for them.

3. Pharmacy Benefit Managers

These middlemen negotiate rebates and discounts with pharmaceutical companies. As an incentive, they get to keep some of the discounts they negotiate. Lately, though, PBMs are getting a lot of blame for pushing list prices higher because that gives more room for rebates. Do PBMs bring bargaining power or a convoluted tool for greed?

4. Shifting More Costs to Patients

These and other factors are contributing to much higher out-of-pocket costs for patients. People who don’t have insurance often wind up paying inflated list prices. Health plans are increasing the co-pays that patients must bear – especially for high-priced specialty drugs.

And these out-of-pocket costs are dramatically higher in the U.S. For example, BBC reports that U.S. patients with diabetes pay an average of $360 per month for insulin and related supplies. In the U.K., it’s only $65 per month. It’s even less in Italy – $19 per month.

5. Innovation

Inevitably, this discussion comes around to the high cost of innovation. Right now, high U.S. drug costs are subsidizing innovation from which the whole world benefits. At a recent Senate hearing, AbbVie CEO Richard Gonzales raised the issue:

If a market the size of the U.S. were to collapse to the lower end of that pricing model, I can just tell you that AbbVie would not be able to invest in the level of R & D that it invests in today.

Is that an empty threat or just an economic fact? Maybe U.S. drug pricing does encourage innovation, but it might also facilitate greedy profiteering. How the industry would adapt to a realignment of global drug pricing remains an open question.

You can be sure that policymakers will push to find the answer. So you can be sure that some changes lie ahead, along with unintended consequences.

Reduce Greed Now, photograph © Chris Jones / flickr

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March 17, 2019