US Drug Prices Remain High Without Generic Competitors, Study Finds

Study breaks down high U.S. drug pricing.

ByABC News
August 23, 2016, 4:21 PM

— -- High prescription drug prices in the United States are largely due to drug monopolies and restrictions on price negotiations, according to a new study from Brigham and Women's Hospital and Harvard Medical School.

The review, published today in Journal of American Medical Association, focused on understanding why U.S. drug costs are so high compared to other industrialized countries. The study authors reviewed medical and health policy literature from January 2005 to July 2016, looking at articles addressing the source, justification and consequences of drug prices in the U.S.

Researchers looked at drug costs in the U.S. and found that per capita, U.S. drug spending dwarfed other industrialized countries. Spending per capita on prescription drugs in 2013 was on average $858, which was more than double that of 19 other industrialized nations.

They found the most important factor that permits high drug pricing is “market exclusivity,” related to patents and “monopoly rights” for new drugs. This means a new drug will not be threatened on the marketplace by a generic drug for a set amount of time.

“This research was pulling together lots of strands in one overall review,” Dr. Aaron Kesselheim, study author and associate professor of medicine at Brigham and Women's Hospital and Harvard Medical School, told ABC News, explaining there is not one easy solution. It’s a “very complex issue with lots of moving parts.”

Introducing generic competitors in the marketplace is a common mechanism for prices to drop. However, certain common forms of new drugs are guaranteed a period of five to seven years before a generic competitor can be sold.

Additionally, drug manufacturers can also receive patents lasting more than 20 years for inventions that are “novel," “useful” and “non-obvious.”

“Although brand-name drugs comprise only 10 percent of all dispensed prescriptions in the United States, they account for 72 percent of drug spending,” the study authors wrote.

Common medications such as a steroid inhaler for asthma costs over $300 a month in the U.S., compared to about $35 in France. Insulin, a life-saving medication for diabetics, is about eight times more expensive here.

We wanted to “present a bigger picture ... to help inform [policy] making and thinking about the subject,” Kesselheim told ABC News. To “present a larger 10,000 feet vision of the issue.”

Officials from the Pharmaceutical Research and Manufacturers of America, which represents pharmaceutical companies in the U.S., said countries with lower drug pricing face their own complications related to a nationally regulated drug price system.

“Price differences that may exist between the United States and other countries are often achieved through price controls that result in restricted access to medicines and fewer choices for patients,” Holly Campbell, a spokesperson for the Pharmaceutical Research and Manufacturers of America, told ABC News in an email.

Campbell pointed out patients in Europe may wait longer to get access to cancer medicines compared to patients in the United States and have access to far fewer medicines.

“Instead of focusing on proposals that will stifle innovation, we need to concentrate on pragmatic solutions, including increasing competition for older medicines, modernizing the drug discovery and development process, removing barriers that limit paying for value and engaging and empowering consumers,” she said.

Though high prices are often justified by citing the high cost of drug development, the investigators did not find evidence of an association in the study. The proportion of revenue of the ten largest pharmaceutical companies that is invested in research and development is only about 7 to 21 percent, according to the review.

The study suggests several cost-reducing strategies, including enforcing more stringent requirements for exclusivity of rights, allowing for price negotiations by large payers, enhancing competition by generic drug availability and generating more evidence for cost-effectiveness of therapeutic alternatives.

In many countries with national health insurance systems, a delegated body negotiates drug prices and will not cover products if cost-to-benefit calculations are unreasonable. However, in the U.S., the negotiating power of the payer is constrained for multiple reasons.

Issues for U.S. payers include the fact that Medicare is federally prevented from securing low drug costs. Additionally, private insurance companies have used third-party prescription benefit management companies, which have been found to sometimes have less incentive to lower overall drug costs, according to the study. There have been isolated examples of aggressive price negotiation but it is not common, according to the researchers.

Kesselheim said both patients and legislators should take action to bring down drug costs.

“Everybody can do their part and try to bring more price rationality to the system,” he said, suggesting patients need to openly discuss the cost of drugs with their physicians and ask about less expensive alternatives. Physicians need to recognize the impact of high drug costs and be mindful of their prescribing choices, Kesselheim added.

He said their research has shown it will take a “multi-prong approach” with policy makers, physicians and patients all taking part.

“People should be calling the legislation to express their concern about the issue, and policy makers need to take this issue seriously,” Kesselheim said. “I think there are lots of things everyone can do to move forward.”

Dr. Shali Zhang is a chief resident in dermatology at Emory University School of Medicine. She is also a resident at the ABC News Medical Unit.