Monday, August 29, 2016

Two Big Reasons Prescription Drug Prices Are So Much Higher in the US

By Eric Pianin
August 25, 2016

It’s no secret that Americans have long spent far more on prescription drugs, on average, than consumers in most other industrialized countries.

Per capita prescription drug spending in the United States, particularly for costly brand names, was $858 in 2013, compared with an average of just $400 for 19 other industrialized nations, according to the Organisation for Economic Cooperation and Development (OECD). And list prices for the 20 highest grossing drugs were on average three times higher in the U.S. than in Great Britain, even with rebates and other discounts provided American consumers.


Despite the growing call for a more sane and reasonable prescription drug pricing policies, a new study by three Harvard academics and medical doctors concludes that a leveling of U.S. prescription drug spending will remain very much out of reach under current government policies, which in some cases were dictated by the influential pharmaceutical industry.

The lengthy study by Aaron S. Kesselheim, Jerry Avorn and Ameet Sarpatwari, published Tuesday in JAMA, the journal of the American Medical Association, was based on peer-reviewed medical and health policy literature between 2005 and July 2016. Their study cites two big reasons why the U.S. is trapped in a cycle of ever-escalating prescription drug costs, with no end in sight:

The most important factor is the drug industry’s built-in monopoly in the marketing of drugs, especially the latest generation of wonder drugs that can often mean the difference between the life and death of a patient. Major drug companies are able to set often ridiculously high drug prices because of the market exclusivity granted them by the Food and Drug Administration and long-term patents and trademarks that thwart potential competitors.


The primary counterweight to excessive drug prices is hard-boiled bargaining by government payers and private health insurance groups that represent huge numbers of beneficiaries and consumers. While many private prescription drug providers and insurers regularly cut deals with pharmaceutical companies for discounts and other breaks, that’s not always the case with the federal government.

Medicare, the health program for seniors, covers about 40 million adults for outpatient and inpatient drug costs and it accounts for 29 percent of the nation’s prescription drug expenditures. Yet “federal law prevents it from leveraging its considerable purchasing power to secure lower drug prices while requiring it to provide broad coverage, including all products in some therapeutic categories, such as oncology,” the study states.

Congress handcuffed the government in 2003 by including a provision in the Medicare Part D drug program explicitly prohibiting the Centers for Medicare and Medicaid Services from interfering with negotiations between individual Part D vendors and drug companies. That measure — sought and obtained by pharmaceutical industry lobbyists from former Republican President George W. Bush — effectively prevents CMS from negotiating or setting prices, like national health care programs do in many other countries.


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