Global spending on prescription drugs in 2020 is expected to be ~$1.3 trillion; the
United States alone will spend ~$350 billion
1
. These high spending rates are expected to increase at a rate of 3–6% annually worldwide.
The magnitude of increase is even more alarming for cancer treatments that account
for a large proportion of prescription drug costs. In 2018, global spending on cancer
treatments was approximately 150 billion, and has increased by >10% in each of the
past 5 years
2
.
The high cost of prescription drugs threatens healthcare budgets, and limits funding
available for other areas in which public investment is needed. In countries without
universal healthcare, the high cost of prescription drugs poses an additional threat:
unaffordable out-of-pocket costs for individual patients. Approximately 25% of Americans
find it difficult to afford prescription drugs due to high out-of-pocket costs
3
. Drug companies cite high drug prices as being important for sustaining innovation.
But the ability to charge high prices for every new drug possibly slows the pace of
innovation. It is less risky to develop drugs that represent minor modifications of
existing drugs (“me-too” drugs) and show incremental improvement in efficacy or safety,
rather than investing in truly innovative drugs where there is a greater chance of
failure.
Causes for the high cost of prescription drugs
Monopoly
The most important reason for the high cost of prescription drugs is the existence
of monopoly
4,5
. For many new drugs, there are no other alternatives. In the case of cancer, even
when there are multiple drugs to treat a specific malignancy, there is still no real
competition based on price because most cancers are incurable, and each drug must
be used in sequence for a given patient. Patients will need each effective drug at
some point during the course of their disease. There is seldom a question of whether
a new drug will be needed, but only when it will be needed. Even some old drugs can
remain as virtual monopolies. For example, in the United States, three companies,
NovoNordisk, Sanofi-Aventis, and Eli Lilly control most of the market for insulin,
contributing to high prices and lack of competition
6
.
Ideally, monopolies will be temporary because eventually generic competition should
emerge as patents expire. Unfortunately, in cancers and chronic life-threatening diseases,
this often does not happen. By the time a drug runs out of patent life, it is already
considered obsolete (planned obsolescence) and is no longer the standard of care
4
. A “new and improved version” with a fresh patent life and monopoly protection has
already taken the stage. In the case of biologic drugs, cumbersome manufacturing and
biosimilar approval processes are additional barriers that greatly limit the number
of competitors that can enter the market.
Clearly, all monopolies need to be regulated in order to protect citizens, and therefore
most of the developed world uses some form of regulations to cap the launch prices
of new prescription drugs. Unregulated monopolies pose major problems. Unregulated
monopoly over an essential product can lead to unaffordable prices that threaten the
life of citizens. This is the case in the United States, where there are no regulations
to control prescription drug prices and no enforceable mechanisms for value-based
pricing.
Seriousness of the disease
High prescription drug prices are sustained by the fact that treatments for serious
disease are not luxury items, but are needed by vulnerable patients who seek to improve
the quality of life or to prolong life. A high price is not a barrier. For serious
diseases, patients and their families are willing to pay any price in order to save
or prolong life.
High cost of development
Drug development is a long and expensive endeavor: it takes about 12 years for a drug
to move from preclinical testing to final approval. It is estimated that it costs
approximately $3 billion to develop a new drug, taking into account the high failure
rate, wherein only 10–20% of drugs tested are successful and reach the market
7
. Although the high cost of drug development is a major issue that needs to be addressed,
some experts consider these estimates to be vastly inflated
8,9
. Further, the costs of development are inversely proportional to the incremental
benefit provided by the new drug, since it takes trials with a larger sample size,
and a greater number of trials to secure regulatory approval. More importantly, we
cannot ignore the fact that a considerable amount of public funding goes into the
science behind most new drugs, and the public therefore does have a legitimate right
in making sure that life-saving drugs are priced fairly.
Lobbying power of pharmaceutical companies
Individual pharmaceutical companies and their trade organization spent approximately
$220 billion in lobbying in the United States in 2018
10
. Although nations recognize the major problems posed by high prescription drug prices,
little has been accomplished in terms of regulatory or legislative reform because
of the lobbying power of the pharmaceutical and healthcare industry.
Solutions: global policy changes
There are no easy solutions to the problem of high drug prices. The underlying reasons
are complex; some are unique to the United States compared with the rest of the world
(Table 1).
Table 1
Reasons for the high cost of prescription drugs and possible solutions.
Factor contributing to high price
Proposed solutions
Global policy level
Monopoly/oligopoly
Patent reform, including fixed duration of patent protection starting with first approval
and prohibiting additional patents on approved drugs that seek to increase patent
life
Penalties for pay-for-delay schemes and frivolous lawsuits that delay generic or biosimilar
entry
Expedite approval processes for generics and biosimilars, including reciprocal approval
arrangements among countries
Nonprofit generic manufacturing
Seriousness of the disease
Greater use of compulsory licensing if negotiations on reasonable price are not successful
for life-threatening diseases
Drug development costs
Regulatory reform to minimize the amount of supplemental data needed for approval
Harmonize differences in regulatory standards for submission and approval between
the United States and Europe
Discourage approval of drugs with statistically significant but clinically insignificant
benefits
Pharmaceutical lobbying
Transparency in lobbying spending
Transparency in funds received by professional and patient organizations from drug
manufacturers
United States policy level
Lack of agency with legal authority to regulate prices
Agency that sets value-based ceiling price as currently done in Western Europe must
be adopted
Medicare authorized to directly negotiate prices
Caps on price increases of approved drugs that are under patent protection
Permit importation of prescription drugs for personal use
More favorable reimbursement for more expensive drugs
Abolish reimbursement to doctors as a percentage of the price of the drug, and replace
with a fixed reimbursement, regardless of drug price.
Costs incurred due to middlemen
Transparency on arrangements between pharmaceutical companies and pharmacy-benefit
managers (PBMs)
Rebates issued by PBMs are passed on to patients
Physician level
Lack of awareness
Awareness on drug prices, and discuss affordability with patients
Lack of advocacy
Reduce conflicts of interest that prevent physicians and physician organizations from
advocating for policies that lower prescription drug costs
Patent reform
One of the main ways to limit the problem posed by monopoly is to limit the duration
of patent protection. Current patent protections are too long, and companies apply
for multiple new patents on the same drug in order to prolong monopoly. We need to
reform the patent system to prevent overpatenting and patent abuse
11
. Stiff penalties are needed to prevent “pay-for-delay” schemes where generic competitors
are paid money to delay market entry
12
. Patent life should be fixed, and not exceed 7–10 years from the date of first entry
into the market (one-and-done approach)
13
. These measures will greatly stimulate generic and biosimilar competition.
Faster approval of generics and biosimilars
The approval process for generics and biosimilars must be simplified. A reciprocal
regulatory approval process among Western European countries, the United States, Canada,
and possibly other developed countries, can greatly reduce the redundancies
14
. In such a system, prescription drugs approved in one member country can automatically
be granted regulatory approval in the others, greatly simplifying the regulatory process.
This requires the type of trust, shared standards, and cooperation that we currently
have with visa-free travel and trusted traveler programs
6
.
For complex biologic products, such as insulin, it is impossible to make the identical
product
15
. The term “biosimilars” is used (instead of “generics”) for products that are almost
identical in composition, pharmacologic properties, and clinical effects. Biosimilar
approval process is more cumbersome, and unlike generics requires clinical trials
prior to approval. Further impediments to the adoption of biosimilars include reluctance
on the part of providers to trust a biosimilar, incentives offered by the manufacturer
of the original biologic, and lawsuits to prevent market entry. It is important to
educate providers on the safety of biosimilars. A comprehensive strategy to facilitate
the timely entry of cost-effective biosimilars can also help lower cost. In the United
States, the FDA has approved 23 biosimilars. Success is mixed due to payer arrangements,
but when optimized, these can be very successful. For example, in the case of filgrastim,
there is over 60% adoption of the biosimilar, with a cost discount of approximately
30–40%
16
.
Nonprofit generic companies
One way of lowering the cost of prescription drugs and to reduce drug shortages is
nonprofit generic manufacturing. This can be set up and run by governments, or by
nonprofit or philanthropic foundations. A recent example of such an endeavor is Civica
Rx, a nonprofit generic company that has been set up in the United States.
Compulsory licensing
Developed countries should be more willing to use compulsory licensing to lower the
cost of specific prescription drugs when negotiations with drug manufacturers on reasonable
pricing fail or encounter unacceptable delays. This process permitted under the Doha
declaration of 2001, allows countries to override patent protection and issue a license
to manufacture and distribute a given prescription drug at low cost in the interest
of public health.
Solutions: additional policy changes needed in the United States
The cost of prescription drugs in the United States is much higher than in other developed
countries. The reasons for these are unique to the United States, and require specific
policy changes.
Value-based pricing
Unlike other developed countries, the United States does not negotiate over the price
of a new drug based on the value it provides. This is a fundamental problem that allows
drugs to be priced at high levels, regardless of the value that they provide. Thus,
almost every new cancer drug introduced in the last 3 years has been priced at more
than $100,000 per year, with a median price of approximately $150,000 in 2018. The
lack of value-based pricing in the United States also has a direct adverse effect
on the ability of other countries to negotiate prices with manufacturers. It greatly
reduces leverage that individual countries have. Manufacturers can walk away from
such negotiations, knowing fully well that they can price the drugs in the United
States to compensate. A governmental or a nongovernmental agency, such as the Institute
for Clinical and Economic Review (ICER), must be authorized in the United States by
law, to set ceiling prices for new drugs based on incremental value, and monitor and
approve future price increases. Until this is possible, the alternative solution is
to cap prices of lifesaving drugs to an international reference price.
Medicare negotiation
In addition to not having a system for value-based pricing, the United States has
specific legislation that actually prohibits the biggest purchaser of oral prescription
drugs (Medicare) from directly negotiating with manufacturers. One study found that
if Medicare were to negotiate prices to those secured by the Veterans Administration
(VA) hospital system, there would be savings of $14.4 billion on just the top 50 dispensed
oral drugs
17
.
Cap on price increases
The United States also has a peculiar problem that is not seen in other countries:
marked price increases on existing drugs. For example, between 2012 and 2017, the
United States spent $6.8 billion solely due to price increases on the existing brand
name cancer drugs; in the same period, the rest of the world spent $1.7 billion less
due to decreases in the prices of similar drugs
18
. But nothing illustrates this problem better than the price of insulin
19
. One vial of Humalog (insulin lispro), that costs $21 in 1999, is now priced at over
$300. On January 1, 2020, drugmakers increased prices on over 250 drugs by approximately
5%
20
. The United States clearly needs state and/or federal legislation to prevent such
unjustified price increases
21
.
Remove incentive for more expensive therapy
Doctors in the United States receive a proportionally higher reimbursement for parenteral
drugs, including intravenous chemotherapy, for more expensive drugs. This creates
a financial incentive to choosing a more expensive drug when there is a choice for
a cheaper alternative. We need to reform physician reimbursement to a model where
the amount paid for drug administration is fixed, and not proportional to the cost
of the drug.
Other reforms
We need transparency on arrangements between middlemen, such as pharmacy-benefit managers
(PBMs) and drug manufacturers, and ensure that rebates on drug prices secured by PBMS
do not serve as profits, but are rather passed on to patients. Drug approvals should
encourage true innovation, and approval of marginally effective drugs with statistically
“significant” but clinically unimportant benefits should be discouraged. Importation
of prescription drugs for personal use should be legalized. Finally, we need to end
direct-to-patient advertising.
Solutions that can be implemented by physicians and physician organizations
Most of the changes discussed above require changes to existing laws and regulations,
and physicians and physician organizations should be advocating for these changes.
It is disappointing that there is limited advocacy in this regard for changes that
can truly have an impact. The close financial relationships of physician and patient
organizations with pharmaceutical companies may be preventing us from effective advocacy.
We also need to generate specific treatment guidelines that take cost into account.
Current guidelines often present a list of acceptable treatment options for a given
condition, without clear recommendation that guides patients and physicians to choose
the most cost=effective option. Prices of common prescription drugs can vary markedly
in the United States, and physicians can help patients by directing them to the pharmacy
with the lowest prices using resources such as goodrx.com
22
. Physicians must become more educated on drug prices, and discuss affordability with
patients
23
.