Why American Drugs Are So Expensive

The American pharmaceutical market is known for being competitive, large, and above all else, a moneymaking machine. The United States spends almost $1,000 per person per year on pharmaceuticals, 40 percent higher than Canada and more than twice as much than France and Germany. [1] Some drugs, like Eli Lilly’s Cyramza, a new drug to treat stomach cancer, cost upward of $10,000 a month. [2] So why do drugs cost so much in the United States compared to other countries?

According to the drug manufacturers, the high prices are a result of the “complexity of biology, government regulations and shareholder expectations for high profit margins.” [3] However, this seems more of a way to deflect blame for increasingly unaffordable drug prices than to own up to the truth of the matter at hand.

In terms of drug usage, Americans use more pharmaceuticals, particularly antipsychotics as well as drugs for dementia, respiratory problems and rheumatoid arthritis, than other Organization for Economic Co-operation and Development (“OECD”) member countries. [4] American’s high levels of obesity and high rates of diagnosis are likely the reason for its high usage of drugs, and as a result, the drug market is a successful market to get into. [5] The American market place means more people will be utilizing, and therefore paying, for a manufacturer’s drug, and more investments into the company will follow.

Unlike in many other countries where government agencies regulate the prices of pharmaceuticals and only agree to pay for a drug if they feel that the price is justified by its benefits, the United States adheres to a different system. [6] The American system gives bargaining power to the manufacturers with insurers accepting the price set by the drug manufacturers and then covering the costs with high co-payments for its users. [7] Consequentially,  drug manufacturers take advantage of this systemic problem and continue to raise its prices. For example, albendazole, a drug for intestinal parasites, neurocysticercosis, and hydatid disease, was patented and approved by the FDA in 1996. [8] A U.S. drug manufacturer bought the patent, locked out competition, and drove up the price exponentially. [9] In 2010, its wholesale cost was just above $5.00; in 2013, it has risen up to $119.58. [10] With the manufacturers in power, it seems that drug  costs will continuously grow as they find new ways to exploit the system.

In addition, the New York Times suggests that the issue could be that the American system requires insurance companies to cover all drugs. [11] European countries say no to some drugs, and because of this power, pharmaceutical companies have to offer their drugs at prices that make them attractive to these health care systems. [12] Giving the insurance companies the power to say no may be the answer to the constantly increasing prices and to the anxiety of Americans who must pay huge fees for their necessary medication.

Already, Express Scripts, a pharmacy benefits management company, and CVS Caremark have exercised their power to say no, pitting two major drug companies, AbbVie and Gilead, against each other to be the consumer’s choice. [13] The price Express Scripts got their drug for, though not disclosed, what was said to be a seriously discounted price, and other insurers and management companies should take note.[14]

The Affordable Care Act (“ACA”) does not directly address the drug costs issue. While it does implement numerous cost-sharing programs and money-saving methods like managed competition in the market place, the ACA failed, as many have criticized, to address cost containment in the American pharmaceutical system.[15]  As a result, the power remains with the drug manufacturers to set prices and control the market. Perhaps the federal government should take control of cost negotiation, but the ACA did not take that step, and the issue remains. Without further change, the prices of new and specialized drugs will likely continue to rise. Until some kind of reform is enacted, the American pharmaceutical consumer will have to deal with these rising prices and hope for the government will make the necessary steps to wrangle in drug manufacturers.

Sydney Mayer is a current student at DePaul University College of Law in Chicago. Ms. Mayer completed her undergraduate degree at the University of Illinois at Chicago in political science and French. She will complete her law degree and certificate in health law in 2016.


References:

[1] Valerie Paris, Why do Americans spend so much on pharmaceuticals?, PBS.org (Feb. 7, 2014), http://www.pbs.org/newshour/updates/americans-spend-much-pharmaceuticals/.

[2] Peter B. Bach, Why Drugs Cost So Much, NY Times (Jan. 14, 2015), http://www.nytimes.com/2015/01/15/opinion/why-drugs-cost-so-much.html?ref=opinion&_r=1.

[3] Id.

[4] Paris, supra n. 1.

[5] Id.

[6] Id.

[7] Id.

[8] Jonathan Alpern, M.D., et al., High-Cost Generic Drugs — Implications for Patients and Policymakers, N Engl. J. Med. 2014, 1859-1862, 1859 (Nov. 13, 2014), available at http://www.nejm.org/doi/full/10.1056/NEJMp1408376.

[9] Id.

[10] Id.

[11] Bach, supra n. 2.

[12] Id.

[13] Id.

[14] Id.

[15] Danielle Paquette, What You Need to Know about Obamacare’s Cost-Cutting Measures, Wash. Post (Oct. 6, 2014), http://www.washingtonpost.com/news/storyline/wp/2014/10/06/we-know-how-to-expand-health-care-we-know-a-lot-less-on-how-to-make-it-cheaper/.