Six Causes Drug Costs Are So Excessive within the U.S.

Florida’s plan to economize by importing medicines from Canada, authorized this month by the Meals and Drug Administration, has renewed consideration on the price of pharmaceuticals in the US.

Analysis has constantly discovered that drug costs in America are considerably higher than these in different rich international locations. In 2018, they have been nearly double these in France and Britain, even when accounting for the reductions that may considerably cut back how a lot American well being plans and employers pay.

“The U.S. market is the bank for pharmaceutical companies,” mentioned Ameet Sarpatwari, an professional in pharmaceutical coverage at Harvard Medical College. “There’s a keen sense that the best place to try to extract profits is the U.S. because of its existing system and its dysfunction.”

Listed below are six causes medicine in the US value a lot:

1. There isn’t a central negotiator keen to stroll away.

Different rich international locations depend on a single negotiating physique — normally the federal government — to resolve whether or not to just accept the worth a pharmaceutical firm needs to cost. In the US, negotiations with drug makers are break up amongst tens of 1000’s of well being plans, leading to far much less bargaining muscle for the patrons.

Different nations additionally conduct cautious analyses of how a lot extra profit a brand new drug presents over medicine already available on the market — and at what value. If the price is simply too excessive and the profit too small, these international locations are extra keen to say no to a brand new drug.

“Our lack of consolidation in negotiating is a key reason that we pay more than other countries — but also this unwillingness to negotiate as hard,” mentioned Stacie Dusetzina, a well being coverage professional at Vanderbilt College College of Medication.

The Inflation Discount Act, enacted in 2022, licensed Medicare to negotiate directly with drug companies over the costs of a small variety of medicine years after they entered the American market. Well being coverage analysts say that may be a begin, however a lot broader negotiating authority is required to make a dent in drug costs total.

Pharmaceutical firms argue that the upper costs include additional advantage: Trade-funded analyses have discovered that sufferers in the US get medicines faster, and with fewer insurance coverage restrictions, than these in different international locations.

2. There are not any worth controls.

Some countries set limits on how a lot they may pay for medicines. France, for instance, caps the expansion of drug firms’ gross sales: If gross sales exceed that threshold, the federal government will get a rebate.

Drug firms in the US have averted authorized restraints on costs for sufferers lined by industrial insurance coverage and on introductory sticker costs when medicine first enter the market.

“Drugs are so expensive in the U.S. because we let them be,” mentioned Michelle Mello, a Stanford regulation and well being coverage professor. “We designed a system in terms of drug costs that is all engines, no brakes.”

3. The system creates perverse incentives.

Drug firms should not the one ones who make cash from excessive drug prices. Docs, hospitals and an array of intermediaries additionally see greater income when prices soar.

One working example: Below Medicare insurance policies for some medicine, docs pay upfront for medicine that they administer to sufferers intravenously of their workplaces, similar to chemotherapy. To recoup their prices, they ship a invoice to Medicare for each the price of the drug and a proportion of that value, set by Medicare, to cowl their overhead. That billing system creates an incentive for a physician to decide on a higher-priced drug. For instance, a Medicare fee of 6 p.c on a $10,000 drug would pay $600 — much more than the $6 price paid for infusing a $100 treatment.

Consultants additionally see misaligned incentives stemming from pharmacy profit managers, or P.B.M.s, massive companies that negotiate with producers on behalf of the employers and well being plans that pay a lot of the payments for pharmaceuticals.

P.B.M.s make more cash in charges from producers when the sticker worth of a drug is greater. They generally require sufferers to take a drug with the next sticker worth even when a less expensive different is offered.

4. The system is fragmented and complex.

Drug business executives typically complain that they’re unfairly blamed for top costs whereas different events, together with P.B.M.s and insurers, are benefiting from a rising share of drug spending and saddling sufferers with excessive out-of-pocket prices.

“The United States is the only country that allows middlemen, such as P.B.M.s, to profiteer on medicines unchecked,” mentioned Alex Schriver, an official at Pharmaceutical Analysis and Producers of America, or PhRMA, the drug business’s primary lobbying group.

Producers retain solely half the cash that well being care payers initially spend on pharmaceuticals earlier than reductions are utilized, in accordance with a 2022 study funded by PhRMA.

The system is so complicated that docs and sufferers attempting to resolve between seemingly comparable medicine don’t have any simple approach to decide what their precise value will likely be on the pharmacy counter.

Even researchers have hassle parsing the system — particularly, the advanced offers made between drug makers, intermediaries and insurers — as they attempt to pinpoint issues and give you options.

5. Patent gaming retains costs excessive longer.

World wide, international locations difficulty patents to drug firms that grant them short-term monopolies throughout which lower-priced generic rivals can’t enter the market. However in the US, drug firms have been particularly profitable to find methods to delay that monopoly interval, by techniques like piling up patents to guard innovations which are solely tangentially associated to the drug in query.

For instance, the drug firm AbbVie delayed competition for its blockbuster anti-inflammatory drug Humira for greater than 4 years longer in the US than in Europe. Patents have been a key issue: A variety of AbbVie’s patent purposes have been refused by Europe’s patent examiners or revoked after being challenged, in accordance with an analysis by the Initiative for Medicines, Entry and Data, a nonprofit that tracks drug patents.

AbbVie declined to remark for this text.

6. Drug costs are what the market will bear.

Drug business executives typically say that their costs replicate the worth their merchandise present to society. For instance, a one-time $3 million remedy could also be a discount if it finally ends up averting $10 million in hospital payments and misplaced wages.

However a comparability with different precious assets reveals how that mannequin might ship costs spiraling uncontrolled. “If we allowed water utilities to charge us the full value of water in our lives, society would very quickly break down,” mentioned Christopher Morten, an professional in pharmaceutical regulation at Columbia College.

Drug firms additionally say the costs of medicines replicate the massive, rising prices of working medical trials and the necessity to recoup costly investments in failed medicine. However lecturers have discovered no relationship between how a lot drug firms spend on analysis and the way a lot they cost.

The truth, consultants say, is that firms set their costs as excessive because the market will bear.

Reed Abelson contributed reporting.