It’s no secret that pharmaceutical drugs in the United States are incredibly expensive when compared to costs in other developed countries.
In many cases, the price of these drugs is increased without any apparent cause.
Perhaps the best example of this phenomena is the shocking increase in price of Daraprim, which jumped from $13.50 per pill to $750.
In perspective, the drug only cost 1$ to produce and has been on the market for decades (1).
Unfortunately, this trend of prioritizing patients over profit isn’t anything new.
Gleevec, a popular cancer and leukaemia drug, costs an average of $1,145 USD in Canada, but American patients are charged anywhere between $5,482 to $11,007 (2).
And it’s not an isolated case: Americans pay between 2-6 times more than patients in Switzerland, Canada, England, New Zealand, Spain, Netherlands, Japan and Germany (3).
In fact, the average U.S. prices for the world’s 20 top-selling medicines are roughly three times higher than in Britain (4).
So why is there such a large discrepancy?
Are Pharmaceutical Companies To Blame?
A recent poll from the Kaiser Family Foundation found that 72% of Americans think drug costs are unreasonable and want drug companies to release information on how they set prices (3).
With the dramatic increases in the price of drugs like imatinib, which jumped from $30,000 a year to $90,000 in just a decade, and important cancer-fighting drugs that went from $5,000 to $10,000 in the same time period, it’s about time that companies become more transparent (5).
“For the longest time drug companies had a dual mission,” said Hagop M. Kantarjian, MD, professor and chair of the Department of Leukemia at the University of Texas M.D. Anderson Cancer Center in Houston. “They wanted to help patients and at the same time make a reasonable profit.” (5).
Despite some claims, inflation doesn’t explain this increase in costs. In fact, U.S. prices for top brand-name drugs jumped 127% between 2008 and 2014, compared with an 11% rise in the cost of common household goods, according to Express Scripts (ESRX.O), the largest U.S. manager of drug plans (4).
Another potential explanation for these exorbitant prices is the cost of developing and producing new drugs.
PhRMA (Pharmaceutical Research and Manufacturers of America) cites that on average, it takes more than 10 years and $2.6 billion dollars to bring a drug to market (3).
Despite these claims, Norvartis, one of the largest pharmaceutical companies generated $4.7 billion of revenue in 2012 from the sale of imatinib alone. According to Forbes, its current market value is $272.6 Billion.
While other countries allow companies to sell generic medication under different brands and at competitive prices, American pharmaceutical companies hold the monopoly of their newly developed drug for years at a time.
In fact, unlike Canada’s healthy ministry’s drug review board, the U.S. Food and Drug Administration has no regulatory authority to do large comparative reviews of the cost and effectiveness of new medications.
This means that companies can set their price without fear of competition, even from preexisting products with higher proven efficacy.
The Role Of The Federal Government
In most developed countries, the purchasing power of drugs is solely held by the government, meaning that they have more leeway in price negotiations.
Dr. Aaron Kesselheim, associate professor of medicine at Harvard Medical School, explained that this means that “the drug companies have much fewer options with who they are negotiating.”
Limited buyers means that pharmaceutical sellers must be more sensitive to the needs and budgets of these customers.
In fact, in these countries, the government even has the power to choose which drug will be made available on the market (3).
In contrast, federal healthcare the United States spends much lower on prescription drugs then most developed nations.
The responsibility of the cost of these drugs is then handed along to patient through individual insurance groups, hospitals and private healthcare plans (3).
Furthermore, federal government-run Medicare, one of America’s largest provider of medications, cannot negotiate with pharmaceuticals companies by law.
This means that although Medicare would have the purchasing power to lower the cost of drugs, it is illegal for them to do so (3).
However, hospitals and smaller closed healthcare organizations, such as the Veterans Administration, often receive 10%-20% discounts on common drugs.
In fact, Memorial Sloan Kettering Cancer Center was able to lower the cost of the colon cancer drug Zaltrap by 50% nationwide after rejecting it in favor of Avastin, a more cost-friendly alternative (3).
This is exactly the kind of pressure America needs to place on drug producers to keep prices under control. However, this power of negocation shouldn’t come from hospitals and insurances companies, but from new governmental rules and regulations.
And while cases of public outcry, like that of the protest against Daraprim’s 50-fold increase in price may make headlines, the cost of this drug, as well as many others, remains overpriced.