Prescription drug prices in the United States

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Prescription drug prices in the United States have been among the highest in the world. The high price of prescription drugs became a major topic of discussion in the new millennium, leading up to the U.S. health care reform debate of 2009 and has received renewed attention in 2015.


Drug retail price[edit]

Pharmaceuticals are the only major health care service, in which the producer is able to set prices relatively unrestrained.[1] As of 2004 prices of brand name drugs were significantly higher in the United States than in Canada, India, the UK and other countries, nearly all of which have price controls, while prices for generic drugs tended to be higher in Canada.[2]

In 2005 the Government Accountability Office (GAO) had examined the change in drug retail prices from January 2000 through December 2004 and found the average usual and customary (U&C) prices for a 30-day supply of 96 drugs frequently used by people enrolled in BlueCross BlueShield Federal Employee Programs for Medicare and non-Medicare increased 24.5%. Drilling down, the average U&C prices for brand prescription drugs increased three times as much as the average for generic prescription drugs.[3]

In 2007, the AARP published a series of studies saying that prescription drug prices are rising significantly faster than general inflation.[4] The American Enterprise Institute, a conservative think tank, has criticized the methodology as overstating drug price inflation.[5]

A December 2015 NYT editorial stated that "drug prices have been pushed to astronomical heights for no reason other than the desire of drug makers to maximize profits." [6]

2015 media attention[edit]

In 2015, the Department of Health and Human Services (HHS) and both houses of Congress held a public meeting and hearings resepectively to investigate price gouging.[7]

Relationship between drug research and development and retail price[edit]

Pharmaceutical companies argue that the prices they set for a pharmaceutical drug are necessary in order to continue to fund research. 11% of drug candidates that enter clinical trials are successful and receive approval for sale.[8] Although the cost of manufacturing is relatively low, the cost of developing a new drug is relatively high.[9]:422 In 2011, "a single clinical trial can cost $100 million at the high end, and the combined cost of manufacturing and clinical testing for some drugs has added up to $1 billion."[10] The U.S. pharmaceutical industry is able to invent drugs that would not be profitable in countries with lower prices, because of high drug prices in the United States.[9]

Critics of pharmaceutical companies point out that only a small portion of the drug companies' expenditures are used for research and development, with the majority of their money being spent in the areas of marketing and administration.[11]

A study found that European pharmaceutical companies are just as innovative, or perhaps even more so, than their U.S. counterparts, despite price controls. In addition, some countries, such as the United Kingdom and Germany, encourage comparative-effectiveness reviews, whereby cost-benefit analyses are applied to rival drugs to determine which perform best. [12][page needed]

Drug expenditures[edit]

Spending on pharmaceuticals, defined as expenditures on prescriptions medicines and over-the-counter products excluding pharmaceuticals consumed in hospitals[13] has been mentioned together with price, although not being the same. Historically, spending on pharmaceuticals accounted for 11.5% of U.S. national healthcare expenses in 1960, gradually falling to a low of 5.5% of national healthcare expenditures in 1980 before rising back to 10.4% in 2000. From 2000 to 2013, drug expenditures ranged between 10.4% and 12.0% of U.S. healthcare expenses.[14] The latest data on US 'pharmaceutical spending' in international comparisons are $1034 per capita in 2013.[13]


Because of the price differential between the U.S. and Canada, US Americans purchased more than US$1 billion in brand-name drugs per year from Canadian pharmacies as of 2004 to save money.[2]

The Washington Post wrote in 2003 that "U.S. Customs estimated 10 million U.S. citizens brought in medications at land borders each year. An additional 2 million packages of pharmaceuticals arrive annually by international mail from Thailand, India, South Africa and other points".[15]

A quarter of Americans taking prescription drugs said they had not filled a prescription in the past 12 months due to cost, and 18 percent reported they "cut pills in half or skipped doses" according to a Kaiser Family Foundation survey in June 2015.[16]

Reasons for high prices[edit]

Drug company profits[edit]

A Kaiser Family Foundation survey from June 2015 found the public citing "drug company profits as the number one reason for the high cost of prescription drugs (picked by 77%), followed by the cost of medical research (64%), the cost of marketing and advertising (54%), and the cost of lawsuits against pharmaceutical companies (49%)."[16]

As of 2015, several pharmaceutical companies had developed a new business strategy "of dominating noncompetitive markets for older drugs and then increasing the price substantially".[17]

Pharmacy Benefit Managers[edit]

Pharmacy benefit managers (PBM)s may increase drug prices they charge to their clients, in order to increase their profits. For example, they may classify generic drugs as brand name drugs, because their contract does not contain a definition, contain only an ambiguous definition, or a variable definition. This allows them to "classify drugs for one purpose in one way, and for another purpose in another way", including a change at different points during the life of a contract. This as of 2010 unlitigated freedom affects "drug coverage, making contract terms, and the reporting about the satisfaction of contract terms" [18]

Drug rebates[edit]

Drug manufacturers may offer to pay an insurance company a rebate after they have sold them a drug for full price. This is largely invisible to the consumer, because a drug company does not report how much it returns to the payer. However the total aggregate in the US has been estimated at $40 billion per year.[19]

Orphan drugs[edit]

Drug companies can price new medicines, particularly orphan drugs, i.e. drugs that treat rare diseases, defined in the United States as those affecting fewer than 200,000 patients, at a cost that no individual person could pay, because an insurance company or the government are payors.[20] An orphan drug may cost as much as $400,000 annually. The orphan drug business model could come under increased payer regulation.[21]

FDA backlog in generic drug application review[edit]

Generic drugs cost less. The FDA reviews applications by companies wishing to manufacture generic drugs to guarantee quality and bioequivalence. In fiscal year 2014 none of about 1500 applications had been approved by the end of 2014.[22] The slow pace of the FDA review (6-12 months even for a priority review) has not allowed the market to correct itself in a timely manner, i.e. not allowed manufacturers to begin to produce and offer a product when a price is too high. The following suggestions have been made: prioritize review of applications for essential drugs, i.e. move them up in the queue. If the FDA felt unable to make this largely economic evaluation about priority, the DHHS Office of the Assistant Secretary for Planning and Evaluation could do this. Second, the FDA could temporarily permit compounding. And third, the FDA could "temporarily permit the importation of drug products reviewed/approved by competent regulatory authorities outside the United States".[17]

Public Health Solutions[edit]


Private insurers can negotiate discounts, and discounts are mandatory for State Medicaid programs, administered by the Health Resources and Services Administration (HRSA).[1] Per HRSA's 340B Drug Pricing Program drug manufacturers must provide outpatient drugs "to eligible health care organizations/covered entities at significantly reduced prices".[23]

Value-based prices[edit]

Professional associations in Oncology and Cardiology have made efforts to determine reasonable price ranges for drugs commensurate with their value based on published evidence of their treatment benefit, including the Institute for Clinical and Economic Review, and the DrugAbacus.

Policy makers[edit]

The US Food and Drug Administration has a "priority review process" for drugs which compete with another drug whose price exceeds its value-based price. Congress could also grant the FDA the ability to change the exclusivity period for new drugs.[1] The Pharmaceutical Research and Manufacturers of America has suggested that FDA clear its backlog in generic drug applications.[24] The FDA could also temporarily allow the import of drugs approved for sale outside the United States.[17]

In December 2016, the Department of Health and Human Services held a public meeting and both houses of Congress had hearings on off-patent drugs with limited or no competition.[25]

Healthcare providers[edit]

Healthcare providerscan substitute three-month for one-month supplies of medicines. A three-month supply represented a 29% decrease in out-of-pocket costs and an 18% decrease in total prescription costs in one study.[26]

Individual importation of lower cost prescription drugs from foreign countries - as done by 2% of U.S. consumers in 2011 and 2012-, is likely no effective public health solution.[27]

Canada's Model[edit]

Advocates point to the success of Canada's Patented Medicine Prices Review Board, which puts a ceiling on prices for all drugs. Many of the drugs purchased in Canada are purchased by the government and gives low-income and elderly patients access. This system is very similar to how the United States purchases medications for military personnel, but Canada implements controls on a much wider scale.[12][page needed]

See also[edit]

Further reading[edit]


  1. ^ a b c Peter Bach, Steven D. Pearson. Payer and Policy Maker Steps to Support Value-Based Pricing for Drugs JAMA. 30 November 2015. doi:10.1001/jama.2015.16843
  2. ^ a b Morgan, Steven and Hurley, Jeremiah (2004-03-16). "Internet pharmacy: prices on the up-and-up". CMAJ 170 (6): 945–946. doi:10.1503/cmaj.104001. PMC 359422. PMID 15023915. Retrieved 11 July 2007. 
  3. ^ United States Government Accountability Office (GAO) Prescription Drugs: Price Trends for Frequently Used Brand and Generic Drugs from 2000 through 2004. Report to Congressional Requesters. GAO-05-779. 15 August 2005.
  4. ^ David Gross, Leigh Gross Purvis and Stephen W. Schondelmeyer,"Trends in Manufacturer Prices of Prescription Drugs Used by Older Americans", AARP, March 2007
  5. ^ Joseph Antos and Thomas F. Wildsmith, "Inflated Claims about Drug Prices", American Enterprise Institute, 8 July 2005
  6. ^ The Editorial Board (19 December 2015). "No Justification for High Drug Prices". New York Times. Retrieved 20 December 2015. 
  7. ^ US Senate Special Committee on Aging. Collins, McCaskill open Senate investigation into Rx drug pricing, announce intention to hold hearings. November 4, 2015. Accessed 4 January 2016.
  8. ^ Nature Reviews Drug Discovery, 2004 (3), 711–716.
  9. ^ a b The Process of New Drug Discovery and Development Second Edition, Charles G. Smith and James T. O'Donnell, Taylor & Francis, 2006, ISBN 0849327792, 9780849327797 688 pages, published by Informa Healthcare
  10. ^ Herper, Matthew. "The Truly Staggering Cost Of Inventing New Drugs". Forbes. Retrieved 29 March 2013. 
  11. ^ Why Are Drug Prices So High?, PSC/CUNY
  12. ^ a b Kramer, Brandon (2011). Prescription Drug costs. Santa Barbara. 
  13. ^ a b Pharmaceutical spending (indicator). OECD Data, Health resources. 2013 doi: 10.1787/998febf6-en, accessed 27 November 2015
  14. ^ "National health expenditures, average annual percent change, and percent distribution, by type of expenditure: United States, selected years 1960–2013" (Table). CDC. Retrieved 2 December 2015. 
  15. ^ Millions of Americans Look Outside U.S. For Drugs, Washington Post, 23 October 2003
  16. ^ a b Poll Finds Nearly Three Quarters of Americans Say Prescription Drug Costs Are Unreasonable, and Most Blame Drug Makers Rather Than Insurers for the Problem Kaiser Family Foundation. 16 June 2015, accessed 27 November 2015
  17. ^ a b c Jeremy A. Greene, Gerard Anderson, Joshua M. Sharfstein. Role of the FDA in Affordability of Off-Patent Pharmaceuticals. JAMA. 2016 Feb 2;315(5):461-462. Published online 4 January 04, 2016, doi 10.1001/jama.2015.18720 (subscription required)
  18. ^ Linda Cahn When Is a Brand a Generic? In a Contract With a PBM Managed Care, September 2010. accessed 2 December 2015.
  19. ^ Matthew Herper (10 May 2012). "Inside The Secret World Of Drug Company Rebates". Forbes. Retrieved 2 December 2015. 
  20. ^ Matthew Herper How To Charge $1.6 Million For a New Drug And Get Away With It. Forbes, Mar 19, 2012, accessed 2 December 2015
  21. ^ Ed Silverman High Prices for Orphan Drug can be Sustained, a Payer Survey Shows. WSJ, 29 September 2014, accessed 2 December 2015
  22. ^ FDA. FY 2014 Performance Report to the President and Congress for the Generic Drug User Fee Amendments. FDA User Fee Reports, Accessed 4 January 2015.
  23. ^ Office of Pharmacy Affairs (n.d.). "340B Drug Pricing Program". Health Resources and Services Administration. Retrieved 2 December 2015. 
  24. ^ Stephen J. Ubl, Pharmaceutical Research and Manufacturers of America and Valeant do not represent biopharmaceutical industry The Hill, 11 December 2015, retrieved 4 January 2016
  25. ^ Sudden Price Spikes in Off-Patent Drugs: Perspectives from the Front Lines United States Senate Special Committee on Aging, December 9, 2015, retrieved 2 February 2016
  26. ^ Rabbani, A; Alexander GC (2009). "Cost savings associated with filling a 3-month supply of prescription medicines.". Applied Health Economics and Health Policy 7 (4): 255–264. doi:10.2165/11313610-000000000-00000. PMID 19905039. Retrieved 10 November 2011. 
  27. ^ Zullo, Andrew R.; Dore, David D.; Galárraga, Omar (March 2015). "Development and validation of an index to predict personal prescription drug importation by adults in the United States". Journal of Pharmaceutical Health Services Research 6 (1): 33–41. doi:10.1111/jphs.12088.