Posted: April 29th, 2018

Pharmaceutical Companies in the USA Overpricing Medication

Pharmaceutical Companies in the USA Overpricing Medication: Background and Policy Landscape
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Prescription drugs are essential for millions of Americans who rely on them to treat chronic conditions, prevent diseases, or save their lives. However, many patients face difficulties in affording their medications due to the high and rising prices set by pharmaceutical companies. In this blog post, we will examine the causes and consequences of drug overpricing in the USA, as well as the current and proposed policies to address this issue.

Why are drugs so expensive in the USA?
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One of the main reasons why drugs are so expensive in the USA is that pharmaceutical companies have the freedom to set their own prices, without any regulation or negotiation from the government or other payers. Unlike other countries, where national health systems or insurers bargain with drug manufacturers to lower the prices, the USA allows drug makers to charge whatever the market can bear. This results in significant price disparities between the USA and other developed nations for the same drugs. For example, a vial of insulin that costs $300 in the USA can be purchased for $30 in Canada (CBS News).

Another reason why drugs are so expensive in the USA is that pharmaceutical companies use various strategies to maintain their monopoly power and prevent competition from generic or biosimilar drugs. These strategies include patenting minor modifications of existing drugs, paying off potential competitors to delay market entry, filing frivolous lawsuits against generic manufacturers, and exploiting loopholes in the regulatory system to extend their exclusivity periods. These tactics allow drug makers to keep charging high prices for their brand-name drugs, even after their original patents expire. According to a congressional investigation, some of the top-selling drugs in the USA have increased their prices by more than 400% over the past decade, far exceeding inflation and production costs (Arnold Ventures).

What are the impacts of drug overpricing in the USA?
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Drug overpricing in the USA has serious impacts on patients, payers, and society at large. For patients, high drug prices can lead to reduced access, adherence, and outcomes. Many patients have to choose between paying for their medications or other basic needs, such as food, rent, or utilities. Some patients skip doses, split pills, or ration their supplies to make them last longer. Some patients even resort to buying drugs from other countries or online sources, which may pose safety risks. According to a Kaiser Family Foundation poll, three out of four American adults say prescription drug prices are unaffordable, and nearly a third admit to not taking prescribed medications due to cost (Scope).

For payers, such as employers, insurers, and taxpayers, high drug prices can result in increased spending and reduced efficiency. Employers and insurers have to raise premiums, deductibles, and co-pays to cover the rising costs of prescription drugs. Taxpayers have to subsidize the public programs that provide drug coverage for seniors, disabled people, low-income people, and veterans. These programs include Medicare Part D, Medicaid, Veterans Affairs, and Indian Health Service. According to a report by the Congressional Budget Office (CBO), federal spending on prescription drugs increased from $75 billion in 2007 to $121 billion in 2019 (CBO).

For society at large, high drug prices can undermine public health and economic growth. High drug prices can worsen health disparities among different groups of people based on income, race, ethnicity,
gender, age, or geography. High drug prices can also reduce innovation and productivity by discouraging research and development of new drugs or alternative treatments. High drug prices can also affect other sectors of the economy by reducing consumer spending power and increasing health care costs.

What are the current and proposed policies to address drug overpricing in the USA?
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There are several current and proposed policies to address drug overpricing in the USA at different levels of government and society. Some of these policies include:

– The Inflation Reduction Act: This is a federal law that was signed in 2022 but is being held up by legal challenges from pharmaceutical companies. The law aims to lower drug prices by allowing Medicare to negotiate prices with drug manufacturers on certain costly drugs; imposing a tax penalty if drug companies increase prices more than inflation; limiting insulin co-pays to $35 a month; and putting a $2,000 cap on out-of-pocket costs for seniors for drugs covered under Medicare (AARP).
– State Drug Affordability Boards: These are state-level entities that have been established or proposed in several states, such as Maryland, Maine,
Colorado, New Mexico, and Oregon. These boards have the authority to review and set upper payment limits for prescription drugs that are deemed unaffordable or excessive based on certain criteria (NASHP).
– Drug Importation Programs: These are state-level initiatives that allow or facilitate the importation of prescription drugs from other countries, such as Canada, where they are cheaper and meet quality standards. These programs have been approved or implemented in several states, such as Florida, Vermont, Colorado, New Hampshire, and Maine (KFF).
– Drug Transparency Laws: These are state-level laws that require pharmaceutical companies to report and justify their pricing decisions, such as the costs of research and development, production, marketing, and profits. These laws also require payers and providers to disclose their drug spending and utilization data. These laws have been enacted or proposed in several states, such as California, Nevada, Oregon, Vermont, and Connecticut (NCSL).

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– CBS News. “Big drugmakers just raised their prices on 500 prescription drugs.” CBS News, 4 Jan. 2021, https://www.cbsnews.com/news/prescription-drug-prices-rise-2021/. Accessed 15 Oct. 2023.
– Arnold Ventures. “Congress: Pharma’s Price Gouging is Purposeful.” Arnold Ventures, 10 Dec. 2021, https://www.arnoldventures.org/stories/congress-pharmas-price-gouging-is-purposeful. Accessed 15 Oct. 2023.
– Scope. “What is behind the legal drug crisis in the US?” Scope, 6 Oct. 2023, https://scopeblog.stanford.edu/2023/10/06/pharmaceuticals-pricing-generics-medicare/. Accessed 15 Oct. 2023.
– AARP. “Drugmakers Face Penalties for Price Hikes Above Inflation.” AARP, 1 Jan. 2022, https://www.aarp.org/politics-society/advocacy/info-2022/drugmakers-penalties-price-hikes.html. Accessed 15 Oct. 2023.
– CBO. “Federal Spending on Prescription Drugs.” CBO, Dec. 2019, https://www.cbo.gov/system/files/2019-12/55936-CBO-Presentation.pdf. Accessed 15 Oct. 2023.
– NASHP. “State Drug Affordability Review Boards.” NASHP, https://www.nashp.org/rx-legislative-tracker/state-drug-affordability-review-boards/. Accessed 15 Oct. 2023.
– KFF. “State Prescription Drug Importation Laws.” KFF, 1 Sep. 2021, https://www.kff.org/health-costs/state-indicator/state-prescription-drug-importation-laws/. Accessed 15 Oct. 2023.
– NCSL. “Prescription Drug Pricing Transparency Legislation.” NCSL, 16 Sep. 2021, https://www.ncsl.org/research/health/prescription-drug-pricing-transparency-legislation.aspx. Accessed 15 Oct. 2023.

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