Price Controls

Many countries regulate or negotiate the price of prescription drugs, but the U.S. does not.  This is due to several factors.  The U.S. healthcare system operates on a free-market basis where price is determined based on supply and demand.  Pharmaceutical companies spend significant amounts of money on lobbying efforts to influence legislation and policy, including opposition to price controls.  There is a strong belief that high prices incentivize innovation allowing companies to recoup their research and development costs.  There is significant political resistance to price controls as they may deter new drug development, shortages and reduced access to new innovative treatments.  Insurers, pharmacy benefit mangers and wholesalers are all getting a cut which adds complexity.  Federal and state governments are involved in health policy making it is difficult to achieve a unified approach to regulation.  Policymakers argue that enhancing competition and transparency in the drug market will naturally lead to lower prices.

Research and Development(R&D) Costs

Pharmaceutical companies argue that high prices are necessary to cover the extensive costs of R&D.  Only 12% of drugs entering clinical trials are ultimately approved by the FDA.  The average R&D cost ranges from less than $1B to more than $2B per drug. These costs include drugs that did not make it to market as well as those that did.

Market Exclusivity and Patents

Drug patents in the US last for 20 years, which means that generic equivalents that are much less expensive cannot be sold until the patent expires

Complex Supply Chain

Pharmacy Benefit managers (PBM’s), wholesalers and insurers all work together to balance cost control and ensure patient access to necessary medications.

What’s being done to lower drug costs to U.S. consumers?

Legislative:  The Inflation Reduction Act of 2022 includes provisions to lower prescription drug costs for Medicare beneficiaries by allowing Medicare to negotiate prices for certain high cost drugs and capping out of pocket costs for seniors at $2,000 starting in 2025.

Several states have implemented laws allowing prescription drugs to be imported from Canada, where they are cheaper.  Care should be taken when choosing a pharmacy to be sure it has the same standards required by the FDA.  Some states have also passed transparency laws requiring pharmaceutical companies to justify significant price increases.

Educating consumers and encouraging use of generic drugs and biosimilars as they are much less expensive than brand name drugs.

Efforts to regulate PBM’s to ensure they pass on rebates and discounts to consumers rather than pocketing them.

Proposals to tie US Drug pricing to the prices paid in other developed countries.  In 2022, U.S. prices across all drugs (brand and generics) were 2.78 times as high as prices in the comparison countries.  For brand name drugs only, the U.S. was at least 3.22 times as high as prices in comparison countries.

Various discount programs, like GoodRx, and manufacturer coupons that can significantly reduce the cost of prescription drugs for consumers.

Mandates for drug price transparency to allow consumers to compare prices and make informed decisions.

Expansion of federal programs like Medicaid and Medicare to cover more prescription drugs and reduce out-of-pocket costs for eligible individuals.