The rapid rise in prescription drug prices has faced increased scrutiny from Congress and the president in recent years. Often, public officials compare U.S. and international drug costs to initiate meaningful change. As of 2015, Americans were spending approximately $1,000 per person on prescription drugs. The second highest spender was Switzerland at $783 per person, and Sweden was the lowest spender at $351 per person. Despite the many proposals put forth to reduce this disparity, drug manufacturers warn that price controls would stifle innovation.
Increasing costs of U.S. prescription drugs are not a new issue. Costs have been rising exponentially since 1997, with only a six-year period of stability between 2007 and 2013. Price increases in other countries are not as severe as those in the United States for several reasons. For one, studies have shown that, on average, Americans take generic prescription drugs for fewer days than patients in other countries, indicating that the high cost of brand-name drugs is usually to blame for higher U.S. prescription drug costs.
Breakthroughs in scientific research that lead to newer, more expensive drugs and U.S. policy changes surrounding prescription drugs are often offered as explanations for the high costs. For example, the number of individual drugs with sales that topped $1 billion increased from six in 1997 to 52 in 2006. Pharmaceutical spending on advertising to both physicians and consumers also increased during that time. Policy changes were made; regulations on television drug ads were relaxed; and, fueled by the introduction of the Prescription Drug User Fee Act in 1992, the Food and Drug Administration (FDA) approved new drugs more rapidly. Coverage for drugs also was expanded through public programs such as Medicaid, the Children’s Health Insurance Program, and Medicare Part D—a universal prescription drug benefit adopted in 2006.
The slowdown of drug spending in the mid-2000s was likely a result of fewer FDA-approved blockbuster drugs and the expiration of patents of many top-selling drugs, which led to approvals of generics. In 2014, a pricing spike mirroring the 1997 increase occurred, fueled once again by rapid FDA approval rates, scientific breakthroughs resulting in expensive specialty drugs, and expanded coverage through the Affordable Care Act. This trend will only continue, especially given the current push toward precision medicine, which could make drugs both more effective and harder to live without.
In a rare show of bipartisan support, both Congress and the current administration have pledged to make drug pricing a priority. In May 2018, President Trump released a “Blueprint to Lower Drug Prices,” which pledged to work toward three goals: lowering prices of prescription drugs, lowering out-of-pocket costs, and increasing competition.
Many of the proposals have earned praise from Republicans and Democrats alike, particularly a proposal that would require drug manufacturers to include the list prices of drugs in television advertising. Another popular proposal would reduce Medicare reimbursement for certain high-cost drugs by using the average of prices in other advanced industrial countries as a benchmark.
In August 2018, the Department of Health and Human Services (HHS) released a report outlining both the administration’s actions and policy changes that have resulted from the blueprint. According to the report, 15 pharmaceutical companies have reduced the list prices of their drugs, reversed plans to increase prices, or pledged to freeze product prices for the rest of 2018. The report also noted that the Centers for Medicare & Medicaid Services has made significant changes to its Drug Pricing Dashboard, which highlights individual drugs with the highest price increases and the manufacturers’ responsibility. In addition, HHS sought policies to reduce Medicare payments for certain drugs and to reduce payments for drugs under Medicare’s 340B drug discount program. Finally, the report noted that more generic drugs were approved by the FDA in July 2018 than in any single month in its history.
HHS Secretary Alex Azar has asked Congress and the administration to go further. He recommends the industry move toward a fixed-price discount system at the point of sale and voluntarily disclose the cost of drugs in direct-to-consumer advertising and that pharmacy benefit managers enable discount pricing instead of changing contracts. Mr. Azar also has asked Congress to limit rebates in the Medicaid program and repeal the 180-day generic exclusivity window.
In October 2018, President Trump signed bipartisan legislation allowing pharmacists to tell consumers when their prescriptions would cost less out of pocket than under their insurance plans. The legislation also included a provision to combat agreements among drug makers that stifle competition by delaying the marketing of lower-
cost copycat versions of expensive biotechnology medicines.
Democrats have pledged additional action, beginning with a detailed report of drug company spending on research, marketing, advertising, and lobbying. Other potential policies include allowing Medicare to negotiate lower drug prices, capping Medicare beneficiaries’ out-of-pocket expenses on drugs, requiring manufacturers to disclose and justify any significant price increases, and increasing oversight on tactics brand-name drug makers use to delay production of generic versions. There is even potential for the government to apply a rarely used law that forces a reduction in the prices of drugs that were developed with the help of taxpayer funds.
Although pharmaceutical manufacturers resistant to the changes may find allies in the Republican-controlled Senate, many Republicans are equally eager to find solutions to the pricing crisis. Sen. Chuck Grassley (R-Iowa), for example, has long supported importation of prescription drugs from Canada. Rep. Grassley has written laws, including the Physician Payments Sunshine Act, and is a champion of whistle-blower laws, which have caused drug companies to pay billions of dollars to resolve allegations that they defrauded the government or engaged in illegal marketing practices. On the House side, Rep. Michael Burgess (R-Texas) introduced legislation that would eliminate a cap on the Medicaid Drug Rebate Program’s inflation penalty.
AAOS will continue to monitor legislative activity on the issue as it relates to the orthopaedic specialty. Although the outcomes cannot be predicted, the pharmaceutical industry—one of the largest stakeholder groups in Washington, D.C.—will certainly fight back on many of the proposals. Additionally, increased scrutiny on the industry could lead to greater focus on other health policy areas.
Catherine Hayes is the senior manager of government relations in the AAOS Office of Government Relations.
- Papanicolas I, Woskie LR, Jha AK: Health care spending in the United States and other high-income countries. JAMA 2018;319:1024-39.