Drug prices are kept high in US by protection and price negotiations, study finds

The high cost of prescription drugs in the United States is due in large part to the monopoly power granted to manufacturers through the drug and patent approval processes, together with restrictions that limit the ability of payers to negotiate prices, researchers have concluded in a study in JAMA.1

Currently, per capita prescription drug spending in the US is the highest in the world, reaching $858 (£660; €760) in 2013, more than twice the average of $400 in 19 other industrialized nations.

In the new study, Aaron S Kesselheim, of Harvard Medical School, and colleagues reviewed recent peer reviewed medical and health policy literature looking at the factors that influence drug pricing in the US.

They concluded that the chief reason for the US’s high spending on prescription drugs was the high prices of branded products that are protected by market exclusivity provisions granted by the Food and Drug Administration and the Patent and Trademark Office. In addition, under current rules drug companies are often able to extend their monopolies, sometimes for years, by various strategies, including by patenting small but clinically insignificant changes to existing products and by offering financial inducements to manufacturers of generic drugs to delay or prevent the introduction of competing generic products, they wrote. Although brand name drugs make up only 10% of all dispensed prescriptions, they account for 72% of drug spending in the US, the researchers noted.

In their review the researchers found that although high prices used to be found mainly among brand name drugs for rare conditions, many new drugs for common conditions such as cancer have been introduced at prices exceeding $100 000 per course of treatment. Even the price of insulin rose 300% from 2002 to 2013, they noted.

The researchers disputed the drug industry’s claim that the cost of research and development of new drugs justified the high prices. Much research and development work was funded by the government, the researchers argued, or by small biotechnology companies that have their origins in academic laboratories. The researchers estimated that large drug companies invest only about 10% to 20% of their revenue in research and development. “If only innovative product development is considered, that proportion is considerably lower,” they added.

The researchers said that several strategies to control drug prices could be implemented quickly. These included adopting more stringent requirements for awarding exclusivity rights; speeding approval of generic drugs to promote competition; allowing government payers such as Medicare to negotiate drug prices; and generating more evidence about the comparative cost effectiveness of different drug alternatives so that prescribers, patients, payers, and policy makers could make more informed choices.

“There is little evidence that such policies would hamper innovation, and they could even drive the development of more valuable new therapies rather than rewarding the persistence of older ones,” the researchers said.