Why the price of prescription drugs in the US is out of control

High prescription drug prices in the US aren’t going anywhere.

Tensions over this issue flared up Monday, when senators started to ask questions about the EpiPen, a device used in emergencies to treat anaphylaxis, a severe allergic reaction that can make people go into shock, struggle to breathe, or get a skin rash. 

Since 2009, when a two-pack of EpiPen went for $100, the price has gone up about 500%, though the price varies among pharmacies.

On Tuesday, Mylan (the company that makes the EpiPen) was down 4% on the news that lawmakers were getting involved in the debate. In response to questions about its high list price, Mylan noted in an email to Business Insider that about 80% of people with commercial insurance who also used a “My EpiPen Savings Card” received the device for $0, and pointed to changing healthcare plans with increased deductibles as the reason for the recent pricing pressure families are feeling. 

But it begs the question: How did we get into this mess? Why are our drug prices so notably different from other countries, say in Europe or Canada?

A report released Tuesday in the Journal of the American Medical Association took a deep dive into the question of why the US has such high drug prices and offered some possible short-term solutions to the problem. 

“Although prices are often justified by the high cost of drug development, there is no evidence of an association between research and development costs and prices,” the researchers from Brigham and Women’s Hospital in Boston found. “Rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.”

Here’s what the authors singled out as the main drivers that’s led to the US having such high drug prices compared to other countries around the world. 

1. New drugs get an exclusive, for better or worse.

The US is one of the countries that spends the most when it comes to researching and developing new treatments. As such, companies that first develop a drug are able to have an exclusive on it for a set amount of time before they face competition from cheaper versions. That means they’re able to set their own prices (which can often be high to begin with), or they can increase the price in the years leading up to when they expect to lose a lot of money to competition. 

Some drug companies also do everything they can to fend off generic competition, by adding other patents, or making sometimes incremental changes to the drug or device so that they can retain exclusive rights even after the original patent expires. That’s where you start to see problems, Ameet Sarpatwari, an epidemiologist at Brigham and Women’s Hospital and one of the study’s authors told Business Insider. 

“The real question is, do those improvements do what they actually offer; are they really innovative?” he said.

2. The US has no power to negotiate.

Unlike other governments, the US doesn’t have much of a hand in how drug prices are set, especially when they’re under that market exclusivity, which essentially leaves the US “handcuffed,” Sarpatwari said. 

The US government is actually prohibited by law from negotiating drug prices with pharmaceutical companies, “based in part on considerable lobbying and arguments that government negotiating power could decrease revenues for the pharmaceutical industry,” the authors wrote. “This made prescription drugs under Part D one of the few aspects of health care for which Centres for Medicare & Medicaid Services does not negotiate or set prices.”

That’s not the case in other countries, where governments evaluate the cost-effectiveness of drugs and set maximum prices.

3. Bringing in generic competition can be a challenge.

One of the reasons why people are aggravated by the EpiPen’s high costs are that there aren’t many alternatives available. One of EpiPen’s competitors, called Auvi-Q, has been recalled since last October. The other, called Adrenaclick, is a little different to use (it uses two caps instead of one, for example) and costs more than $400 without insurance, according to GoodRx (though significantly cheaper options may be available with coupons).

And generic versions of the EpiPen have not yet been approved by the Food and Drug Administration; two have received “complete response letters” in the past year, meaning the FDA still has some questions that need to be addressed before they can approve the drug.

In other cases, however, the reason branded drugs aren’t facing competition is that generic alternatives are stuck in a backlog. In the report, Sarpatwari and his fellow authors noted that a way to fix this could be to import drugs from other countries with standards similar to the FDA’s, to keep price gouging from happening. 

“It’s not sufficient to say the problem will go away once generics come in,” Sarpatwari said. “What the evidence shows is that you need to make sure that there [are] a healthy number of competitors.”

4. There’s not much research that stacks competing drugs against one another.

For doctors looking to prescribe a certain drug, there’s typically a wealth of information they can find for individual drugs, but less information that compares one drug to a competitor. 

“There’s asymmetry on the information that’s available,” Sarpatwari said. In response, the report suggested that more research go into looking at how drugs stack up to one another, so that doctors could get a clear picture of whether they’d have to prescribe the costly branded version, or the less expensive generic or competing branded drug that’s a fraction of the cost. 

“We need to do a better job conducting comparative cost research,” Sarpatwari said. 

So why don’t drug companies lower their prices?

Despite all the public outcry over certain drugs with high prices, none of those drugs have come down on their list price, instead choosing to offer a variety of discounts. So why not lower the list price, even a bit, to get the public off your back?

“The answer is, you don’t want to be the first one who caves,” Sarpatwari said. “They’re worried that it will start a chain effect.”

And, really, they don’t have to do it, he said. “That’s the disturbing part of all of this.”

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