High Cost Of Prescription Drugs In The United States Article Summary

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Clinical Review & Education JAMA | Special Communication The High Cost of Prescription Drugs in the United States Origins and Prospects for Reform Aaron S. Kesselheim, MD, JD, MPH; Jerry Avorn, MD; Ameet Sarpatwari, JD, PhD IMPORTANCE The increasing cost of prescription drugs in the United States has become a source of concern for patients, prescribers, payers, and policy makers. OBJECTIVES To review the origins and effects of high drug prices in the US market and to Author Video Interview and Author Audio Interview and JAMA Report Video CME Quiz at jamanetworkcme.com consider policy options that could contain the cost of prescription drugs. EVIDENCE We reviewed the peer-reviewed medical and health policy literature from January 2005 to July 2016 for articles addressing the sources of drug prices in the United States, the justifications and consequences of high prices, and possible solutions. FINDINGS Per capita prescription drug spending in the United States exceeds that in all other countries, largely driven by brand-name drug prices that have been increasing in recent years at rates far beyond the consumer price index. In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 other industrialized nations. In the United States, prescription medications now comprise an estimated 17% of overall personal health care services. The most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents. The availability of generic drugs after this exclusivity period is the main means of reducing prices in the United States, but access to them may be delayed by numerous business and legal strategies. The primary counterweight against excessive pricing during market exclusivity is the negotiating power of the payer, which is currently constrained by several factors, including the requirement that most government drug payment plans cover nearly all products. Another key contributor to drug spending is physician prescribing choices when comparable alternatives are available at different costs. 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; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear. CONCLUSIONS AND RELEVANCE High drug prices are the result of the approach the United States has taken to granting government-protected monopolies to drug manufacturers, combined with coverage requirements imposed on government-funded drug benefits. The most realistic short-term strategies to address high prices include enforcing more stringent requirements for the award and extension of exclusivity rights; enhancing competition by ensuring timely generic drug availability; providing greater opportunities for meaningful price negotiation by governmental payers; generating more evidence about comparative cost-effectiveness of therapeutic alternatives; and more effectively educating patients, prescribers, payers, and policy makers about these choices. JAMA. 2016;316(8):858-871. doi:10.1001/jama.2016.11237 858 Author Affiliations: Program On Regulation, Therapeutics, And Law (PORTAL), Division of Pharmacoepidemiology and Pharmacoeconomics, Department of Medicine, Brigham and Women’s Hospital and Harvard Medical School, Boston, Massachusetts. Corresponding Author: Aaron S. Kesselheim, MD, JD, MPH, Program On Regulation, Therapeutics, And Law (PORTAL), Division of Pharmacoepidemiology and Pharmacoeconomics, Department of Medicine, Brigham and Women’s Hospital and Harvard Medical School, 1620 Tremont St, Ste 3030, Boston, MA 02120 (akesselheim @partners.org). (Reprinted) jama.com Copyright 2016 American Medical Association. All rights reserved. Downloaded From: http://jamanetwork.com/pdfaccess.ashx?url=/data/journals/jama/935665/ by a University of California - San Diego User on 04/04/2017 The High Cost of Prescription Drugs in the United States Special Communication Clinical Review & Education T he increasing cost of prescription drugs in the United States has become a source of growing concern for patients, prescribers, payers, and policy makers. After relatively modest growth after the expiration of patents on many widely used medications from 2010 to 2012, medication expenditures have begun to increase again, punctuated by several high-profile examples of very costly new agents and sharp increases in the prices of some older ones.1 Between 2013 and 2015, net spending on prescription drugs increased approximately 20% in the United States,2 outpacing a forecast 11% increase in aggregate health care expenditures.3 Prescription medications now comprise an estimated 17% of total health care costs,4 and prescription medication coverage constitutes 19% of employer-based insurance benefits.5 Since the advent of the Medicare drug benefit in 2006, government entities have paid for approximately 40% of the nation’s total retail prescription drug expenditure.6 Certain expensive drug products are important clinical breakthroughs and may even be relatively cost-effective; others are merely costly, with prices that are difficult to justify in relation to their actual contributions to patient outcomes. The United States has long spent more on prescription medications than other countries.7 In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 advanced industrialized nations (Figure 1).8 List prices for the top 20 highest-revenue-grossing drugs were on average 3 times greater in the United States than the United Kingdom.9 These disparities are reduced but remain substantial even after accounting for undisclosed discounts (“rebates”) that manufacturers offer to US payers. In 2010, estimated average postrebate prices for medications were 10% to 15% higher in the United States than in Canada, France, and Germany (Table 1).11 In addition to their contribution to health care spending, increasing drug costs have important clinical implications. Because cost-containment efforts require patients to pay higher copayments for their medications, such increases can reduce the affordability of prescribed regimens and thus patient adherence, leading to negative health outcomes.12 However, some costly drugs may offer reasonable value. For example, sofosbuvir (Sovaldi) was found to be a cost-effective treatment of hepatitis C infection even at its 2013 launch price of $84 000 per 12-week course in certain patient populations when viewed from a patient’s lifetime horizon and a societal perspective.13 Payers must pay for this treatment upfront, though, with health care benefits often accruing decades later to a different payer. In 2014, state Medicaid programs spent an estimated $1.1 billion (after discounts) on sofosbuvir,14 usually with no additions to their budgets. It is therefore important to understand what factors have contributed to recent medication price increases to lay the foundation for considering options to ensure that prescription drug expenditures are commensurate with their value, affordable within health budgets, and equitable for all parties involved in these complex transactions. We examined the origins and effect of drug prices in the US market and considered available policy options related to these payments. To do so, we reviewed literature published in peerreviewed medical and health policy journals from January 2005 to July 2016, searching for rigorous empirical articles addressing the Figure 1. Per Capita Spending on Prescription Pharmaceuticals United States Canada Japan Germany Switzerland Belgium France Austria Australia Finland Slovenia Luxembourg Spain Korea Sweden Iceland Czech Republic Estonia Denmark Poland 0 100 200 300 400 500 600 700 800 900 1000 Expenditures on Prescription Drugs, US $ Data are derived from the Organisation for Economic Cooperation and Development (OECD), reflect expenditures in 2013 (or the nearest year), and include all countries for which values were reported. Data used with permission from OECD, Health at a Glance 2015: OECD Indicators, 2015.8 Table 1. Examples of Country-Specific Average Drug Prices for Top-Selling Drugs in 2015 Monthly Price, US $ Drug Adalimumab (Humira), 40 mg biweekly United States Estimated NondisDiscounted counted Price Price 3430.82 2504.50 Canada 1164.32 France 981.79 Germany 1749.26 Fluticasone/salmeterol (Advair), 250 μg, 50 μg daily Insulin glargine (Lantus), 50 insulin units daily Rosuvastatin (Crestor), 10 mg daily 309.60 154.80 74.12 34.52 37.71 372.75 186.38 67.00 46.60 60.90 216.00 86.40 32.10 19.80 40.50 Sitagliptin (Januvia), 100 mg daily 330.60 168.61 68.10 35.40 39.00 Sofosbuvir (Sovaldi), 400 mg daily 30 000.00 17 700.00 14 943.30 16 088.40 17 093.70 5593.47 4754.45 2527.97 3185.87 Trastuzumab (Herceptin), 450 mg every 3 wk jama.com Source: Bloomberg Business report and SSR Health.10 (Reprinted) JAMA August 23/30, 2016 Volume 316, Number 8 Copyright 2016 American Medical Association. All rights reserved. Downloaded From: http://jamanetwork.com/pdfaccess.ashx?url=/data/journals/jama/935665/ by a University of California - San Diego User on 04/04/2017 859 Clinical Review & Education Special Communication The High Cost of Prescription Drugs in the United States determinants of drug prices in the United States, the justifications and consequences of these prices, and possible policy options. Brand-Name vs Generic Drugs The primary reason for increasing drug spending is the high price of branded products protected by market exclusivity provisions granted by the US Patent and Trademark Office and the Food and Drug Administration (FDA) (Table 2). Although brand-name drugs comprise only 10% of all dispensed prescriptions in the United States, they account for 72% of drug spending.15 Between 2008 and 2015, prices for the most commonly used brand-name drugs increased 164%, far in excess of the consumer price index (12%).16,17 The annual cost of a growing number of “specialty drugs”—high-cost, often injectable biologic medications such as eculizumab (Soliris), pralatrexate (Folotyn), and elosulfase alfa (Vimizim)—exceeds $250 000 per patient. Such high prices have historically been limited to brand-name drugs that treat rare conditions. For example, the price of alglucerase (Cerezyme), a treatment for Gaucher disease, was $150 000 per patient per year when the drug was launched in 1991 (it is now $300 000)18,19; the price of ivacaftor (Kalydeco), indicated for a small subset of patients with cystic fibrosis, is likewise currently approximately $300 000 per patient per year. Both drugs are generally received for life. However, drugs that treat conditions affecting milTable 2. Key Terminology and Examples of Therapeutic Products Term Definition Examples Brand-name drug A medication usually sold by the original sponsor of the application for regulatory approval Nexium, Crestor, Prilosec Generic drug A version of a brand-name small-molecule drug manufactured by a different supplier. Generic drugs can be certified as bioequivalent by the FDA and substituted for brand-name drugs by a pharmacist. Omeprazole, simvastatin Biologic drug An often protein-based therapeutic product that is distinguished by its molecular complexity Filgrastim, epoetin alfa Specialty drug A drug designated by a payer for special attention, often because of its high price, but also potentially because of the need for distinctive handling or particular patient monitoring Sovaldi, Praluent, Soliris Abbreviation: FDA, Food and Drug Administration. lions of individuals in the United States also now have high costs. For example, many new oncology drugs enter the market at a price exceeding $100 000 per course of therapy.20 Even the average price of insulin has increased 300% from 2002 to 2013.21 Although brand-name drugs account for the greatest increase in prescription drug expenditures, another area that has captured the attention of the public and of policy makers has been the sharp increase in the costs of some older generic drugs. In 2015, Turing Pharmaceuticals raised the price of pyrimethamine (Daraprim), a 63-year-old treatment for toxoplasmosis, by 5500%, from $13.50 to $750 a pill.22 The company was able to set the high price despite the absence of any patent protection because no other competing manufacturer was licensed to market the drug in the United States. Significant increases in the prices of other older drugs include isoproterenol (2500%), nitroprusside (1700%), and digoxin (637%). Even though the prices of most generic drug products have remained stable between 2008 and 2015, those of almost 400 (approximately 2% of the sample investigated) increased by more than 1000%.23 Sources of High Drug Prices in the United States Drug prices are higher in the United States than in the rest of the industrialized world because, unlike that in nearly every other advanced nation, the US health care system allows manufacturers to set their own price for a given product.11 In contrast, in countries with national health insurance systems, a delegated body negotiates drug prices or rejects coverage of products if the price demanded by the manufacturer is excessive in light of the benefit provided (Table 3); manufacturers may then decide to offer the drug at a lower price.24 In England and Wales, for example, the National Institute for Health and Care Excellence considers whether a new drug passes a costutility threshold—usually between £20 000 and £30 000 ($25 000$40 000) per quality-adjusted life-year added—before recommending it for coverage by the National Health Service.25 Although prices can vary widely around the world26 and have also increased faster than member states’ gross domestic products in recent years in Europe,27 US drug prices per capita still substantially outpace those in other settings.10 Drug companies’ ability to maintain high prices in the United States is based on 2 market forces: protection from competition and negotiating power. Table 3. Approaches to Drug Pricing in Selected Countries Australia 860 Germany United Kingdom National organization Pharmaceutical Benefits Advisory Committee Patented Medicines Prices Review Board Canada Canadian Agency for Drugs and Technology in Healthcare Federal Joint Committee or Institute for Quality and Efficiency in Healthcare National Institute for Health and Clinical Excellence Remit Public payers All payers Public payers except in Quebec (noncancer drugs) All insurers National Health Service Review criteria Comparative effectiveness, safety, and cost-effectiveness; projected usage and overall costs to the health care system Therapeutic innovation; comparative pricing with respect to France, Germany, Italy, Sweden, United Kingdom, and United States Comparative effectiveness, safety, and cost-effectiveness; patient experiences Comparative benefit Clinical effectiveness and cost-effectiveness Decision Coverage (yes, no, limited) Price reductions or rebates Coverage Price setting after first year on the market Coverage Binding Yes No Yes Yes Yes JAMA August 23/30, 2016 Volume 316, Number 8 (Reprinted) jama.com Copyright 2016 American Medical Association. All rights reserved. Downloaded From: http://jamanetwork.com/pdfaccess.ashx?url=/data/journals/jama/935665/ by a University of California - San Diego User on 04/04/2017 The High Cost of Prescription Drugs in the United States Competition in the Pharmaceutical Marketplace The most important factor that allows manufacturers to set high drug prices for brand-name drugs is market exclusivity,28 which arises from 2 forms of legal protection against competition. Together, these factors generate government-granted monopoly rights for a defined period. Initial regulatory exclusivity is awarded at FDA approval. New small-molecule drug products automatically earn a guaranteed period of 5 to 7 years before a generic competitor can be sold,29 and new biologic drugs are protected from competition for 12 years.30 The second type of market protection is patent-related exclusivity because manufacturers can receive patents lasting 20 years or more for their inventions.31 The US Patent and Trademark Office issues this intellectual property right—originally written into the US Constitution to encourage innovation—for inventions that are “novel,” “useful,” and “non-obvious.”32 Although regulatory exclusivities often set a lower-bound duration for market exclusivity, the actual length of such exclusivity is most commonly dictated by patent time. Because initial patents protecting the active ingredient are usually obtained when a drug is first synthesized, and the clinical trial and FDA review process usually takes on average 6 to 8 years, only half of the patent period may be left by the drug approval date.33 However, a company can apply to have this period extended by up to 5 years to account for the time spent during regulatory review and half the time in clinical trials (“patent term restoration”), to a maximum of 14 years.34 In addition, sponsors can also earn 6 more months of market exclusivity by testing their products in children,35 an incentive earned by more than 200 drugs since legislation created the pediatric exclusivity program in 1997.36 Overall, the median length of postapproval market exclusivity is 12.5 years for widely used drugs (interquartile range, 8.514.8 years) and 14.5 years for highly innovative, first-in-class drugs (interquartile range, 13.3-15.8 years).37,38 During that exclusivity period, the availability of treatment alternatives might be expected to exert pressure to reduce the price of a drug.39 For example, approximately a year after Gilead introduced sofosbuvir, AbbVie received approval for a 4-drug, directacting, antiviral regimen that achieved similar clinical response rates against the hepatitis C virus, leading some payers to negotiate sofosbuvir discounts of more than 40%.40 In practice, however, competition between 2 or more brandname manufacturers selling drugs in the same class does not usually result in substantial price reductions.41 For example, of the 8 cholesterol-lowering statins that the FDA has approved, 2 have until recently remained patented: rosuvastatin (Crestor) and pitavastatin (Livalo). Despite the similar performance of these drugs in decreasing low-density lipoprotein cholesterol to other off-patent statins, 42 the price of rosuvastatin increased 91% between 2007 and 2012, from $112 to $214 per prescription.43 During the same time, the price of the comparably effective atorvastatin decreased from $127 to $26 per prescription owing to the expiration of its patent protection in 2011.44 Similar effects have been observed for other drug classes.45 One factor that undermines competition among treatment alternatives is the separate roles of patients, prescribers, and payers: physicians write prescriptions, pharmacists sell medications, and patients or their insurers pay for them.46 This separation has traditionally insulated physicians from knowing about drug prices or considering those prices in their clinical decision making47 and can similarly jama.com Special Communication Clinical Review & Education remove many patients with good drug coverage from considering the price of the medications they “purchase.” The only form of competition that consistently and substantially decreases prescription drug prices occurs with the availability of generic drugs, which emerge after the monopoly period ends. With FDA approval, these products can be substituted for bioequivalent brand-name drugs by the pharmacist under state ...
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eetorres
School: Rice University

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The High Cost of Prescription Drugs in the United States: A Summary
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In their article, “The High Cost of Prescription Drugs in the United States”, published in
2016, the authors present a comprehensive review of the unusually elevated prices of prescription
medication in the United States. Aided by the preexisting literature about this phenomenon,
Kesslheim, et al., explain the various factors that contribute to these high prices – from patents to
bureaucratic roadblocks – and the negative health consequences that they can yield. Then, they
provide a list of potential solutions to this ongoing problem. First, though, they introduce...

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