Awhile back I visited the dermatologist due to a sore spot that would not heal. The doctor put the probability at fifty-fifty for a mild skin cancer diagnosis and conducted the necessary lab work to confirm his suspicion. Then he prescribed a medication that helps the body naturally produce interferon, which would have heightened my own body’s defense systems.
When I went to the pharmacy for the medicine, out of curiosity I asked the pharmacist what the drug cost. He said five dollars. (At that time, my health insurance plan—which no longer exists—had a five dollar co-pay). I replied, “No, what does the drug really cost?” He said let me check and came back with the answer of $500. Given the dramatic difference, I told him that perhaps it would be a good idea to just wait until the final lab results came back. Sure enough, the tests confirmed that the sore area on my skin was benign. Taking the prescribed medication would have meant $500 down the drain.
The misallocation of resources in healthcare is a problem that wastes as much as $124 billion per year. While drugs are a component of that problem, the latest surge in drug prices has highlighted the need for better understanding of the complex and mysterious way drug pricing occurs. Take the latest news about the EpiPen. For persons with severe allergic reactions, the self-administered shot can prevent anaphylactic shock. Over the past several years, EpiPen units have increased from $100 to around $600. The reason: EpiPen's patent, which prevents generic competition, is about to expire. In order to maximize revenue before losing their monopoly-like market, the company raised prices.
Part of the blame for rising prices falls on a subset of unscrupulous drug companies, but there are multiple other factors, including high demand, government-funded benefits, cost shifting, monopoly status, and protected markets. Regarding demand, in America our spending per person on prescription drugs is twice as high as other industrialized countries.
So what should be done? The Journal of the American Medical Association recently produced an extensive report highlighting what is driving prices and potential short term strategies including “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.”*
It should be noted that the American pharmaceutical industry is the most innovative in the world. New drugs for cancer, including targeted treatments and immunotherapy, as well as revolutionary treatments for hepatitis C offer incredible advancement of late. Research and development is expensive but pays a dividend in new life saving products while building knowledge among young scientists who might one day cure diseases like Alzheimer’s and diabetes.
In the mysterious world of drug pricing, things aren’t always as they appear. In an action of good corporate citizenship, one drug company recently announced that it would not raise prices prior to the expiration of its patent. Soon the EpiPen will be generically available and the price will drop. The complexity of pricing and the importance of biopharmaceutical innovation require that any corrective action must balance innovation, pricing, and affordability, —helping us all avoid the anaphylactic shock of rising prices.
*Aaron S. Kesselheim, MD, JD, MPH; Jerry Avorn, MD; Ameet Sarpatwari, JD, PhDT; The High Cost of Prescription Drugs in the United States Origins and Prospects for Reform; Journal of American Medical Association. 2016;316(8):858