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Science Explains Why Prescription Drugs Cost So Much in America

And what we can do about it.

By Francie Diep


(Photo: Joe Raedle/Getty Images)

Why do prescription drugs cost so much in the United States? A decade of science offers some answers.

The major drivers for America’s drug prices are the extended patent protection companies get for new medicines and the lack of price negotiation by insurance companies, including public programs such as Medicare, according to a new paper. The paper reviews previously published studies, dating back to 2005, about drug costs in the U.S.

Drug prices’ defenders often say that companies need to charge a lot to recoup the costs of researching and developing innovative medicines. But the new paper argues that’s not true. Any given drug’s price tag isn’t related to the amount of time or effort it took to be invented. Rather, prices are determined solely by what insurance companies and patients are willing to pay. After all, the prices of some generic and older drugs have been rising in recent years, even though generics cost relatively little to create and the costs of decades-old treatments were paid for long ago. The drug over which Martin Shkreli gained infamy for raising prices by 5,000 percent, for example, was invented 60 years ago.

Studies show that when people with chronic illnesses are prescribed pricier drugs, they’re less likely to take all their medicines.

Americans spend more per capita on prescription medications than the residents of any other country. In 2013, the average American spent $858 on prescription drugs; citizens of 19 other industrialized nations spent an average of $400, the new paper finds. This isn’t just bad for Americans’ pocketbooks. It can hurt their health. Studies show that when people with chronic illnesses are prescribed pricier drugs, they’re less likely to take all their medicines, and are worse off for it. Meanwhile, these costs are on an upward track. America’s drug prices reached record highs in 2014 and 2015, according to a report by the health data company IMS Health. IMS expects the U.S.’s spending on drugs to grow by another 22 percent by 2020.

The authors of the new paper, a team of researchers who study pharmaceutical regulation at Harvard Medical School, offered ideas for managing prices based on their research. The government could give Medicare more power to negotiate — a solution Barack Obama proposed when he was running for office in 2008. States can pass laws to make it easier for pharmacists to swap generic drugs in for brand-name prescriptions, or even to require such substitutions. Many drugs were initially discovered in universities, using National Institutes of Health funding; government programs such as Medicare and the Veterans Administration could demand that they get those royalty-free.